As the House Financial Services Committee today considers the industry-backed Bean (D-IL) amendment to roll back proposed legislation, the Consumer Financial Protection Agency Act, that would reinstate federal bank laws as a floor not ceiling of protection, a new study documents that nationally-regulated banks were -- despite their claims to the contrary -- at the center of the system that failed and that any claimed increased cost of multiple state laws is small. The new report released by the Center for Community Capital at the University of North Carolina documents the link between Federal preemption of state anti-predatory lending laws and the risky subprime mortgages that collapsed, triggering the foreclosure crisis. It also finds that national banks showed a marked increase in subprime lending following federal preemption which took full effect after 2004 actions of the federal Office of the Comptroller of the Currency (OCC). (Our archival OCCWatch pages.)

The Sunlight Foundation has ranked FIRE (Finance, Insurance and Real Estate) campaign donations to members of the House Financial Services Committee. Leader of the "PAC" is Rep. Melissa Bean (D-IL), with $269,800 of FIRE donations in 2009 out of a total of $634,535. Bean is expected to offer the worst gutting amendment to the Consumer Financial Protection Agency Act. The Bean amendment - as it is widely understood although not yet circulated - would eviscerate the bill's reinstatement of the longstanding policy that federal law serve as a floor but state laws could go higher. Under Bean, we would roll back to the recent system of federal preemption of stronger state consumer laws. Somnolent federal regulators that ignored, or aided and abetted, the growth of unfair and abusive practices leading to the crisis, would stay in charge, if you call it that. As I told the AP a few days ago: "That's the system we have now. That's the system that failed." The picture above links to the full picture at Sunlight.

We were among reform advocates who joined President Obama and several victims of financial chicanery at the White House Friday for an event urging swift passage of the Consumer Financial Protection Agency Act. President Obama singled out the U.S. Chamber of Commerce for special scorn in a strongly worded speech (video and full transcript and also, a new White House reform page). Excerpt:

"In a financial system that's never been more complicated, it has never been more important to have a watchdog function like the one we've proposed. And yet, predictably, a lot of the banks and big financial firms don't like the idea of a consumer agency very much. In fact, the U.S. Chamber of Commerce is spending millions on an ad campaign to kill it. You might have seen some of these ads -- the ones that claim that local butchers and other small businesses somehow will be harmed by this agency. This is, of course, completely false --..."

We testify Thursday morning (testimony is here for me and some witnesses) before the House Financial Services Committee at a 10 am hearing on two credit card reform bills. My testimony is primarily in support of interchange fee reform, H.R. 2382, the Credit Card Interchange Fees Act of 2009 (Peter Welch-D-VT). We also strongly support H.R. 3639, the Expedited CARD Reform for Consumers Act of 2009, to accelerate the implementation of the CARD Act from various times next year to December 1st this year, because the banks have been behaving badly since it was passed in May.

For every $100 spent on a credit or debit card, the Visa and Mastercard networks grab an average of $2, sometimes $3. Merchants have no ability to negotiate nor are these interchange fees or the fee rules governing them transparent. The merchants say that the card networks also restrict their ability to offer consumers lower-cost choices. All consumers pay more at the store and more at the pump, even if they are cash customers, due to these anti-competitive fees. The bi-partisan Welch (D-VT)-Shuster (R-PA) proposal addresses the worst practices of the industry. My testimony.

Great editorial How the banking lobby tries to undermine loan reform supporting the proposed Consumer Financial Protection Agency in Wednesday's USA Today. Excerpt: "One thing the industry doesn't have going for it are the facts." The proposed CFPA is a priority consumer reform for U.S. PIRG and other leading civil rights, labor, consumer and community organizations allied together as Americans for Financial Reform. A vote is expected next week in House Financial Services. Among the key issues: Whether we reinstate the states as laboratories of democracy and put state attorneys general back onto the corporate crime beat, or whether the banks and U.S. Chamber of Commerce succeed in gutting the bill's critical provision re-establishing federal laws as a floor not a ceiling of protection.

From a news release hot off the presses of the Consumer Federation of America:

Announced changes to overdraft programs at the nation’s largest banks will not protect American consumers from exorbitantly expensive short-term loans or extend federal consumer protections to the most expensive loans banks make. “None of the largest banks reduced their overdraft fees, which average $35 per overdraft, or dropped sustained overdraft fees tacked on if consumers cannot repay in just days,” noted Jean Ann Fox, director of financial services for Consumer Federation of America.

Over at The Nation, publisher Katrina vanden Heuvel has posted an editorial The Fight For Financial Reforms promoting the Consumer Financial Protection Agency and other reforms. Also, Nation reporter Greg Kaufmann has a review of last week's CFPA hearing, called Do They Take Us for Schmucks? Meanwhile colleague Susan Weinstock of the Consumer Federation of America has a pro-CFPA op-ed in the Capitol Hill tabloid Roll Call: Public Demands Disclosure. But Roll Call also finds space for special-interest lobbyist Mike Oxley, former chair of the Financial Services Committee, to oppose the CFPA and a variety of other reforms. Most non-industry lobbyists would agree with me that Oxley actually opposed the core reforms in the most famous bill that bears his name, the Sarbanes-Oxley Corporate Reform Act, passed in the wake of the Enron debacle. Once former telecom giant WorldCom joined Enron on the breadline, however, both Oxley and former President Bush had no choice but to embrace it and seek its passage. Let's hope we don't have to have another economic collapse to get Oxley and others to recognize that yes, our financial system did collapse last year and, yes, the banks and the regulators both deserve blame (it wasn't some other guy) and that we need real reform. Instead, we have every K St lobbyist in town, from Oxley on down, looking for a contract to convince Congress that, no, the entire economy didn't collapse last year and even if they remember that it did, it certainly wasn't the banks' fault and let's not over-reach on the reforms. Only in Washington.

If you work on financial reform, you had a busy week-- keeping up was like drinking from a fire hose.

More stuff after the jump.

Excerpts from book on the Fed online: HuffPo has posted some long excerpts from Professor Robert Auerbach's book Deception and Abuse at the Fed: Henry B. Gonzalez Battles Alan Greenspan's Bank, online. Here's When 500 Economists Aren't Enough and here's Priceless: How The Federal Reserve Bought The Economics Profession. Auerbach was chief economist and an investigator for Gonzalez, the late populist chair of the former House Banking Committee, in the 1990s.

New Golden Throne award to bank lobbyist: The Center for Media and Democracy (PRWatch) has awarded its first Golden Throne Award to Ed Yingling, chief American Bankers Association lobbyist. "The award invokes fond memories of the $1.2 million bathroom renovation ordered by Merrill's CEO, John Thain, shortly before the firm lost $27 billion and collapsed into the arms of Bank of America (BofA)." CMD says:

"From his days as a cub lobbyist fighting to rid the nation of caps on interest rates, Glass-Steagall and other proven consumer protections to his recent yeoman's effort to keep bank fees unregulated and kill off the Consumer Financial Protection Agency, Edward Yingling has consistently been a true advocate for the American Bankster."

I am joining several experts on a panel at a free public event (RSVP requested) Friday morning at the New America Foundation. It's called Shining a Light on “Shadow” Banking:

As Congress reconvenes and the effort to overhaul the financial regulatory system resumes, how do the financial services needs of underbanked consumers fit into the broader policy discussion?

We've joined Consumers Union and the National Consumer Law Center in a letter urging Chase to reconsider its punitive practice of more than doubling credit card minimum payments of some customers who borrowed money in good faith on their credit cards, and now have had the rules changed in the middle of the game. Consumers Union attorney Lauren Bowne's blog entry is here.

Our allies at the Consumer Federation of America have released a survey (PDF) finding that the public strongly supports the proposed Consumer Financial Protection Agency. More after the jump:

A year after the Lehman Brothers bankruptcy froze credit markets and sent the stock market into a nosedive, consumers overwhelmingly want government action to increase consumer protections for financial products and services, according to a new national poll released today by the Consumer Federation of America (CFA). In a country where skepticism about the role of government is high, more than half of those polled (57 percent) support the creation of a new federal agency to protect consumers who purchase banking and other financial products and services. Those most adversely affected by many unfair and deceptive financial practices -- young adults under 35 years (70 percent), African-Americans (79 percent), Hispanic-Americans (70 percent), and low-income persons (69 percent) -- expressed the strongest support for a new consumer protection agency.

Senator Ted Kennedy will be deservedly remembered for all the important legislation he shepherded through the Congress to help the least among us, and to help all of us against powerful interests, as well as for the passionate way he went about this work. At PIRG, we were fortunate to work with him on numerous victorious campaigns, including the recent improvements to student loan laws. I will always remember the privilege of working with him on an important, but losing, campaign against the draconian bankruptcy bill. As I blogged last year when the Senator's illness was first disclosed, he'd taken over the fight after the tragic death of Senator Paul Wellstone. Here's more on the relationship of that fight to the current fight for health care reform:

In the final bankruptcy battle on the Senate floor in 2005, Senator Kennedy unsuccessfully offered two important amendments to provide protection to families whose bankruptcies were brought on by illness exacerbated by crushing medical debt. You can read some of his powerful arguments starting on this pdf Congressional Record page and clicking "next page." Excerpt:

[Senator Kennedy on the floor:] The proponents of the bankruptcy bill have said the goal of the bill is to force those individuals who run up bills irresponsibly to take greater personal responsibility. [...] Nothing could be further from the truth for the thousands of individuals who are forced into bankruptcy to deal with the debt they were forced to take on to cope with serious medical expenses and the loss of income when they are unable to work due to serious illness or injury.

We had testimony from Professor Elizabeth Warren of the Harvard Law School last week making clear that more than half of those filings for bankruptcy have been forced to do so at least in part due to medical problems and their aftermath. [...] Those who go to bankruptcy court because of cancer or diabetes and heart attacks have not been irresponsible. Those who file for bankruptcy to deal with medical debts incurred when a child was born early with severe complications or an elderly parent needing costly prescription drugs or placement in a nursing home are not irresponsible. [...] We see health care coverage lost for these families who have paid in for 20 or 30 years. WorldCom closed down, Polaroid closed down, Enron closed down, their health benefits are cut off, they get cancer, the bills run up, and what does this bill do? It puts them into indentured servitude to the credit card companies. We call that fairness? That may be the priority of some in this body, but it is not mine. Who do we in this body represent?[...] That is what we are about in the Senate? We have the problems of unemployment, the escalating costs of prescription drugs, 8 million of our fellow citizens unemployed, school tuition going through the roof, and we are talking about an additional $5 billion for the most profitable industry in America. Hello. Hello. That is what we are debating here. It is extraordinary. [...] I am tired, when one person tries to extend the same kind of health care we [in Congress] have to people out there, of people on the other side who say: Well, we are not going to support you. The problem is the health care problem, and we ought to deal with that. This is a bankruptcy issue. Come on. Come on. They oppose us when we try to pass health care legislation, and then they oppose us when we try to deal with the health care problems that are going to be impacted by the bankruptcy bill. It does not work that way.

Following up on recent reports that bank fee income is being led by a whopping $38 billion in overdraft fees, in an editorial today called the Debit Card Trap the New York Times backs urgent calls for reform of bank practices associated with fee-laden debit cards.

According to a 2008 study by the F.D.I.C., overdraft fees for debit cards can carry an annualized interest rate that exceeds 3,500 percent. The banks, which have grown addicted to overdraft fees, will almost certainly resist new regulation in this area. But there are several things that federal regulators must do to protect the public. First, banks must be barred from automatically enrolling customers in overdraft programs. This must be a service that customers opt in to — and only after they are provided full information about the fees and the penalties they will incur. These disclosure statements must meet the same rules laid out in truth-in-lending laws, since overdraft charges are essentially short-term loans.

Michelle Jun of Consumers Union, publisher of Consumer Reports, has a new report with assistance from Consumer Federation of America and National Consumer Law Center. The report, Prepaid Cards: Second-Tier Bank Account Substitutes, analyzes how the growing use of prepaid debit cards (also including gift cards, payroll cards, rebate cards, government benefit cards and others) as bank account substitutes is exposing consumers to massive fees and providing them with less consumer protection while establishing a second-tier financial system-- all the bad parts of the current system, with none of the benefits. The number of fees associated with these cards is astonishing; the complicity of government agencies in signing contractor-friendly agreements to deliver government benefits through cards that take money from the wallets of recipients is embarrassing; and the lack of policymaker attention to the issue makes it worse. Excerpt after the jump:

However, prepaid cards can be inferior to debit cards linked to traditional bank accounts in several ways: • Fees can be high, multiple, and confusing; • Not all prepaid cards provide adequate protection against theft of funds using the cards or card account numbers; • Promised credit lines or features to build a credit record may be expensive and overstated; and • Federal deposit account insurance applies differently and may be capped at less than the value of all of the prepaid cards issued by a particular card program.

Until these consumer problems are solved, consumers using prepaid cards may find themselves stuck in a second-tier and much less desirable banking system.

Kudos to consumer champion Hank Klein of Arkansans Against Abusive Payday Lending. In a press conference today, held with an assistant state attorney general and others, the group he founded and tirelessly volunteered with today declared that Payday lending is history in Arkansas.

First American, the final payday lender to cease operations in Arkansas, closed its last store on July 31. [...] The formal end of payday lending in Arkansas occurs nine months after the Arkansas Supreme Court ruled that a 1999 payday lending industry drafted law violated the Arkansas Constitution, and 17 months after Arkansas Attorney General Dustin McDaniel initiated a decisive crackdown on the industry.

A few days ago Adam Levitin blogged over at Credit Slips about a San Antonio Express News story that USAA Bank will allow customers to take pictures of checks and send them to the bank for deposit over their IPhones. The bank already allows this -- called Remote Deposit Capture (RDC) -- from home computers and scanners. From Adam's post, which has several interesting comments also:

RDC, combined with ATM fees waivers and e-banking (for transfers and payments) has the potential to make physical branch banking largely irrelevant. This won't happen immediately...and the fraud risk issues will have to be better addressed. ...But if the bank branch becomes an outdated and expensive method of deposit collection due to RDC, small banks with lower overhead and employee costs will have a leg up on the behemoths with thousands of branches.

Update from the Illinois AG's page: The Wells Fargo high cost lending complaint. High cost lending doc. Chart: High cost loans in Chicago area. Map (7 mB): High cost loans in Chicago locations.

Original post: If the national banks had nothing to do with the mortgage meltdown, as they and their regulator (OCC) apologists say, why has one of the nation's most respected state attorneys general, Lisa Madigan of Illinois, sued one of the biggest national banks, Wells Fargo? She charges that Wells and its various subsidiaries

"illegally discriminated against African American and Latino homeowners by selling them high-cost subprime mortgage loans while white borrowers with similar incomes received lower cost loans. “As a result of its discriminatory and illegal mortgage lending practices, Wells Fargo transformed our cities’ predominantly African-American and Latino neighborhoods into ground zero for subprime lending,” said Madigan."

Over at Business Week, check out Old Banks, New Lending Tricks:

...some of the world's biggest banks are peddling a new generation of dicey products to corporations, consumers, and investors.

"In the past two years lawmakers in 15 states have capped interest rates on short-term loans or kicked out payday lenders altogether. The state of Ohio, for example, has imposed a 28% interest rate limit. But ...nationally chartered banks don't have to follow local rules. ... Cleveland-based Fifth Third, which has 400 branches in [Ohio] ... introduced its Early Access Loan, with an annual interest rate of 120%. "These banks are skirting state laws," says Kathleen Day of advocacy group Center for Responsible Lending."

As she often does, Kathy Chu of USA Today has used facts to nail another major bank fee story. In Courtesy overdraft fees hit credit union customers, too she documents that the nation's biggest government-employee credit unions are gouging members (not customers, member-owners!) with costly overdraft fees. Some credit union spokespeople make some desperate quotes in the story, but you cannot defend "courtesy overdraft."

Credit unions are member-owned, but all too often follow the lead of the banks when it comes to opposing remedial legislation. On Capitol Hill, they are currently marching in lockstep with the banks in opposition to the Consumer Financial Protection Agency. Oh, their letters to the hill say they're for it, but go on to say "only under our own terms, of course" -- first exempt us, then gut the CFPA's powers and, finally preempt the states.

Chu does point out that some credit unions, such as massive Navy Federal, don't do it. But too many do. And while I will always tell consumers, "Bank at a credit union, not at a bank," what I told Kathy Chu about these government credit unions applies to a majority of credit unions--

"Government credit unions should serve as a model for what's right rather than a poster child for what's wrong."

Allies at the Center for Responsible Lending have a new website -- 400faces.org -- where victims of triple-digit payday loans can tell their stories.

In an effort to show the impact of predatory payday lending across the country and to bring public awareness to this issue, the Center for Responsible Lending has launched the 400 Faces of Payday Lending Campaign. Over the next few months, CRL will collect your stories and your pictures to show policymakers the negative effects of triple-digit interest rates and ask them to implement meaningful and effective solutions, such as a 36% APR cap on all consumer loans.

We testify today at a hearing of the House Financial Services Committee on the Obama financial regulatory reform plan (my own testimony). Yesterday, a phalanx of bank lobbyists testified as well. Apparently, there wasn't enough room at the table, because bank lawyer-lobbyist Ollie Ireland is joining consumer and community advocates as yet another industry witness today. While the hearings are on the full Obama plan -- safety and soundness, derivatives reform, the Fed, investor protection, etc. -- the banks have aimed the full might of their campaign-cash fueled lobby against the plan centerpiece: establishing a PIRG-backed Consumer Financial Protection Agency. Chairman Barney Frank (D-MA) has announced a committee vote on the agency for the end of the month. My colleague Travis Plunkett of the Consumer Federation of America, who joins me today as a witness, represented consumer groups and Americans for Financial Reform Tuesday at a Senate Banking Committee hearing on the consumer agency. The Washington Post on banker opposition at yesterday's House hearing, the Politico on the fight over reform and Bob Herbert's column Chutzpah on Steroids in the New York Times. Excerpt from Herbert:

What is up with the banks and the rest of the financial industry? The people running this system remind me of gangsters who manage to walk out of the courthouse with a suspended sentence and can’t wait to get back to their nefarious activities.[...]Now the industry is fighting against creation of an agency that would protect taxpayers and ordinary consumers from a similarly devastating onslaught in the future. And at the same time they are scrambling to raise credit card interest rates and all manner of exploitive fees to build a brand new superstructure of questionable profits on the backs of the taxpayers who came to their rescue.

UPDATE: Reuters on the launch.

As reported by the Associated Press and the LA Times, we will be participating in a campaign that SEIU is launching today to help whistle-blower workers protest their incentive-based participation in programs designed to put consumers into the worst accounts, extra accounts and over-priced loans and mortgages. From Daniel Wagner's AP story:

"One of the core parts of the economic collapse is a business model that encourages too much risk or short-term profit over long-term stability," said Stephen Lerner, who runs the financial reform project for the Service Employees International Union, which is coordinating the effort. Lerner said employees under pressure to sell high-fee products ended up targeting vulnerable populations, including students and the elderly.

Gabby Ornelas, a former teller at the giant Bank of America Corp., remembers the training sessions. And she remembers her marching orders: "Sell, sell, sell." Ornelas was instructed to use her Spanish language skills and Latina heritage to sign up customers for as many kinds of banking services as possible, she said -- services that led to lucrative fees for the bank and financial entanglement for many customers. [...] Ornelas and three other former BofA tellers, all Latina women, said they and their co-workers were repeatedly instructed to seek potential new Spanish-speaking customers outside the bank. Some were instructed to go to embassies where recent emigres often wait in queue for visa and passport services.

Although BofA denies wrongdoing, it recently paid $35 million to settle a class-action suit in California that alleged it deliberately ranked customer debits by order of size rather than by the time of day they occurred in order to maximize overdraft charges. [...] "Bank of America has moved to the top of the charts for fees being charged to consumers by big banks," said Jean Ann Fox, director of financial services for the Consumer Federation of America.

We expect to see legislative language from the Treasury Department implementing President Obama's proposal for a Consumer Financial Protection Agency (CFPA) sent to the hill, probably Monday. Following Wednesday's House Financial Services hearing on the proposed CFPA (watch video, download testimony), the fight is just getting started. Industry groups have staked out their position: they strongly oppose an agency to protect consumers. They like the current system. But that system failed, the last I checked. But the bankers like it because they dominate its captured regulators. As the American Bankers Association's Ed Yingling testified as he sat right next to me: "We believe that a separate consumer regulator should not be enacted…." Further, the U.S. Chamber of Commerce will oppose a standalone agency "that cannibalizes regulatory expertise, adding yet another regulatory layer." (AP) The Chamber has also launched a $100 million campaign against “mounting government regulations:” (National Journal). Even the Wall Street lobby group (Securities Industry and Financial Markets Association-SIFMA) whose members’ excesses and greed exacerbated the collapse has a new campaign on ‘Populist Overreaction’ (Bloomberg).

The New York Times, in its editorial today On the Road to Regulation, points out that a key test of the new CFPA legislation will be whether it gives consumers the right to enforce the banking laws, too.

"Lawmakers will also have to ensure that the administration’s very good idea (link to previous editorial) for a consumer financial-products safety commission translates into a truly robust agency. One sign that is happening would be for the law to include a right for consumers to sue firms that violate certain doctrines established by the new agency."

After the jump, I have a lot more commentary plus links to news stories on what will be a critical reform battle between the banking lobby that failed our economy and the people and groups trying to ensure that it won't happen again.

That Times editorial On the Road to Regulation goes on to critique other parts of the Obama reform proposal, including its failure to democratize the Fed. Our coalition, Americans for Financial Reform, has made similar critiques. We look forward to working with the White House and the Congress to broaden and strengthen the proposals. We expect that the financial industry, whose excesses and greed led to the world's biggest economic collapse since 1929, will use its network of political connections and continued massive campaign contributions to oppose sensible improvements to and even attempt to weaken the Obama plan. As we told Business Week for their aptly titled story this weekend Financial Regulation: Industry Objections Increasing--Obama's plan for financial reform has sparked a growing chorus of protest from banks, hedge funds, and other interests, part of the industry's strategy is to "blame it on the other guy—they're hoping to water down reform, deflect criticism of their industry." Another way to look at what they are doing is this: invoking the Bart Simpson (video) defense: "I didn't do it, no one saw me do it, there's no way you can prove anything! Of course, the banks did do it, everyone saw them do it, and we can prove it." But, on Capitol Hill, "blame the other guy" works well to confuse and delay needed reforms.

There is plenty of coverage of the fight over the CFPA. Kevin Hall for the McClatchey papers Debate joined over new Consumer Financial Protection Agency:

In sometimes-testy exchanges, [Professor Elizabeth] Warren fought off suggestions by several Republican lawmakers that a new entity isn't needed, just new powers for existing regulators. "Congressman, that sounds like a good plan but that's what we have been doing for the last 70 years, and it hasn't worked very well," Warren responded.

Financial services companies are coming up with cash nobody knew they had to fight the proposal, which would put hidden credit card fees on a par with faulty bike helmets and flammable pajamas.

Denial, noun: An unconscious defense mechanism characterized by refusal to acknowledge painful realities, thoughts or feelings. The banking industry wasted no time declaring its opposition to President Barack Obama's recent proposal for a regulatory agency that would protect consumers from rapacious lending practices.

U.S. banks are fighting the Obama administration plan to create a consumer agency for financial services as they seek to protect fees, such as credit-card penalties that have almost doubled to $19 billion in five years.

Rep. Scott Garrett (R-N.J.) called the proposal an example of an "Orwellian, heavy-handed, government-knows-best mentality," and [Rep. Jeb] Hensarling [R-TX] said the new regulators would rule as "un-elected philosopher kings" over the financial services industry. Edward L. Yingling, president of the American Bankers Assn., also opposed the plan.

The chairman of the House Financial Services Committee, Barney Frank, scoffed yesterday at assertions that a new consumer protection agency would morph into “some out-of-control entity. There is no pattern of overregulation I can see in the consumer area, and I don’t see one here,’’

“Wall Street’s largest trade group has started a campaign to counter the “populist” backlash against bankers, enlisting two former aides to Treasury Secretary Henry Paulson to spearhead the effort.”

The best part of the plan is the creation of a Consumer Financial Protection Agency that would limit or forbid many of the worst bank practices still allowed under law. That includes excessive and surprise overdraft fees and outrageous credit card interest rates.

Over the past decade, federal bank regulators looked the other way as responsible loans were crowded out of the market by aggressively marketed financial products carrying hidden costs and fees. Tricky products, whose most “innovative” feature was their ability to obscure their true cost, led a race to the bottom that stifled innovation of any benefit to consumers. The aggressive marketing of these products caused an enormous loss of wealth across the middle class and sparked the current economic crisis.

Bank of America this year raised the maximum number of times customers can get hit with overdraft fees from five a day to 10. On top of that, it began charging a one-time fee of $35 if the account remains in the negative for more than five days. The bank also raised the monthly fee on My Access checking accounts to $8.95 from $5.95.

She added that in some cases, the bank changes have favored consumers. For instance, she said, the bank reduced the overdraft fee to $10 an item if overdrafts in a day total $5 or less.

Finally, this Huffington Post blog reports on an excellent exchange of views between Rep. Donald Manzullo (R-IL) and me, and fellow witnesses Elizabeth Warren and Ellen Seidman, during Wednesday's hearing. I think most Congressional witnesses would join me in saying that we enjoy engaging with the members. It's a lot more interesting than when a member uses most of his or her 5 minutes in a long statement with no real question involved.

Policy Matters Ohio has released a new study: Paying More, Renting Debt: Why Rent-to-Own is a bad deal for Ohio consumers.

“Ohio provides modest protection to rent-to-own consumers by requiring disclosure and limiting prices to twice the inflated cash value of items,” said David Rothstein, Policy Matters researcher and a report co-author. “But by allowing the cash value to be so deceptive, failing to require depreciation for used items, and allowing firms to charge up to twice the already-inflated cash value, we leave Ohio’s most vulnerable consumers in the position of paying three to four times the retail price for products that are sub-par to start with.

Meanwhile, up in Congress, the industry continues to push two bad bills as well. The Consumer Rental-Purchase Agreement Acts, HR 1744 (Rep. William Lacey-Clay (D-MO) and S 738 (Sen. Mary Landrieu (D-LA) are designed not to improve protections for consumers nationwide, but to take away protections from consumers in the states with the best laws (New Jersey, Wisconsin, Minnesota and Vermont) and to prevent other states from emulating them.

Over at the White House blog, you can watch a video of President Obama talking about why he intends to fight for passage of the Consumer Financial Protection Agency. The video was filmed during his regular Saturday radio address. The President challenged the special interest opponents of reform to a fair debate (AP via Yahoo):

"I welcome a debate about how we can make sure our regulations work for businesses and consumers," Obama said. "But what I will not accept — what I will vigorously oppose — are those who do not argue in good faith." By that, Obama said, he meant those who defend the status quo at any cost. He didn't name any people or organizations, but said special interests are already mobilizing to fight change. He called that typical Washington. "These are the interests that have benefited from a system which allowed ordinary Americans to be exploited," Obama said. The president said he would stand up for his plans, saying: "While I'm not spoiling for a fight, I'm ready for one. The most important thing we can do to put this era of irresponsibility in the past is to take responsibility now."

"These interests argue against reform even as millions of people are facing the consequences of this crisis in their own lives. These interests defend business-as-usual even though we know that it was business-as-usual that allowed this crisis to take place."

Over at Work Forward, the blog of the National Community Tax Coalition, Mike Evangelist reports that predatory payday lenders are paying bloggers to promote online payday lending. Arthur Delaney first broke the story as Army Of Paid Bloggers Suddenly Promoting Online Payday Loans over at HuffPo.

State attorneys general have long led the fight against payday lenders and are leading new actions against the variant making loans online that are harder to track and harder to hold accountable. For the scoop on payday loans, go to the Consumer Federation of America's paydayloaninfo.org. In HuffPo, Arthur notes that the FTC is considering rules to require paid "bloggers" to disclose that they are shills, not journalists. Good idea.

The House has begun to debate the PIRG-backed Credit Cardholders' Bill of Rights. Consumer champion Donna Edwards (D-MD) just explained her amendment (with Rep. Gutierrez (D-IL) and others) on allocating partial payments above the minimum to the highest cost debt first -- we support it. We expect debate to continue for a few hours, with votes stacked near or at the end. This Rules Committee page has all the information on the bill; the amendments made in order are here (scroll down for the amendments.

For The Onion's take, see here.

Treasury Secretary Geithner and Rep. Carolyn Maloney (D-NY) met with about 18 leading consumer and financial literacy advocates today on the eve of the House vote on the Maloney Credit Cardholders Bill of Rights (previous blog). Also joining us (pictured with the Secretary) was Roxana Araujo of Hollywood, Florida. Ms. Araujo (her remarks), a financial fraud investigator for the state no less, is one of probably millions of good credit card customers who recently had their rate jacked, for no reason at all. The Secretary announced the administration's reform principles. We expect some of these to be incorporated in floor amendments to the Maloney Credit Cardholders Bill of Rights tomorrow. (The photo of the Secretary with Ms. Araujo is a "video grab" from my new Flip Video camera -- watch for future video blogs!)

To those of you trying to keep up with the credit card issue, here are some questions that may be answered this week.

Last week the New York Times editorialized against legislation, HR 1214, the so-called Payday Loan Reform Act, introduced by Rep. Luis Gutierrez (D-IL) (previous blog). Well, last night, Stephen Colbert took it apart on his TV comedy show, where he said that the bill would subject triple-digit payday lenders to the "anemic firefly flicker of nominal oversight." Warning: at least one joke in the piece may not be family-friendly, but neither is the bill, HR 1214. It legalizes predatory payday loans on a national basis at 390% APR for a two week loan, 780% APR for a one week loan. Also, the Arizona Star editorialized this weekend against both HR 1214 and another even more pro-payday lender bill, HR 1846, the Consumer Lending Education And Reform Act from Rep. Joe Baca (D-CA).

Just as we are disappointed that some of our Congressional consumer champions are supporting legislation that would protect predatory payday lenders, we are also disappointed that the great Magic Johnson is fronting for a tax refund anticipation loan company, Jackson-Hewitt. Here is Don McNay's piece last week in the Huffington Post:

There is no reason for tax refund anticipation loans to exist. The industry targets a poor audience, charges high fees and provides a "service" that is not really a service. People wait all year for a tax refund. They can wait another two weeks or so.[...]It's easy to eliminate an industry with a dubious business model and a laundry list of regulatory violations. It's harder to eliminate a business where Magic Johnson is its public face. Because of Johnson, the tax refund business might stick around, luring in more millions of Americans. Although I admire his place in basketball history, it's now hard for me to think of Johnson as a magic man.

Today's New York Times editorial 391 Percent Payday Loan explains the problem with legislation proposed by U.S. Rep. Luis Gutierrez (D-IL), the new chair of an important Congressional subcommittee:

Payday loans — advances that are to be repaid on payday — are so burdensome and so pernicious that in 2006 Congress effectively banned them for military families. Given all the problems workers face right now, Congress should extend this protection to everybody. Unfortunately, some members are pushing an ersatz reform that would allow payday operators to charge what amounts to an annual percentage rate of 391 percent.

Over at the American News Project, videographer Harry Hanbury has been chronicling the influence of money on politics. In particular, he's been watchdogging financial industry battles, including the fight to make credit cards fair. In this piece on last week's committee votes for reform he interviews Travis Plunkett of the Consumer Federation of America, Ken Clayton of the American Bankers Association and me. My closing comment is that banks want to delay the bills so that they keep collecting penalty fees because "they want that money."
.

In the song Choctaw Bingo, by the alt-country singer James McMurtry, the character Uncle Slayton is a rogue and an outlaw who cooks both moonshine and crystal meth. Mcmurtry sings:

"He cooks that crystal meth because the shine don't sell; You know he likes his money, he don't mind the smell."

Update: Progress Illinois has posted some (5 minutes each or so) Youtube video excerpts of last week's hearing. In this one, Jean Ann spars with Chairman Gutierrez (D-IL) on payday lending and his bill's effect; in this one, Jean Ann and Rep. Jackie Speier (D-CA) discuss why the Gutierrez bill won't work as advertised.

Original post: For many years, Jean Ann Fox of the Consumer Federation of America has led the nationwide fight against predatory triple-digit payday lending that leaves consumers in an endless cycle of debt. On Thursday, a House subcommittee led by Rep. Luis Gutierrez (D-IL), largely took the side of the payday lending industry against her at a hearing where Fox was the only consumer witness. Chairman Gutierrez has introduced HR 1214, the so-called Payday Lending Reform Act, to legalize predatory payday lending at an allowable 391% interest rate (APR). You can read the testimony and watch the hearing video here. Heck, the hearing was so embarrassingly one-sided, even the rent-to-own boys who sell furniture on perpetual debt contracts liked it. Along with other leading groups we signed onto Fox's testimony and will oppose all efforts to legalize triple-digit payday lending at the federal level. In a letter to the hill, our groups called the Gutierrez bill the Payday Lender Protection Act. Consumers are urged to contact their Representative (find them here and then either write them here or call any of them here 202-225-3121) to oppose HR 1214, the so-called Payday Loan Reform Act. It is really a Payday Lender Protection Act, not in any way a reform act; it will hurt working class Americans; and, we will continue to urge Mr. Gutierrez to drop efforts to pass it. In 2006, at the request of the Pentagon, Congress capped lending to military families at 36% APR to protect them from financial predators; now, some in Congress want to legalize loans at more than ten times that rate for the rest of us?

Predatory lending is very profitable. Recent stories in The Hill and by the Associated Press document the money that the payday firms are dumping into this push. In 2008 they spent tens of millions in Arizona and Ohio but were defeated. Oh, you may be confused by the stories and some testimony into thinking that the industry opposes the federal bill. Don't believe it. They have been for just about every bit of HR 1214 in the states, as Jean Ann explains.

We testify (that is, me) this afternoon at a hearing on Consumer Debt — Are Credit Cards Bankrupting Americans? The hearing is before the House Judiciary Committee's Subcommittee on Commercial and Administrative Law, chaired by Steve Cohen (D-TN). Here is my testimony. That of the other witnesses should be available at the committee site around 2pm. Adam Levitin is a law professor who has investigated these issues and blogs with a number of other professors expert in debt and bankruptcy over at creditslips.org. Consumer attorney Brett Weiss will speak on behalf of the National Association of Consumer Bankruptcy Attorneys. Its members represent individual consumers who file for bankruptcy. In 2005, draconian bankruptcy amendments enacted by Congress at the request of the credit card companies made it harder and more expensive to file for bankruptcy and if you did, harder to get a fresh start because the unfair new law forced you to make continuing payments of unsecured debts to credit card companies. Excerpt from my testimony after the jump.

Your hearing comes at an opportune time. Over the last several years, even after enactment of the draconian 2005 bankruptcy amendments insisted upon by an eight-year credit card industry campaign, the credit card companies have continued to engage in arbitrary, abusive, and unfair credit card lending practices that trap consumers in a cycle of costly debt, such as sharply escalating “universal default” interest rates that can double some cardholders monthly payments overnight. Put simply, owning a credit company is a license to steal. You can change the rules at any time for any reason, including no reason. Pernicious mandatory arbitration clauses prevent consumers from private enforcement against unfair practices. State attorneys general have been preempted by federal regulators from enforcing laws against national banks and thrifts—nearly every large credit card company is a national bank. Those federal regulators, until a recent burst of consumer protection activity by the Federal Reserve, have encouraged the increasing use of unfair practices through lax oversight. Since 2000, the Office of the Comptroller of the Currency (OCC), chief regulator of national banks, has not imposed one public civil penalty or other sanction against a large credit card company.

Considerable evidence links the rise in bankruptcy in recent years to the increase in consumer credit outstanding, and, in particular, to credit card debt. The problem has been exacerbated by the 2005 bankruptcy amendments, which have made it harder and more expensive to file for bankruptcy, leaving many consumers in the credit card company “sweat box,” despite no evidence that consumers are abusing the bankruptcy system. Consumers are hurt by credit card practices, but no longer have adequate relief. Congress should immediately reform credit card company practices and make changes to the bankruptcy code to provide relief to aggrieved consumers.

Along with other leading groups, we're joining onto critical testimony today by Jean Ann Fox of the Consumer Federation of America at a hearing of the House Financial Institutions and Consumer Credit Subcommittee. Unfortunately, our testimony happens to be in opposition to a proposal, HR 1214, by the subcommittee's chairman, Luis Gutierrez (D-IL) to legalize predatory payday lending at an allowable 391% interest rate (APR). Excerpt from our comprehensive testimony after the jump:

We oppose enacting legislation to sanction a predatory credit product that traps cash-strapped American families in a debt cycle of repeat borrowing. Congress outlawed these loans for Service members and their families in 2006 and should extend the same protections to all Americans. As American families struggle to make ends meet, protections against extremely expensive loans, unaffordable repayment terms, and loss of control of bank accounts are more important than ever. H.R. 1214 does not provide the protections that American consumers need or want.

After the jump, a few more odd Bank of America stories.

The lawsuit, filed in Federal District Court in Brooklyn late Thursday, contends that Bank of America “established, equipped and staffed” a branch office in the headquarters of Mr. Cosmo’s firm, Agape Merchant Advance. As a result, the lawsuit contends that the bank knowingly “assisted, facilitated and furthered” Mr. Cosmo’s fraudulent scheme.

Bank of America rebuffed earlier news reports that its chairman and chief executive, Ken Lewis, intended to suggest to President Barack Obama to separate commercial and investment banking. The Charlotte bank said in a statement, "Mr. Lewis was referring to people's understanding of banks and how they should view the difference between commercial and investment banks in terms of forming perceptions of their various activities."

It turns out he was just trying to tell the public where to direct its ire against "banking" in general: Hate those Wall Street bankers, but not the poor tellers in your local branch.

If the local police stumble onto a bank robbery, they will say "stop robbing now" and arrest the perpetrators. But after the Fed stumbled upon the blatantly obvious idea that credit card banks were robbing their customers, the Fed said, "Keep robbing now, then stop robbing in July 2010." So, according to widespread reports, banks continue to tighten down the thumbscrews on their customers, by imposing higher fees and new fees (how about that Chase $10/month fee?) and jacking most consumers, even good risks, to higher interest rates.

Now, there is hope. As noted today by Reuters, the Senate Banking Committee and a House Financial Services subcommittee are scheduled to mark up (vote on) two PIRG-backed credit card reforms next week. On Tuesday, 31 March, the Senate committee will consider Chairman Chris Dodd's (D-CT) Credit CARD Act, S. 414. Our previous letter of support is attached. On Wednesday, the subcommittee on Financial Institutions and Consumer Credit will consider Rep. Carolyn Maloney's (D-NY) Credit Cardholders' Bill of Rights, HR 627, which passed the House overwhelmingly last year on a 312-112 vote.

In the Senate, we expect that the banks will simply oppose the Dodd bill because it is more comprehensive than the Maloney bill, which largely tracks important but narrower Federal Reserve rules declaring routine bank practices as illegal unfair and deceptive acts. The Fed rule was approved in December but is not slated to take full effect until July 2010. In the Senate, the banks will say, "the economy is bad, don't hit us when we're down," and in the House they will say "Wait for the Fed, or at least delay Maloney until the same timeframe as the Fed." Consumers need protection now, not in 2010. Call your committee members, now. House Financial Services (full committee) members. Senate Banking Committee members. All can be reached through the Congressional switchboard at 202-224-3121.

We've joined a number of leading consumer and community groups in a letter to the full House in opposition to HR 1214, the Payday Lending Reform Act introduced recently by Rep. Luis Gutierrez (D-IL), chair of the House Subcommittee on Financial Institutions and Consumer Credit. We are disappointed that Mr. Gutierrez, with several other consumer champions as co-sponsors, has introduced a bill to legalize payday lending at the federal level at an allowable APR of 390% for a two week loan. It might better be called the Payday Lender Protection Act. Although Mr. Gutierrez has essentially said (statement) that because the lenders and the consumer groups both oppose it, he must be in the right place, we respectfully disagree. In actual fact, the lenders have supported large parts of his bill in state fights and must be privately cheering the federal proposal.

In 2006, Congress capped loans to military families at 36% APR. Similar protections should be extended to all Americans, especially in an economic downturn when financial scams become an even bigger problem for cash-strapped consumers. Payday lenders represent one of the worst examples of wealth-stripping financial predators in the marketplace today. They should be required to comply with the same rules as other small lenders, not given Congressionally carved-out safe harbors to ply their sordid trade. Long excerpt from our letter after the jump:

H.R. 1214 provides Congressional approval to payday loans at rates of 390 percent APR for two weeks or 780 percent APR for one week. The loan cap of fifteen cents per dollar loaned in HR 1214 authorizes lenders to charge $60 for a typical $400 loan, which is due in one pay cycle. This means that, for the typical borrower with nine loans per year, H.R. 1214 authorizes lenders to collect $540 in finance charges for a $400 loan taken out over an 18-week period.

While the bill purports to provide other consumer protections, these provisions will not stop this product from being a debt trap for borrowers because they are easily evaded. They also fail to address the fundamental problem with the payday lending model--requiring the borrower to repay the entire principle and interest from a single paycheck in just two weeks--that ensures the typical borrower cannot pay back a loan without needing to take another. The provisions of HR 1214 haven’t worked in states where they have been tried; indeed, the industry has supported most of them at the state level.

Legalizing payday lending at triple digit interest rates runs counter to President Obama’s promise to cap payday and other loans at 36 percent annual rates and to existing protections provided by Congress to Service members and their families. In 2006, Congress outlawed loans that are based on holding checks or debit authorization for future payment at the request of the Department of Defense. Our organizations have also endorsed legislation introduced by Senator Durbin (S. 500) and Representative Speier to cap rates for all forms of consumer credit at 36 percent, including interest and fees. Last fall, voters in both Ohio and Arizona soundly rejected payday loan industry ballot initiatives that would have continued payday lending at 390 percent APR or higher, despite the fact that they were bombarded with industry messages about “reforms” similar to the provisions of HR 1214.

Federal legislation to authorize payday lending, instead of prohibiting the predatory small loan terms, is particularly counterproductive when the economy is in recession and families can least afford triple-digit rates. A growing body of research demonstrates that using payday lending is harmful to borrowers. Using payday loans doubles the risk a borrower will end up in bankruptcy within two years, doubles the risk of being seriously delinquent on credit cards, and makes it less likely that consumers can pay other bills and get healthcare. Payday loan use also increases the likelihood that consumers’ bank accounts will be closed involuntarily. Given the lower bank account penetration rate for minority consumers, this product undermines progress being made to bring unbanked consumers into mainstream financial services.

Although the bill does not preempt stronger state rate caps, it would send a message approving usurious lending at triple-digit rates. The practical impact of Congressional passage of this bill will be to stop the progress of reform in the states. No state has legalized payday lending since 2005. Since then Ohio, Oregon, New Hampshire and the District of Columbia have either capped rates at low levels or repealed payday lending outright. The Arkansas Supreme Court recently overturned that state’s payday loan law for violating the state’s constitutional usury cap.

At a rally Wednesday in Costa Mesa, CA and on Jay Leno again last night, President Obama expressed support for both a credit card bill of rights and a Financial Product Safety Commission. If you watch the Leno video and slide the bar down to 14:20 or so, you'll hear this:

The President: When you buy a toaster, if it explodes in your face there's a law that says your toasters need to be safe. But when you get a credit card, or you get a mortgage, there's no law on the books that says if that explodes in your face financially, somehow you're going to be protected. So this is -- the need for getting back to some common sense regulations -- there's nothing wrong with innovation in the financial markets. We want people to be successful; we want people to be able to make a profit. Banks are critical to our economy and we want credit to flow again. But we just want to make sure that there's enough regulatory common sense in place that ordinary Americans aren't taken advantage of, and taxpayers, after the fact, aren't taken advantage of. (Applause.)

According to an article (check out the picture of the rent-to-own boys partying it up) in the rent-to-own industry's online newspaper, Congress has promised to hold a hearing on the industry's fifteen year old (and getting really old) proposal to override the states that have failed to enact the industry's safe-harbor legislation that allows it to keep consumers in perpetual debt paying for refrigerators, TVs and furniture. It would be a mistake for Congress to move forward on preempting stronger state consumer laws. From RTOOnline:

The Consumer Rental Purchase Agreement Act will be submitted in both the House and Senate this week and may come before a congressional sub-committee as early as mid-April. [...] The challenge will be to gain support for a fair and balanced bill while consumer advocates, a group that sees no middle ground, push for legislation that would eliminate the rental-purchase option for millions of consumers at a time when traditional consumer credit is increasingly difficult to obtain.

Over at the Public Citizen Consumer Law and Policy blog, check these interesting and detailed entries out:

Cotton farmers in [India] have defaulted on bank debt, and then become further indebted to illegal moneylenders... [due to]...regulatory failures that permitted Monsanto Corporation to sell genetically modified cotton seed (Bt Cotton) representing it as disease resistant and high-yielding, when in fact it turned out to be neither.

UPDATE, Thursday evening: The bill just passed, 243-191. YEA is the pro-consumer vote.

Last week, House leadership pulled HR 1106 from the floor after some members of two conservative Democratic coalitions -- the Blue Dogs and the New Democrats -- objected to its most important provision: language allowing bankruptcy judges, in limited circumstances, to make first-mortgage loan modifications to prevent foreclosure and keep people in their homes.

Foreclosure is the most expensive option a bank faces when a mortgage cannot be paid as agreed. It makes a great deal of sense to avoid it. Helping homeowners helps neighborhoods and it helps banks. Helping banks helps taxpayers who are bailing out banks. The opposition to this sensible provision has us confused. Further, similar authority has long existed for modifications to business loans, farm loans, second-home loans and boat loans.

We have sent up a group letter reiterating our strong support for granting this authority to judges; a compromise provision is expected to be approved today. The full bill is also expected to pass. We hope it will move swiftly through the Senate and to the President's desk. From our letter:

At a time when an estimated 6,600 families are losing their home to foreclosure each and every day, there is no time for delay. We urge Congress to act immediately to pass legislation, without weakening amendments, to lift the ban on judicial modification of primary residence mortgages. It is perhaps the most important thing we can do right now to help arrest the terrible toll that the recession is taking on American families.

From our colleagues at Essential Action:

The financial sector invested more than $5 billion in political influence purchasing in Washington over the past decade, with as many as 3,000 lobbyists winning deregulation and other policy decisions that led directly to the current financial collapse, according to a 231-page report issued today by Essential Information and the Consumer Education Foundation. [Here is the report home page, with links to the report, executive summary and release.] The report, "Sold Out: How Wall Street and Washington Betrayed America," shows that, from 1998-2008, Wall Street investment firms, commercial banks, hedge funds, real estate companies and insurance conglomerates made $1.725 billion in political contributions and spent another $3.4 billion on lobbyists, a financial juggernaut aimed at undercutting federal regulation.

Economic historians have documented that usury laws -- or caps on allowable interest rates -- have existed since pre-biblical times. Unfortunately, over the last 30 years or so, federal, and most state, usury ceilings had been eliminated through a series of wrong-headed court and Congressional actions. In 2006, we were successful in passing a law, the Military Lending Act, reinstating usury ceilings at 36% APR for loans to military personnel. Last week, Senator Dick Durbin (D-IL) introduced legislation, S. 500, to extend that protection to loans to all Americans. Here's the important part-- we're not just talking about predatory payday lenders, rent to own stores and their ilk. The limit would apply to credit cards and shameful bounce-overdraft protection loans made by banks. While 36% APR may sound higher than most credit card rates, the bill limits would apply to their punitive fees as well, which have the effect of triple-digit interest.

Here is a copy of the support letter from 100 organizations, including U.S. PIRG. Also, Rep. Jackie Speier (D-CA) is expected to file a companion bill this week.

The military lending law was passed because soldiers, sailors and airmen with bad credit records caused by the tricks and traps of credit cards and payday loans fail security clearances and are therefore ineligible for deployment overseas: predatory lending hurts our military preparedness, said the Pentagon.

Here is a copy of Senator Durbin's opening statement. I am having a little trouble manipulating Thomas.loc.gov (go there and type in "s. 500," select "bill number" and search) and the online Congressional Record today, but you can read Senator Durbin's statement in the actual Record if you go here and search that page for Senator Durbin's name and page S2571 (click on S2571) near the bottom. Then, you can move forward to other pages at the bottom right of that page.

We signed on to testimony delivered yesterday by Travis Plunkett of the Consumer Federation of America at a Senate Commerce Committee hearing on Consumer Protection and the Credit Crisis. The hearing focused on predatory lending, debt counseling scams, the growth of credit card debt and ways to increase regulatory and legal resources to protect consumers in the declining economy. Also appearing as a witness was University of Minnesota Law School professor Prentiss Cox, a longtime ally and former assistant state attorney general. From Travis's testimony:

The National Consumer Law Center, the Consumer Federation of America, and U.S. PIRG were among the first to warn that the nature of credit counseling had also begun to dramatically shift in ways that were very harmful to debtors. In the late 1990s, a new class of agencies emerged that aggressively marketed DMPs and related services, dramatically raised consumer fees, and had extensive relationships with for-profit vendors and consultants. Complaints about deceptive practices, improper advice, excessive fees and abuse of non-profit status sharply increased. 21 Federal and state regulators and policymakers, who had largely ignored the rise of these new agencies, and the problems they had created, began to investigate.

We've joined other leading consumer, civil rights and labor groups in a letter to the House of Representatives urging support for an amendment that would allow bankruptcy judges to make loan modifications to keep consumers in their homes paying their mortgages and out of foreclosure. The banks have been fighting this since last Congress, but with the muscle of the Obama administration behind it, we think we can get it through soon. Originally passed by the Judiciary Committee as HR 200, the proposal is now part of a package of bills being considered Thursday on the floor as HR 1106. Excerpt:

Judicial mortgage modification will provide a vital last resort that could prevent hundreds of thousands of foreclosures, without spending one penny of taxpayer money. Equally important, it will be the most reliable way to encourage loan servicers to offer sustainable mortgage modifications outside of court. The logic here is simple: We can’t end the financial crisis without stemming the rising tide of foreclosures. Court-supervised loan modification is an essential component of an effective and comprehensive plan to meet that challenge. At a time when an estimated 6,600 families are losing their home to foreclosure each and every day, there is no time for delay.

Privatization is a mess. Whether it is bad deals on toll roads or price-gouging on food or gasoline or even bad installation of electrical services resulting in electrocution of U.S. troops by government military contractors in Iraq, governments at all levels have bumbled badly when negotiating deals with private firms to take on government duties. The firms, however, have gotten rich.

Over at the Consumerist, read the latest about how state governments have privatized benefits transfer - this time, unemployment benefits -- and left recipients paying punitive bank fees. The same thing has happened with recipients of food stamps and other EBT (electronic benefits transfer) programs. Government just doesn't get it: if it is going to privatize government services, it needs to use its power and leverage to get a better deal. I have yet to see the privatization deal where the government adequately protected taxpayers, laid-off workers, or soldiers. We are lucky that the Social Security privatization idea never got off the ground.

In Arizona today, President Obama is announcing a plan to counter the home mortgage crisis. Details are here and on the WH blog. After the jump, I've posted the President's statement, as prepared for delivery, which should be posted at whitehouse.gov soon.

NOTE: Fact sheet attached.

THE WHITE HOUSE

Office of the Press Secretary

__________________________________________________________________________________________________________________

FOR IMMEDIATE RELEASE

February 18, 2009

Remarks of President Barack Obama on the Home Mortgage Crisis – As Prepared for Delivery

Phoenix, Arizona

February 18, 2009

I’m here today to talk about a crisis unlike any we’ve ever known – but one that you know very well here in Mesa, and throughout the Valley. In Phoenix and its surrounding suburbs, the American Dream is being tested by a home mortgage crisis that not only threatens the stability of our economy but also the stability of families and neighborhoods. It is a crisis that strikes at the heart of the middle class: the homes in which we invest our savings, build our lives, raise our families, and plant roots in our communities.

So many Americans have shared with me their personal experiences of this crisis. Many have written letters or emails or shared their stories with me at rallies and along rope lines. Their hardship and heartbreak are a reminder that while this crisis is vast, it begins just one house – and one family – at a time.

It begins with a young family – maybe in Mesa, or Glendale, or Tempe – or just as likely in suburban Las Vegas, Cleveland, or Miami. They save up. They search. They choose a home that feels like the perfect place to start a life. They secure a fixed-rate mortgage at a reasonable rate, make a down payment, and make their mortgage payments each month. They are as responsible as anyone could ask them to be.

But then they learn that acting responsibly often isn’t enough to escape this crisis. Perhaps someone loses a job in the latest round of layoffs, one of more than three and a half million jobs lost since this recession began – or maybe a child gets sick, or a spouse has his or her hours cut.

In the past, if you found yourself in a situation like this, you could have sold your home and bought a smaller one with more affordable payments. Or you could have refinanced your home at a lower rate. But today, home values have fallen so sharply that even if you made a large down payment, the current value of your mortgage may still be higher than the current value of your house. So no bank will return your calls, and no sale will return your investment.

You can't afford to leave and you can't afford to stay. So you cut back on luxuries. Then you cut back on necessities. You spend down your savings to keep up with your payments. Then you open the retirement fund. Then you use the credit cards. And when you’ve gone through everything you have, and done everything you can, you have no choice but to default on your loan. And so your home joins the nearly six million others in foreclosure or at risk of foreclosure across the country, including roughly 150,000 right here in Arizona.

But the foreclosures which are uprooting families and upending lives across America are only one part of this housing crisis. For while there are millions of families who face foreclosure, there are millions more who are in no danger of losing their homes, but who have still seen their dreams endangered. They are families who see “For Sale” signs lining the streets. Who see neighbors leave, and homes standing vacant, and lawns slowly turning brown. They see their own homes – their largest single assets – plummeting in value. One study in Chicago found that a foreclosed home reduces the price of nearby homes by as much as 9 percent. Home prices in cities across the country have fallen by more than 25 percent since 2006; in Phoenix, they’ve fallen by 43 percent.

Even if your neighborhood hasn’t been hit by foreclosures, you’re likely feeling the effects of the crisis in other ways. Companies in your community that depend on the housing market – construction companies and home furnishing stores, painters and landscapers – they’re cutting back and laying people off. The number of residential construction jobs has fallen by more than a quarter million since mid-2006. As businesses lose revenue and people lose income, the tax base shrinks, which means less money for schools and police and fire departments. And on top of this, the costs to a local government associated with a single foreclosure can be as high as $20,000.

The effects of this crisis have also reverberated across the financial markets. When the housing market collapsed, so did the availability of credit on which our economy depends. As that credit has dried up, it has been harder for families to find affordable loans to purchase a car or pay tuition and harder for businesses to secure the capital they need to expand and create jobs.

In the end, all of us are paying a price for this home mortgage crisis. And all of us will pay an even steeper price if we allow this crisis to deepen – a crisis which is unraveling homeownership, the middle class, and the American Dream itself. But if we act boldly and swiftly to arrest this downward spiral, every American will benefit. And that’s what I want to talk about today.

The plan I’m announcing focuses on rescuing families who have played by the rules and acted responsibly: by refinancing loans for millions of families in traditional mortgages who are underwater or close to it; by modifying loans for families stuck in sub-prime mortgages they can’t afford as a result of skyrocketing interest rates or personal misfortune; and by taking broader steps to keep mortgage rates low so that families can secure loans with affordable monthly payments.

At the same time, this plan must be viewed in a larger context. A lost home often begins with a lost job. Many businesses have laid off workers for a lack of revenue and available capital. Credit has become scarce as the markets have been overwhelmed by the collapse of securities backed by failing mortgages. In the end, the home mortgage crisis, the financial crisis, and this broader economic crisis are interconnected. We cannot successfully address any one of them without addressing them all.

Yesterday, in Denver, I signed into law the American Recovery and Reinvestment Act which will create or save three and a half million jobs over the next two years – including 70,000 in Arizona – doing the work America needs done. We will also work to stabilize, repair, and reform our financial system to get credit flowing again to families and businesses. And we will pursue the housing plan I am outlining today.

Through this plan, we will help between seven and nine million families restructure or refinance their mortgages so they can avoid foreclosure. And we are not just helping homeowners at risk of falling over the edge, we are preventing their neighbors from being pulled over that edge too – as defaults and foreclosures contribute to sinking home values, failing local businesses, and lost jobs.

But I also want to be very clear about what this plan will not do: It will not rescue the unscrupulous or irresponsible by throwing good taxpayer money after bad loans. It will not help speculators who took risky bets on a rising market and bought homes not to live in but to sell. It will not help dishonest lenders who acted irresponsibility, distorting the facts and dismissing the fine print at the expense of buyers who didn’t know better. And it will not reward folks who bought homes they knew from the beginning they would never be able to afford. In short, this plan will not save every home.

But it will give millions of families resigned to financial ruin a chance to rebuild. It will prevent the worst consequences of this crisis from wreaking even greater havoc on the economy. And by bringing down the foreclosure rate, it will help to shore up housing prices for everyone. According to estimates by the Treasury Department, this plan could stop the slide in home prices due to neighboring foreclosures by up to $6,000 per home.

Here is how my plan works:

First, we will make it possible for an estimated four to five million currently ineligible homeowners who receive their mortgages through Fannie Mae or Freddie Mac to refinance their mortgages at lower rates.

Today, as a result of declining home values, millions of families are “underwater,” which means they owe more on their mortgages than their homes are worth. These families are unable to sell their homes, and unable to refinance them. So in the event of a job loss or another emergency, their options are limited.

Right now, Fannie Mae and Freddie Mac – the institutions that guarantee home loans for millions of middle class families – are generally not permitted to guarantee refinancing for mortgages valued at more than 80 percent of the home’s worth. So families who are underwater – or close to being underwater – cannot turn to these lending institutions for help.

My plan changes that by removing this restriction on Fannie and Freddie so that they can refinance mortgages they already own or guarantee. This will allow millions of families stuck with loans at a higher rate to refinance. And the estimated cost to taxpayers would be roughly zero; while Fannie and Freddie would receive less money in payments, this would be balanced out by a reduction in defaults and foreclosures.

I also want to point out that millions of other households could benefit from historically low interest rates if they refinance, though many don't know that this opportunity is available to them – an opportunity that could save families hundreds of dollars each month. And the efforts we are taking to stabilize mortgage markets will help these borrowers to secure more affordable terms, too.

Second, we will create new incentives so that lenders work with borrowers to modify the terms of sub-prime loans at risk of default and foreclosure.

Sub-prime loans – loans with high rates and complex terms that often conceal their costs – make up only 12 percent of all mortgages, but account for roughly half of all foreclosures.

Right now, when families with these mortgages seek to modify a loan to avoid this fate, they often find themselves navigating a maze of rules and regulations but rarely finding answers. Some sub-prime lenders are willing to renegotiate; many aren’t. Your ability to restructure your loan depends on where you live, the company that owns or manages your loan, or even the agent who happens to answer the phone on the day you call.

My plan establishes clear guidelines for the entire mortgage industry that will encourage lenders to modify mortgages on primary residences. Any institution that wishes to receive financial assistance from the government, and to modify home mortgages, will have to do so according to these guidelines – which will be in place two weeks from today.

If lenders and homebuyers work together, and the lender agrees to offer rates that the borrower can afford, we’ll make up part of the gap between what the old payments were and what the new payments will be. And under this plan, lenders who participate will be required to reduce those payments to no more than 31 percent of a borrower’s income. This will enable as many as three to four million homeowners to modify the terms of their mortgages to avoid foreclosure.

So this part of the plan will require both buyers and lenders to step up and do their part. Lenders will need to lower interest rates and share in the costs of reduced monthly payments in order to prevent another wave of foreclosures. Borrowers will be required to make payments on time in return for this opportunity to reduce those payments.

I also want to be clear that there will be a cost associated with this plan. But by making these investments in foreclosure-prevention today, we will save ourselves the costs of foreclosure tomorrow – costs borne not just by families with troubled loans, but by their neighbors and communities and by our economy as a whole. Given the magnitude of these costs, it is a price well worth paying.

Third, we will take major steps to keep mortgage rates low for millions of middle class families looking to secure new mortgages.

Today, most new home loans are backed by Fannie Mae and Freddie Mac, which guarantee loans and set standards to keep mortgage rates low and to keep mortgage financing available and predictable for middle class families. This function is profoundly important, especially now as we grapple with a crisis that would only worsen if we were to allow further disruptions in our mortgage markets.

Therefore, using the funds already approved by Congress for this purpose, the Treasury Department and the Federal Reserve will continue to purchase Fannie Mae and Freddie Mac mortgage-backed securities so that there is stability and liquidity in the marketplace. Through its existing authority Treasury will provide up to $200 billion in capital to ensure that Fannie Mae and Freddie Mac can continue to stabilize markets and hold mortgage rates down.

We’re also going to work with Fannie and Freddie on other strategies to bolster the mortgage markets, like working with state housing finance agencies to increase their liquidity. And as we seek to ensure that these institutions continue to perform what is a vital function on behalf of middle class families, we also need to maintain transparency and strong oversight so that they do so in responsible and effective ways.

Fourth, we will pursue a wide range of reforms designed to help families stay in their homes and avoid foreclosure.

My administration will continue to support reforming our bankruptcy rules so that we allow judges to reduce home mortgages on primary residences to their fair market value – as long as borrowers pay their debts under a court-ordered plan. That’s the rule for investors who own two, three, and four homes. It should be the rule for ordinary homeowners too, as an alternative to foreclosure.

In addition, as part of the recovery plan I signed into law yesterday, we are going to award $2 billion in competitive grants to communities that are bringing together stakeholders and testing new and innovative ways to prevent foreclosures. Communities have shown a lot of initiative, taking responsibility for this crisis when many others have not. Supporting these neighborhood efforts is exactly what we should be doing.

Taken together, the provisions of this plan will help us end this crisis and preserve for millions of families their stake in the American Dream. But we must also acknowledge the limits of this plan.

Our housing crisis was born of eroding home values, but also of the erosion of our common values. It was brought about by big banks that traded in risky mortgages in return for profits that were literally too good to be true; by lenders who knowingly took advantage of homebuyers; by homebuyers who knowingly borrowed too much from lenders; by speculators who gambled on rising prices; and by leaders in our nation’s capital who failed to act amidst a deepening crisis.

So solving this crisis will require more than resources – it will require all of us to take responsibility. Government must take responsibility for setting rules of the road that are fair and fairly enforced. Banks and lenders must be held accountable for ending the practices that got us into this crisis in the first place. Individuals must take responsibility for their own actions. And all of us must learn to live within our means again.

These are the values that have defined this nation. These are values that have given substance to our faith in the American Dream. And these are the values that we must restore now at this defining moment.

It will not be easy. But if we move forward with purpose and resolve – with a deepened appreciation for how fundamental the American Dream is and how fragile it can be when we fail in our collective responsibilities – then I am confident we will overcome this crisis and once again secure that dream for ourselves and for generations to come.

Thank you, God Bless you, and God bless America.

---
You are currently subscribed to whitehouse-daily-reporters as: pwolfson@voanews.com.
To unsubscribe send a blank email to leave-whitehouse-daily-reporters-2214392C@list.whitehouse.gov

Over at the Credit Slips blog, professor Bob Lawless links to a Slate column "If You Knew Suze Like We Knew Suze, You Wouldn't Listen to Her Advice." by "Maxed Out: The Movie" director James Scurlock. James analyzes her advice directly. I've also seen other blog posts (here and here are a few) that question the fees and commissions she receives for endorsements of the products she endlessly promotes. She could be a lot more up front about that. The profits from the products are certainly good for her portfolio, but may not be the best deal for you.

Our colleagues at Consumers Union -- non-profit publishers of Consumer Reports Magazine -- have launched a video blog defendyourdollars.org where you can see the "faces" of victims of the mortgage crisis tell their stories. Excerpt:

Beyond the statistics, these are real people, real families fighting to keep the most precious thing they own. Under pressure to make ends meet to pay their mortgages and feed their children, these are the stories of people targeted by predatory lending practices and forced to make difficult decisions. Watch these videos, then take action to help protect families from losing their homes!

Fifteen years ago, even the luster of both a complaint to the DOJ and Congressional testimony by the band Pearl Jam was not enough to stop the looming horizontal and vertical integration of the ticket and concert industry led by Ticketmaster, which was then only building the skeleton of its anti-consumer Death Star. But now that my Super Bowl MVP, Bruce Springsteen, has entered the fray, maybe Congress and the antitrust cops will take action to destroy the now nearly fully operational Ticketmaster Deathstar, coming around the planet Earth and readying its beams to take aim at consumer wallets. If Ticketmaster's proposed Live Nation merger goes forward, Ticketmaster will not only control ticket sales and ticket resales through "legal" ticket scalping enterprises such as its Tickets Now operation, but also control how bands book shows at venues, a service now dominated by Live Nation. The Washington Post calls Live Nation a "concert-promoting behemoth." More on the growing opposition to the anti-competitive hegemony sought by that growing evil empire from Reuters and NJ.com, whose story links to a growing rebel band of bloggers backing the E Street Band's campaign. More at the main fan blog for the Boss at Backstreets.com

More on corporate crime after the jump:

Oregon State PIRG (OSPIRG) Consumer Associate Matt Wallace is teaming up with Attorney General John Kroger to improve consumer protections against unruly debt collectors who may violate the law because they don't fear repercussions. (Statesman-Journal). Here is the AG's testimony in favor of legislation also backed by OSPIRG.

As the economy cools off, the phone threats from debt collectors heat up. While most people try to pay their bills, sudden layoffs, medical debts or family emergencies often make it hard. Worse, the resale of old debts to a daisy chain of often seamy debt-collection mills often results in demand for payment of very old debts well beyond the statute of limitations and in mixups, where debt collectors abuse others who don't have debts but do have similar names. These "debt collector trade lines" often end on credit reports; frustrated consumers who never owed or no longer owe will often pay a harassing creditor, just to improve their scores. Using the threat of ruining your credit report is just one of the unsavory tactics of debt collectors.

In recognition of a history of widespread abuses by some companies and third-party collectors attempting to collect debts, legislators and regulators have used laws such as the Fair Debt Collection Practices Act to make the process fair. But it often isn't. We need strong state enforcement and authority as the Oregon proposal would provide and we also need stronger consumer rights to sue debt collectors who abuse the law. No debt collector should be above the law. Most think that they are, especially bottom-feeder debt collection mills that buy really old debts.

For more information about your debt collection rights, read this handy fact sheet from the National Consumer Law Center.

Over at the New York Times, in his story Faulting Credit Firms on Fixing Errors, reporter Bob Tedeschi has an important followup to the new National Consumer Law Center report Automated Injustice (previous blog with more links) by Chi Chi Wu. The report documents that the big three credit bureaus Experian, Equifax and Trans Union -- the gatekeepers to receiving fairly priced credit and insurance or the employment you qualify for -- all ignore the Fair Credit Reporting Act's (FCRA) requirements to fully investigate disputes and errors and instead, in a kind of tautology or use of circular reasoning, use automated dispute mechanisms that basically send erroneous and useless data back and forth to credit firm computers to "confirm" that, "yes, we have the same information that the creditor has so the consumer must be a deadbeat with an invalid dispute."

Ms. Wu says that the credit bureaus generally fail to forward to the creditors any supporting documentation sent to them by the consumer, like canceled checks. Rather, the disputes are essentially boiled down to two-digit codes that represent a category of complaint, and then they are forwarded to creditors. The creditors “might then simply look at their computer records, which put out the wrong information in the first place, and reject the dispute,” Ms. Wu said. “It’s not what most people think of as a real investigation.”

“Most consumers don’t want to work too hard to have it taken care of,” he said.

The Obama administration is expected to announce new rules later this year that would allow consumers who find mistakes in their reports to contact the creditors directly. The creditors would be required to respond to the consumers.

In his story Saturday in the New York Times, American Express Kept a (Very) Watchful Eye on Charges, Ron Lieber drills down into a story (previous blog) that broke late last year about the American Express credit card's use of behavioral data-mining. Their letters to customers facing reduced credit limits or higher rates stated that the firm compiled information about where they shopped and where they lived. AmEx then compared it to payment patterns of others who shopped and lived there. If others were deadbeats, you might have your credit limit lowered or your rate raised, even if you'd always paid on time. According to the story, AmEx claims to Lieber that it never looked at specific merchants but was discontinuing use of "spending patterns" in its data-mining. Claiming it never looked at specific merchants is a sharp departure from a line from its customer letter Lieber quotes:

“Other customers who have used their card at establishments where you recently shopped,” one of those letters said, “have a poor repayment history with American Express.”

It sure sounded as if American Express had developed a blacklist of merchants patronized by troubled cardholders. But late this week, American Express told me that wasn’t the case. The company said it had also decided to stop using what it has called “spending patterns” as a criteria in its credit line reductions.

began documenting his experience on newcreditrules.com, where he posted the names of all the merchants he patronized, in the hope that other American Express customers would cross-check his list with theirs and solve the mystery.

I've been disappointed that neither Congress nor the bank regulators have investigated these practices more thoroughly, although I was encouraged when the FTC and FDIC penalized the predatory credit card company CompuCredit for (among myriad other violations) its use of behavioral scoring.

In two stories today, the New York Times quotes investment bankers defending their pay and bonuses, just one day after President Obama called that pay "shameful." But I think the more interesting comments occur in a NYT story from a week ago by Floyd Norris. But first, from today: In Getting Theirs Cuts Both Ways on Wall Street by Eric Dash and Louise Story, a young banker whines:

“I feel like I got a doorman’s tip, compared to what I got in previous years,” said a 30-something investment banking associate at Citigroup’s offices in Lower Manhattan.

Back to Floyd Norris, he interviewed economic historians for the story Wall Street Paychecks May Wither. After an analysis of a study that proves Wall Street workers are currently overpaid, by a lot, and their regulators outnumbered and outgunned, he quotes Professor Thomas Philippon, a study co-author:

“Some of the financial innovations we have seen are obviously inefficient,” he said. “A good chunk of innovation has to do with tax and regulation arbitrage. That is really a waste for the society.”

The GAO has released a withering report describing how America's most powerful corporations, including many federal contractors and numerous banks on the TARP taxpayer dole, hide income in tax haven countries. While this appears to most disinterested observers to be a stellar way to avoid paying their fair share of taxes, the report International Taxation: Large U.S. Corporations and Federal Contractors with Subsidiaries in Jurisdictions Listed as Tax Havens or Financial Privacy Jurisdictions lists a variety of reasons for the practice and does not draw conclusions. Nevertheless, one of its Congressional requesters, Senator Byron Dorgan (D-ND), stated in the Washington Post:

"This is kind of like economic patriotism," Dorgan said. "Americans were told you have to pony up some money to help these companies. And it's rather infuriating for them to find out now that those companies, when they were profitable, didn't want to pay taxes and found clever ways to hide their money overseas."

It is all legal, but it could come to an end, given the dire condition of the U.S. economy and President-elect Barack Obama's campaign pledge to close this popular business tax loophole. The Treasury estimates that it loses $100 billion a year in tax revenue as a result of companies shipping their income off shore, and congressional leaders are vowing to introduce legislation forcing big companies to pay full freight.

“This report shows that some of our country’s largest companies and federal contractors, many of which are household names, continue to use offshore tax havens to avoid paying their fair share of taxes to the U.S. And, some of those companies have even received emergency economic funds from the government,” said Senator Dorgan. “I think we should take action to shut down these tax dodgers and we will be introducing legislation to do just that.”

We joined U.S. Rep. Carolyn Maloney (D-NY) yesterday at a news conference (her release) announcing the re-introduction of the Credit Cardholders' Bill of Rights (our release). Also appearing, with consumer, labor and civil rights groups, were Senators Chuck Schumer (D-NY) and Mark Udall (D-CO). My full statement is pasted after the jump:

Statement of U.S. PIRG Consumer Program Director Ed Mierzwinski
Introduction of Credit Cardholders’ Bill of Rights
15 January 2009
2200 Rayburn HOB

“U.S. PIRG is pleased to again join Representative Carolyn Maloney (D-NY), who championed her Credit Cardholders’ Bill of Rights through the House last year on an overwhelming 312-112 vote. We are pleased Senators Mark Udall (D-CO) and Chuck Schumer (D-NY) are pushing reform in the Senate.

The Maloney bill makes many of the worst credit card practices, including hair trigger punitive rate increases on existing balances for consumers who are as little as one hour late, illegal.

Last month, the Fed and other regulators did a cruel disservice to consumers when they announced but then postponed their own similar credit card reforms until the middle of 2010. The Credit Cardholders Bill of Rights takes effect just 90 days after passage.

Just as the economy needs a recovery package now, consumers need protection from unfair credit card practices now.

We expected the Fed to be a new sheriff in town to police the credit card marketplace, instead we got the fed playing keystone kops by identifying serious corporate crime and then letting it continue.

U.S. PIRG will work to pass the strongest possible credit card reforms in this Congress. In addition to passing the Maloney Credit Cardholders’ Bill of Rights into law as soon as possible, we need to also ban binding mandatory arbitration in credit card contracts, lower outrageous interest rates, stop banks from raising interest rates for no reason and protect college students from unfair marketing practices.
-30-

U.S. PIRG serves as the federation of non-profit, non-partisan state Public Interest Research Groups, which take on powerful interests on behalf of their members. Our main website is uspirg.org and our campus credit card reform campaign is at truthaboutcredit.org.

In today's New York Times, in the latest in its Debt Trap series, Jonathan Glater reports on the Unspoken Link Between Credit Cards and Colleges. The story includes a video.

The New York Times obtained information about and, in some cases, copies of contracts between lenders, public colleges and their alumni associations using open records requests. [...] While most universities contacted for this article did not provide detailed financial information on the contracts — the University of Pittsburgh, for example, confirmed only that it had an agreement — two did share numbers. The alumni association of the University of Michigan is guaranteed $25.5 million over the term of its 11-year agreement with Bank of America. Under the agreement, the association agreed to provide lists of names and addresses of students, alumni, faculty, staff, donors and holders of season tickets to athletic events.

Attorney General Richard Blumenthal today announced that the owners of the Crystal Mall in Waterford will pay $308,736 -- mostly for refunds to thousands of consumers -- to settle allegations that they violated the state ban on gift card inactivity fees.

Now, the company's actions would be beyond the state law enforcement because it has shifted to cards issued through a national bank, deemed subject only to federal law. [...] Simon is now issuing gift cards through two national banks, MetaBank and U.S. Bank, to circumvent Connecticut's ban on dormancy fees. Because they are national banks, their cards are governed by federal law, which allows dormancy fees. Simon is charging $2.50 a month on cards 13 months and older.

As part of their new credit card rules approved last week making certain unfair practices illegal, the regulators had also intended to finalize an additional -- quite weak -- rule regulating the lucrative "bounce protection" programs that banks have used to collect billions in overdraft fees. While the regulators did at the same time as they approved the credit card rules, withdraw their mediocre overdraft rule, what they ended up doing is weak also. We joined other leading groups in a news release explaining the problems with what the Fed ending up doing-- proposing two alternatives instead. The Fed's new proposal is based on two supposed alternatives. The first, an opt-out, is unacceptable; the second, an opt-in, is marginally acceptable, although the remainder of the new rule proposal simply fails to address all of the other inherent problems with overdraft loan programs. The Fed should have simply immediately required that no consumer could be enrolled automatically in one of these programs without an affirmative opt-in (e.g., without a comment period), and then proposed rules only to address the other problems with these bounce protection programs. Instead, the Fed proposed an opt-in to address some of the problems, but inanely asked for comment as to how it compared with an opt-out (duh) and ignored the myriad other problems with bounce protection in its proposal. How bad are overdraft programs? One study by our colleagues at the Center for Responsible Lending found that "the typical overdraft loan triggered by a debit card, incurring a $34 fee, is only $17." Excerpts from our joint news release explaining that:

For instance, the proposed rule does not require that consumers be provided with federal truth-in-lending disclosures about the APR of overdraft loans. A recent FDIC study noted that charging a $27 overdraft fee for a $20 debit card transaction would be the equivalent of a 3,520% APR if the overdraft is repaid in two weeks.

While the Fed proposed to prohibit most overdrafts caused solely by debit card “holds”—when a hold by a merchant exceeds the actual amount charged—it did not address check holds, when banks intentionally delay the availability of deposits, or banks’ ability to manipulate the order in which transactions are cleared in order to maximize overdrafts.

Today the FTC issued a Congressionally-mandated interim study on the accuracy of credit reports.

The FTC also ordered nine large insurance companies "to produce information for a study on the use and effect of credit-based insurance scores on consumers of homeowners insurance." Our previous blog on issues related to use of credit reports to determine insurance eligibility.

Blog excerpt: Should your car insurance bill be based on how many claims, accidents and speeding tickets you have? Makes sense to us but not to the insurance industry. They want to base your rates on whether you paid your Mastercard on time last month and whether your credit score is high enough.

In reporter Joe Nocera's New York Times blog last week: The Worst Is Yet To Come: Anonymous Banker Weighs In On The Coming Credit Card Debacle.

The non-partisan Congressional Government Accountability Office (GAO) has released Troubled Asset Relief Program: Additional Actions Needed to Better Ensure Integrity, Accountability, and Transparency. From GAO's summary:

Treasury has yet to address a number of critical issues, including determining how it will ensure that CPP is achieving its intended goals and monitoring compliance with limitations on executive compensation and dividend payments. Moreover, further actions are needed to formalize transition planning efforts and establish an effective management structure and an essential system of internal control.

"The GAO's discouraging report makes clear that the Treasury Department's implementation of the TARP is insufficiently transparent and is not accountable to American taxpayers," House Speaker Nancy Pelosi (D-Calif.) said, referring to the acronym for the bailout program, officially known as the Troubled Asset Relief Program.

A massive new FDIC study confirms that most (77%) large banks are offering "automated" (you don't sign up, it's a "feature") overdraft or bounce protection programs and accruing billions of dollars in revenue. The programs have been heavily criticized by nearly every major consumer and civil rights group, including PIRG. In the 110th Congress, remedial overdraft fee legislation offered by Rep. Carolyn Maloney (D-NY) languished in committee due to fierce opposition from the banks.

Here are a few selections from the executive summary, confirming what we already know (that these these programs are unfair, tricky, and make lots of money for the banks at the expense of younger, less-well-off consumers):

Aggregate data from over 1,000 banks:

You get the idea. There's a lot more in the study and its accompanying exhibits.

UPDATE: I took PIRG's own Deflate Your Rate advice and called Citi to complain and ask for a lower rate. They gave me a very good rate, even better than my old pre-Jack rate. Now, that could be because I have had this card in good standing for 15 years, or because they read my blog, or because I made the call. I hope more consumers make that call, rather than submit to the ridiculous 17.99% APR re-pricing rate.

ORIGINAL POST YESTERDAY: Got a Thanksgiving card from Citibank. Well, it isn't a card, but it isn't a letter. It's a boilerplate change of terms notice jacking my rate by 3% (previous blog on recent Citi announcement). According to news stories, Citibank is repricing (raising) rates on about 20% of its customers, despite promises to Congress and the public it would not (without a card-related reason such as a late payment). Here's my profile:

If that's the profile of their worst 20% of customers, why are they in so much trouble? MORE:

According to the most recent Fed G-19 statistical release, the average APR for customers who don't pay interest is 11.93%; for those who pay interest, 13.64%. Either way my new rate of a minimum of 17.99% is outrageous, even if I don't carry a balance (so I don't pay finance charges).

It may be more likely that I have been re-priced due to the "science" of behavioral scoring: I may live in a zip code or shop in stores where a lot of their other customers are deadbeats. Since I live in the burbs of our nation's capitol, this is troubling-- meaning the country is likely being run by deadbeats. But actually, according to the Fed's dynamic maps of credit card delinquency rates, I live in an area with very low delinquencies.

Maybe their supercomputers are programmed wrong. Probably the same computer that calculated their risk exposure from derivatives and currency default swaps. How's that going for ya? They've blown a gasket (legacy computers may have gaskets, who knows) and yellow lights are flashing on consoles that my shopping and card use profile has changed. Instead of my normal profile of marching through malls looking for dangerous toys, which is about the only time I visit one, perhaps I have a new updated profile in Citibank's South Dakota citadel. I guess Citibank's supercomputers have run an analysis predicting that I'm gearing up for a mall shopping binge tomorrow on Black Friday.

More likely, it means Citigroup is in worse trouble than even the front pages tell us. Despite the extremely favorable terms of the new Citigroup bailout, maybe it just isn't enough and they need me to kick in, too. (The Economist's View blog skewers the terms of the Citi bailout granted by Treasury Secretary Hank Paulson and the Fed.)

And if you are wondering when I would work in turkey and football, I thought we'd close with baseball. Last year Citi bought the naming rights for the new Shea Stadium (also built on the backs of taxpayers). Now that Citi has its own special taxpayer bailout, two New York City Councilmembers have proposed to re-name the new home of the Mets from Citi Field to Citi/Taxpayer Field:

Mr. Oddo quipped: “Not naming the field after Jackie Robinson in the first place: mindless. Tom Seaver stepping onto the new mound for the first time: timeless. Actually acknowledging the contributions of the hardworking taxpayer: priceless.”

UPDATE: New York Times story confirming Citi will jack rates. "The move appears to backpedal from a commitment that Citigroup executives made to Congress in early 2007 when they tried to fend off greater regulation by promising not to raise rates until an account expires."

Today's Wall Street Journal story Citi to Cut More Jobs, Raise Rates on Its Plastic (pd. subs. req'd) confirms rumors that Citibank plans to jack the rates (re-price) of good credit card customers for what appears to be no reason except the economy:

"The industry has recently experienced an unprecedented market cycle with severe funding dislocation and significant consumer credit deterioration driven by the mortgage crisis and rising unemployment. In light of these unprecedented developments and others, Citi will be repricing a group of customers in our Citi-branded consumer credit-card business in the U.S. to appropriately manage these risks," said John Carey, chief administrative officer of the credit-card unit.

Citi will consider increasing a customer’s interest rate only on the basis of his or her behavior with us -- when the customer fails to pay on time, goes over the credit limit, or bounces a checks.

We've joined a number of public interest, civil rights and housing organizations in support of a petition for appellate review of the decision in Cuomo v. Clearinghouse Association and OCC. In previous decisions, the court held that even in circumstances where the federal Office of the Comptroller of the Currency (OCC) recognized that national banks still had to comply with state fair housing and consumer laws, that only it (the OCC), not state attorneys general or bank supervisors, could enforce those state laws.

The 2004 decision by the Office of the Comptroller of the Currency to displace states’ longstanding enforcement power with respect to state consumer protection and anti-discrimination laws severely disrupts states’ traditional law enforcement regimes. It directly contravenes this Court’s precedents and turns a fundamental principle of federalism on its head. The notion that valid and binding state laws may be enforced only by the national government is both perplexing and contrary to principles of federalism embedded within the Constitution.

This law review article by bank law scholar Professor Arthur Wilmarth explains some of the wrong-headed analysis by the lower court in one of the two predecessor decisions leading to this petition, OCC v. Spitzer (New York's attorney general previous to Andrew Cuomo).

Banks claim that their use of tricky high fee schemes and penalty interest rates now imposed on many credit card holders on a hair-trigger basis is due to sophisticated risk models that show those consumers are going to go bad. Actually, there's another reason. The USA Today story Why banks are boosting credit card interest rates by Kathy Chu and Byron Acohido explains that the growth in securitization of credit card debt encourages banks to pile on higher fees and interest.

Here's why: When banks package and sell card debt, they pass along to investors some of the risk the debt will go bad. Yet, banks often get to pocket much of the profit from rate and fee increases on those accounts. Imposing higher fees on more accounts — without a comparable rise in risk — lets banks raise revenue and keep profits up, at customers' expense. Securitization has been a "major impetus" for banks to expand penalty fees and rates in recent years, says Adam Levitin, a Georgetown University law professor and card expert. Banks "have little to lose if they squeeze too hard (if consumers default), but a lot to gain if they can extract additional payments" from card users, he says.

Update: Gift card holders may be out of luck in retail bankruptcies in the LA Times explains that when companies file bankruptcy consumers lose the value of unused prepaid gift cards.

Original post: Over the last several years plastic payments, especially debit, have eclipsed cash and check transactions. Also, the Internet has provided a new portal for shopping and bill payments and has stimulated development of still more payment systems (Paypal, cell-phone payments, etc.). But the laws have not kept pace. So, the only way I will pay on the Internet is with a credit card. It's the safest way. You risk all the money in your bank account and more when you use check transfers or debit cards.

In addition, as banks added and increased fees without mercy or regulatory oversight, more and more consumers found themselves un-banked. Others found themselves on debt and fee treadmills. Meanwhile, check-cashers, payday lenders, rent-to-own stores and other high-cost lenders boomed as they were able to march through state legislatures enacting safe harbor laws that exempted their products from usury (interest rate ceilings) and other protections. Federal regulators and Congress ignored or even encouraged the trend.

The laws have not kept pace. The New York Times has some stories today on payment systems. First, the brief Social Currency by Rob Walker discusses prepaid debit cards. These cards (marketed by hip-hop stars and others) have fees, but do not always link to bank accounts. Debit cards in general are not as well protected as credit cards; debit cards not associated with bank accounts are less well-protected than bank account debit cards, and of course, do not come with the possible savings benefits of bank accounts (if you can afford the fees, you can save). Along with the Consumers Union, the Consumer Federation of America, the Center for Responsible Lending and others, we have long called for comprehensive reform of the payments system. It should be high on the agenda of the new Congress. Here are some resources.

That ought to be enough to get Congressional oversight committees off to a start on reform.

The NYT Magazine also has a much longer feature Check Cashers, Redeemed by Douglas McGray of the New America Foundation that points out some of the problems with the unregulated new businesses but also points out that the banks are partly to blame:

“If they’re properly regulated and scrutinized, there’s nothing wrong with check cashing as a concept and there’s nothing wrong with payday loans as a concept,” Robert L. Gnaizda, general counsel for the Greenlining Institute, a California nonprofit focused on financial services and civil rights, told me. “And there’s nothing automatically good about free checking accounts if you have multiple fees whenever you make the most minor mistake.”

The Arkansas Supreme Court has ruled that the state's Check Casher's law -- which has enabled quadruple-digit APR payday lending -- violates the State Constitution's 17% usury ceiling. Article in Arkansas Business. Link to the decision. In a separate decision, the court also today rejected the lenders' plea that a payday lending class action case be shipped off to lender-friendly arbitration.

Kudos to the faith, consumer, civil rights, credit union and other organizations that joined together to win important predatory lending victories in Ohio and Arizona Tuesday. In both states, voters resoundingly rejected multi-million dollar astro-turf campaigns by out-of-state payday lenders to overturn state laws strictly regulating their previously mostly-unregulated triple-digit APR predatory payday loans. Don't let the door hit you on your way out, guys.

In Arizona, voters defeated Prop. 200 on a 60-40 vote (Arizona Star story and editorial). Defeat of Prop. 200 means an existing permissive law will likely sunset (or expire) as planned in July 2010 as we think the lenders have now exhausted both the legislature's and the public's patience in that state. Website of the Arizona PIRG-backed No On 200 coalition with their cute loan shark video take-off of the old SNL classic "land shark" pieces.

In Ohio, voters approved Issue 5 on a 64-36 vote, implementing new bi-partisan legislation strictly regulating payday loans (Cleveland Plain Dealer editorial). The Ohio PIRG-backed Yes On Issue 5 has some nice videos also.

Boring ballot question policy sidebar: Of course, except for certain spending laws in some states, legislative laws do not usually need to be approved by voters to take effect. In Ohio, the lenders were allowed to put the question on the ballot asking for a "No vote" against the new law. They cleverly reversed the typical wording "Yes, pass our proposal," to "No, defeat their proposal" in an unsuccessful effort to confuse voters. In ballot questions, when a voter doesn't care, or isn't sure, he or she is more likely to vote No, all other things being equal. Well, the lenders wrote their ballot question backwards, but the voters voted straighforwardly against predatory triple-digit loan sharking. Our previous blog.

I am getting calls from the press about credit card company use of behavioral credit scores to lower credit limits. According to press reports, American Express, at least, (MSNBC story) has admitted lowering the limits of otherwise good customers because they might shop at stores that customers who've defaulted on their cards also shopped at. I am sure other majors are also using behavioral scores. A credit score is derived from a regulated credit report. A behavioral score could be derived from a variety of unregulated information sources, including, in this case, where you use your card. "Experience and transaction" information is something that the bank obtains from your own account data. The bank can enhance it with commercially available outside data sources to develop a virtually unregulated dossier on you. Consumer groups including U.S. PIRG have long argued that "experience and transaction" information -- one of the richest sources of detailed information about you -- should be subject to greater privacy rights. It is not. I also said above that all the big banks are probably using behavioral scoring. So are the subprime lenders.

This summer, I had an entry about parallel FDIC/FTC legal actions against a subprime predatory "fee-harvester" credit card company known as CompuCredit. That firm is known for issuing low-limit cards of $250 or so with the catch of over $150 in upfront fees or more, leaving consumers with a now easy-to-exceed less than $100 limit right out of the box. In addition to calling the marketing of cards with such ephemeral limits deceptive, the agencies called a wide variety of the firm's other practices deceptive. Among these was its undisclosed use of behavioral scoring to reduce credit limits. For example, according to the FTC's complaint at page 34 :

75. CompuCredit has based these credit line reductions on an undisclosed “behavioral” scoring model that penalized consumers for using their cards for certain types of transactions, including transactions touted in their solicitation materials such as cash advances and transactions with the following types of merchants: • Direct marketing merchants • Marriage counselors • Personal counselors • Automobile tire retreading and repair shops • Bars and night clubs • Pool and billiard establishments • Pawn shops • Massage parlors. 76. In some instances, CompuCredit reduced subscribers’ credit limits to levels below their existing balances and then charged over-limit fees.

Bob Herbert's column today Climbing Down the Ladder talks about the impact of the mortgage crisis on older homeowners: "Losing a home to foreclosure is a disaster for anyone. It’s a catastrophe for older people." Also, Gene Sperling and Michael Barr of the Center for American Progress have a well-reasoned column Poor Homeowners, Good Loans that obliterates the mean-spirited, fact-less campaign to blame it all on the Community Reinvestment Act.

It is not tenable to suggest that the Community Reinvestment Act, which was enacted more than 30 years ago, suddenly caused an explosion in bad subprime loans from 2002 to 2007. During the 1990s, enforcement under the reinvestment act was strong, prime lending to low-income communities increased and it was done safely. In 2000, a Federal Reserve report found that lending under the act was generally profitable and not overly risky.

In today's New York Times, an editorial The College Credit Card Trap features our U.S. PIRG Education Fund's truthaboutcredit.org project:

With financing from the Ford Foundation, Uspirg has begun a national campaign urging schools to adopt some common-sense principles that would help shield students from credit card marketers and financial ruin.

The group calls on universities to stop selling the names and contact information of currently enrolled students to credit card marketers. It also says that schools should ban marketers from using gifts to entice students to sign up for credit cards, and it urges schools to do more to educate students on managing debt responsibly.

Most importantly, the group calls on schools that still decide to cut deals to only do business with credit card companies that steer clear of commonly used but unscrupulous credit card terms that take advantage of students. That means an end to hidden fees or unreasonable penalties, including universal default, under which interest rates go up when the customer fails to pay a bill not related to the credit card account.

In addition to the Presidential and Congressional elections, there are numerous important questions on the ballot (see Ballot Initiative Strategy Center list) around the nation. Two of the most important are in Arizona and Ohio, where predatory payday lenders are spending millions to confuse citizens into supporting their campaigns to continue making triple-digit APR small loans. Yesterday, Arizona PIRG and Arizonans for Responsible Lending issued a release with the lede:

Early findings of a University of Arizona study find that 5 percent of University of Arizona freshmen took out a payday loan last year, as reported by two professors at the University of Arizona’s Norton School of Family and Consumer Science.

In Ohio, the lenders have apparently finally qualified (after a messy signature campaign) their measure that seeks to overturn a recent law criminalizing payday lending. We urge a YES vote on issue 5 in Ohio to sustain the new law capping payday's typical interest rates of 391% APR or more at a reasonable 28%. This new report from Policy Matters Ohio finds that credit counselors oppose payday lending.

Oh, and don't forget, in Arizona, the Consumer Rights League is actually the bad guys. In Ohio, watch out for Ohioans for Financial Freedom. Both groups are among the astroturf fronts created by the industry's national lobby with the nice "hey, neighbor" sounding name, the Community Financial Services Association. They're on the run around the country, but they've still got millions in profits extracted from the pockets of hard-working Americans that they're driving into Ohio and Arizona by the truckload. Ohio and Arizona are critical battlegrounds in the campaign to end predatory lending.

Risky mortgage products, not risky borrowers, are the root cause of the mortgage default crisis, according to findings from a new study of default rates among low-income and minority home buyers conducted by the University of North Carolina at Chapel Hill's Center for Community Capital.

The researchers, looking at affordable mortgage programs for low- and moderate-income consumers, found that home-loan borrowers with similar risk characteristics defaulted at much higher rates when they used subprime mortgages not made for Community Reinvestment Act (CRA) purposes.

Federal investigators have organized a task force to examine any wrongdoing at Washington Mutual, the troubled savings bank that regulators seized and sold to JPMorgan Chase late last month.

Over the last several weeks, opponents of fair lending and naive others looking to blame something other than deregulation, lax regulation and excessive risk-taking by Wall Street for the worldwide financial crisis have ginned up a sometimes mean and manifestly undocumented and false campaign that seeks to place the blame for the entire global economic collapse on one small, but important, obligation of banks. A law known as the Community Reinvestment Act of 1977, or CRA, imposes reasonable obligations on banks to make loans in the communities where they take deposits. It does not require that those loans be subprime nor does it allow community groups to hold banks hostage, let alone control the world economy. The Center for Responsible Lending has more; so does an editorial Misplaced Blame in today's New York Times.

Last week Citibank made a federally-assisted $2 billion offer for Wachovia's banking assets only, then on Friday Wells Fargo countered with $15 billion of its own money for all of Wachovia. The battle is playing out in state and now federal court filings (Associated Press and Washington Post). Seems as if mighty Citibank made kind of a low-ball offer and the government jumped too soon...now the government may try to cut the cake, giving each a piece to speed the deal and get all the lawyers out of court where they appear to be depleting Wachovia's value further in legal fees.

Well, if all those Countrywide subprime option ARM loans were entered into by knowing consumers who understood the "fair" terms of their contracts, why has the new Countrywide owner, Bank of America, agreed to an $8 billion (record by far) settlement over predatory practices with those pesky state Attorneys General? From the Wall Street Journal (pd. subs. req'd):

With this settlement, we have the first-of-its-kind mandatory loan modification program," said Illinois Attorney General Lisa Madigan, who had filed a civil lawsuit alleging that Countrywide engaged in unfair and deceptive practices. "This program is going to help homeowners stay in their homes, which ultimately helps investors," she added. "It will shore up communities and therefore it will help with the economy.

“Unlike last week’s congressional bailout, this loan-modification program provides real relief for borrowers at risk of losing their homes. Tragically, California and the other states have had to step in because federal authorities shamelessly failed to even minimally regulate mortgage lending.”

Countrywide deceived borrowers by misrepresenting loan terms, loan payment increases, and borrowers’ ability to afford loans.

In yet another consolidation of the banking industry, Citibank has announced it will acquire the faltering Wachovia (FDIC website). The Big Three banks -- Chase, Bank of America and Citibank -- will now hold around 30% of all deposits nationwide. I expect that the big banks will renew their push to weaken the 10% national deposit cap rule.

Reporters have been calling-- what do consumers do when their bank is acquired?

Statement of U.S. PIRG’s Ed Mierzwinski on Defeat of Wall Street Bailout

“Today the House of Representatives listened to concerned Main Street voters and taxpayers and defeated a defective Wall Street bailout.

The flawed $700 billion package requested by the Bush administration had been fast-tracked to address the still-real threat of a financial markets meltdown. Any chance the bill would be worth passing fell apart when the Administration blocked the addition of real protections for homeowners and taxpayers and cynically insisted on provisions that made the bailout more like ice cream for the financial industry than tough medicine. That sweetness for Wall Street and bitter pills, and big tax bills, for Main Street doomed the bill in the House.

If serious about addressing the problem, Congress must make its number one priority protection for taxpayers by protecting homeowners from foreclosure. They must include a mandatory court-supervised program for modifying loan terms so people can pay their mortgages and stay in their homes. That will both lower the cost of the bailout and also preserve home values for their neighbors in communities across the country.

The Congress should also improve the bill’s vague and inadequate limits on executive compensation and improve accountability for the spending of the $700 billion taxpayer dollars on the table.

It is quite simple: If a company is going to rely on the taxpayer for cash, then taxpayers, not failed CEOs, deserve first choice of any bonuses and commissions for its success.

We will oppose any new bill before adjournment that fails to place Main Street first.

We also call on Congressional leaders to commit to addressing in the first 100 days of the next Congress a broader set of financial system regulatory reforms and of the economic stimulus package for Main Street that has stalled.”
-30-

According to a summary (below the "continue reading" jump) from the Speaker's office, final bi-partisan Wall Street rescue and bailout legislation will not include the consumer, civil rights, community, labor coalition's priority ask: giving bankruptcy judges the ability to prevent foreclosures to keep people in their homes and help taxpayers by reducing the cost of the bailout. The modest foreclosure prevention proposals remaining in the plan are expected to be inadequate. A deal on the unprecedented Wall Street bailout will likely be voted on today Sunday or tomorrow Monday. So, the foreclosure crisis will continue as homes, and entire neighborhoods, will continue to be boarded up. The question now is -- will the $700 billion dollars of market confidence money at the core of the bailout work? The taxpayers who will pay for it -- both in dollars and the opportunity cost of other programs that won't go forward -- are eager to know.

We can only hope that the Congress takes the few months before the new 2009 Congress to conduct vigilant oversight of what went wrong so it can conduct a more thoughtful implementation of additional reforms next year. Already this week, SEC Chairman Chris Cox has admitted the accuracy of a two-part SEC inspector general's report on its Bear, Stearns oversight failures (New York Times). We fully expect and will demand that Congressional hearings making plans for major financial reforms in 2009 include more than the usual suspects from the financial industry as witnesses. Those prudential reforms must put a higher priority on protecting taxpayers, homeowners, depositors and small investors and holding the financial regulatory system and its players accountable. After all, we taxpayers now own some of its former biggest players. Here is the Speaker's press release. Bailout summary follows.

Office of Speaker Nancy Pelosi -- Sept. 28, 2008

REINVEST, REIMBURSE, REFORM

IMPROVING THE FINANCIAL RESCUE LEGISLATION

Significant bipartisan work has built consensus around dramatic improvements to the original Bush-Paulson plan to stabilize American financial markets -- including cutting in half the Administration's initial request for $700 billion and requiring Congressional review for any future commitment of taxpayers' funds. If the government loses money, the financial industry will pay back the taxpayers.

3 Phases of a Financial Rescue with Strong Taxpayer Protections

* Reinvest in the troubled financial markets … to stabilize our economy and insulate Main Street from Wall Street
* Reimburse the taxpayer … through ownership of shares and appreciation in the value of purchased assets
* Reform business-as-usual on Wall Street … strong Congressional oversight and no golden parachutes

CRITICAL IMPROVEMENTS TO THE RESCUE PLAN

Democrats have insisted from day one on substantial changes to make the Bush-Paulson plan acceptable -- protecting American taxpayers and Main Street -- and these elements will be included in the legislation

Protection for taxpayers, ensuring THEY share IN ANY profits

* Cuts the payment of $700 billion in half and conditions future payments on Congressional review
* Gives taxpayers an ownership stake and profit-making opportunities with participating companies
* Puts taxpayers first in line to recover assets if participating company fails
* Guarantees taxpayers are repaid in full -- if other protections have not actually produced a profit
* Allows the government to purchase troubled assets from pension plans, local governments, and small banks that serve low- and middle-income families

Limits on excessive compensation for CEOs and executives

New restrictions on CEO and executive compensation for participating companies:

* No multi-million dollar golden parachutes
* Limits CEO compensation that encourages unnecessary risk-taking
* Recovers bonuses paid based on promised gains that later turn out to be false or inaccurate

Strong independent oversight and transparency

Four separate independent oversight entities or processes to protect the taxpayer

* A strong oversight board appointed by bipartisan leaders of Congress
* A GAO presence at Treasury to oversee the program and conduct audits to ensure strong internal controls, and to prevent waste, fraud, and abuse
* An independent Inspector General to monitor the Treasury Secretary's decisions
* Transparency -- requiring posting of transactions online -- to help jumpstart private sector demand

Meaningful judicial review of the Treasury Secretary's actions

Help to prevent home foreclosures crippling the American economy

* The government can use its power as the owner of mortgages and mortgage backed securities to facilitate loan modifications (such as, reduced principal or interest rate, lengthened time to pay back the mortgage) to help reduce the 2 million projected foreclosures in the next year
* Extends provision (passed earlier in this Congress) to stop tax liability on mortgage foreclosures
* Helps save small businesses that need credit by aiding small community banks hurt by the mortgage crisis—allowing these banks to deduct losses from investments in Fannie Mae and Freddie Mac stocks

Well, I guess they heard people like good news better, and, of course, they saved Internet bandwidth by not talking about WaMu's record-breaking failure (previous blog).
Ed

Exciting News for our Customers!
We're proud to announce that WaMu has become part of one of the nation's strongest banks; your deposits remain insured by the FDIC and are now also backed by the strength and security of JPMorgan Chase.

As of September 25, 2008, JPMorgan Chase & Co. has acquired the deposits, loans, and branches of WaMu. Together, we offer superior banking convenience with over 5,400 branches and 14,000 ATMs in 23 states.
What will this mean for you?
• Your deposits continue to be insured by the FDIC, and are also immediately backed by the strength and security of JPMorgan Chase.
• If you bank at both WaMu and Chase, your deposits continue to be insured separately today just as they were yesterday, and generally will be for another six months. At that time, your deposits will be insured by the FDIC for up to $100,000 per depositor (with an additional $250,000 for self- directed retirement accounts), and will continue to be backed by the strength and security of JPMorgan Chase.
• Continue to bank just as you do today: same branches, account numbers, checks, ATM, debit and credit cards, customer service phone numbers, automated payments, and online banking.
• In the future, you'll be able to use Chase branches and ATMs nationwide; we'll let you know in advance.
Watch for more news to come on more products, new services and additional banking convenience!
JPMorgan Chase Bank, N.A., Member FDIC, Equal Housing Opportunity Lender.
(c) 2008 JPMorgan Chase & Co

Here's a newer (Wednesday) version of our coalition's Monday letter to Congress -- updated with numerous new sign-on groups -- demanding that bankruptcy judges be given the right to make court-supervised loan modifications as a mandatory condition of any Wall Street rescue bill. Preventing foreclosures keeps people in their homes making monthly payments and preserving neighborhoods. Helping homeowners helps taxpayers by reducing the cost of the Wall Street bailout. What part of that don't the President, Hank Paulson and Congressional opponents understand?

Yesterday, Wall Street bailout talks collapsed (Washington Post story, New York Times story) as dissident House Republicans rejected the President's proposal that was being negotiated by Congressional leaders and the President and plan architect Treasury Secretary Hank Paulson at the White House. While the House Republicans have philosophical opposition to market intervention, a number of House Democrats led by John Conyers (D-MI) and Zoe Lofgren (D-CA) and a broad U.S. PIRG-backed coalition also continue to oppose the plan, for different reasons. The proposal, even as modified by Congressional leaders, still does nothing for Main Street. It still lacks our lead demand -- giving consumers in dire straits modest loan modification rights to avoid foreclosure. As the New York Times asks in its lead editorial: What About the Rest of Us?

Mr. Paulson has long opposed what is probably the best way to help Americans stay in their homes: allowing a bankruptcy court to reduce the size of bankrupt borrowers’ mortgages. Unfortunately, but predictably, drafts of the bailout plan circulated late Thursday do not mention that relief. It is simply outrageous that every type of secured debt — except the mortgage on a primary home — can be reworked in bankruptcy court. The law was designed to protect lenders, who have obviously and disastrously abused that protection. There would be no favors dispensed in bankruptcy proceedings. Lenders would have to accept less of a payback and borrowers would have to submit to the oversight of the bankruptcy court for years.

Here's a great CNN video story The Money Pushers about recently released Youtube video interviews with former MBNA (now part of Bank of America) credit card call center "associates." Exposing the unfair tactics is a project of the PIRG-backed Americans For Fairness In Lending and the actual interviews are available at this "watch all the videos" page at AFFIL. From the AFFIL release:

Earlier this year, former employees of MBNA contacted AFFIL looking for a way to speak out about disturbing sales practices at one of the country’s largest credit card companies. “Everything that I was trained to do was about selling money, nothing else,” stated Cate Colombo, who worked for four years as a Customer Service Representative at MBNA, now run by Bank of America. “We were given financial incentives to drive customers more into debt. The company’s practices were absolutely unethical and should be illegal,” said Ms. Colombo.

[Updated; letter has more sign-ons 9/26.] We have joined leading consumer, civil rights, community and civic organizations in a letter -- updated with numerous new sign-on groups -- formally urging Congressional leaders to add a provision to the Wall Street rescue. The provision would simply allow bankruptcy judges to modify certain subprime loans so homeowners can avoid foreclosure proceedings and stay in their houses (and keep their neighborhoods strong). With all that Wall Street is getting in this proposed open-ended bailout, why do the banks continue to oppose this modest provision for Main Street, and, further, what moral ground do they have to stand on? See also previous blog on the bailout. Excerpt from our letter signed by (so far) 34 groups:

We cannot support, and urge you to oppose, legislation that fails to help the millions of families in danger of losing their homes, while spending hundreds of billions of dollars of taxpayer money to bail out those who caused the problem. Ever since the mortgage foreclosure crisis erupted into the public eye last year, our organizations have advocated Chapter 13 judicial modification relief as the most effective way, at no cost to taxpayers, to keep homeowners from losing their homes. We do not believe that this crisis can be resolved solely through voluntary efforts on the part of the financial services industry. It is no longer possible to trust the industry to dictate the terms of the public policy discussion about the mortgage foreclosure crisis. First, the industry insisted that there would be no mortgage foreclosure crisis.

UPDATE: The White House has issued a SAP (Statement of Administration Policy) opposing the Credit Cardholders Bill of Rights (which may come up as early as 10AM Tuesday). It's more like a SOP to its industry cronies.

Original post: We're urging all members of Congress to support the Credit Cardholders' Bill of Rights, HR 5244, sponsored by Rep. Carolyn Maloney (D-NY) and 155 co-sponsors. It's something that Congress can do for Main Street, in this week of extraordinary efforts on behalf of Wall Street. Oh, by the way, the Credit Cardholders' Bill of Rights is not a bailout, it simply bans the banks' worst unfair and deceptive practices. As our U.S. PIRG floor letter, our coalition floor letter and this letter signed by leading civil rights groups all point out, it is modeled on a similar Federal Reserve proposal. The bill could be considered as early as Tuesday. Of course, it enjoys fierce opposition from the banks that have placed Americans in debtors' prisons without walls due to their use of a variety of unfair and deceptive practices it would make illegal.

Update: Here are latest versions of the Treasury proposal and the Senate and House counter-proposals. We understand that the House proposal will have the Senate's consumer bankruptcy modification proposal added. It must. Any final Wall Street bailout law must include this Main Street provision. By the way, there's quite a bit of analysis of the proposals and the debacle over at Dean Baker's and Credit Slips and Consumer Law and Policy blogs.

Earlier post: On the last day for Yankee Stadium (The House that Babe Ruth built, AP photo, 1948), the last remaining Wall Street self-proclaimed so-called "masters of the universe" -- the Wall Street investment houses that Goldman and Morgan built -- announced plans (New York Times) to become regulated bank holding companies, giving themselves more regulation in return for more access to government capital at low rates. While the Yankees had a downturn this year, they never collapsed like failed masters of the universe Bear, Lehman and Merrill, along with the bailout kids at AIG and others. Based on the scenes at the Stadium last night, there is more fan confidence in a Yankee return to masters of the universe greatness than investor or consumer or taxpayer confidence in the Paulson "blank-check-bigger-than-the-Iraq-war" plan. It is critical that Congress add prudential safeguards to the proposal, including greater GAO and Congressional oversight and transparency. Congress must also insist on the following:

On the New York Times' op-ed page, in his column Cash for Trash, economist Paul Krugman explains some of the problems with the Paulson proposal.

I've received what appears to be a discussion draft of the proposed legislation to establish the $700 billion bailout authority. I cannot find this on the Treasury website but it looks accurate based on press reports. It certainly needs work over the next few days (it is supposed to pass into law by Friday) to meet the oversight principles I expect that the Congress will demand, and the public interest principles to protect homeowners, depositors and taxpayers that consumer and community groups are calling for, as I outlined in my previous blog entry. Below is the language. Sorry I don't have pdf-making software here on my home laptop.

Broad grant of authority to Secretary

LEGISLATIVE PROPOSAL FOR TREASURY AUTHORITY TO PURCHASE MORTGAGE-RELATED ASSETS
Section 1. Short Title.
This Act may be cited as ____________________.
Sec. 2. Purchases of Mortgage-Related Assets.
(a) Authority to Purchase.--The Secretary is authorized to purchase, and to make and fund commitments to purchase, on such terms and conditions as determined by the Secretary, mortgage-related assets from any financial institution having its headquarters in the United States.
(b) Necessary Actions.--The Secretary is authorized to take such actions as the Secretary deems necessary to carry out the authorities in this Act, including, without limitation:
(1) appointing such employees as may be required to carry out the authorities in this Act and defining their duties;
(2) entering into contracts, including contracts for services authorized by section 3109 of title 5, United States Code, without regard to any other provision of law regarding public contracts;
(3) designating financial institutions as financial agents of the Government, and they shall perform all such reasonable duties related to this Act as financial agents of the Government as may be required of them;
(4) establishing vehicles that are authorized, subject to supervision by the Secretary, to purchase mortgage-related assets and issue obligations; and
(5) issuing such regulations and other guidance as may be necessary or appropriate to define terms or carry out the authorities of this Act.
Sec. 3. Considerations.
In exercising the authorities granted in this Act, the Secretary shall take into consideration means for--
(1) providing stability or preventing disruption to the financial markets or banking system; and (2) protecting the taxpayer.
Sec. 4. Reports to Congress.
Within three months of the first exercise of the authority granted in section 2(a), and semiannually thereafter, the Secretary shall report to the Committees on the Budget, Financial Services, and Ways and Means of the House of Representatives and the Committees on the Budget, Finance, and Banking, Housing, and Urban Affairs of the Senate with respect to the authorities exercised under this Act and the considerations required by section 3.
Sec. 5. Rights; Management; Sale of Mortgage-Related Assets.
(a) Exercise of Rights.--The Secretary may, at any time, exercise any rights received in connection with mortgage-related assets purchased under this Act.
(b) Management of Mortgage-Related Assets.--The Secretary shall have authority to manage mortgage-related assets purchased under this Act, including revenues and portfolio risks therefrom.
(c) Sale of Mortgage-Related Assets.--The Secretary may, at any time, upon terms and conditions and at prices determined by the Secretary, sell, or enter into securities loans, repurchase transactions or other financial transactions in regard to, any mortgage-related asset purchased under this Act.
(d) Application of Sunset to Mortgage-Related Assets.--The authority of the Secretary to hold any mortgage-related asset purchased under this Act before the termination date in section 9, or to purchase or fund the purchase of a mortgage-related asset under a commitment entered into before the termination date in section 9, is not subject to the provisions of section 9.
Sec. 6. Maximum Amount of Authorized Purchases.
The Secretary’s authority to purchase mortgage-related assets under this Act shall be limited to $700,000,000,000 outstanding at any one time
Sec. 7. Funding.
For the purpose of the authorities granted in this Act, and for the costs of administering those authorities, the Secretary may use the proceeds of the sale of any securities issued under chapter 31 of title 31, United States Code, and the purposes for which securities may be issued under chapter 31 of title 31, United States Code, are extended to include actions authorized by this Act, including the payment of administrative expenses. Any funds expended for actions authorized by this Act, including the payment of administrative expenses, shall be deemed appropriated at the time of such expenditure.
Sec. 8. Review.
Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency
Sec. 9. Termination of Authority
The authorities under this Act, with the exception of authorities granted in sections 2(b)(5), 5 and 7, shall terminate two years from the date of enactment of this Act.
Sec. 10. Increase in Statutory Limit on the Public Debt.
Subsection (b) of section 3101 of title 31, United States Code, is amended by striking out the dollar limitation contained in such subsection and inserting in lieu thereof $11,315,000,000,000.
Sec. 11. Credit Reform.
The costs of purchases of mortgage-related assets made under section 2(a) of this Act shall be determined as provided under the Federal Credit Reform Act of 1990, as applicable.
Sec. 12. Definitions.
For purposes of this section, the following definitions shall apply:
(1) Mortgage-Related Assets.--The term “mortgage-related assets” means residential or commercial mortgages and any securities, obligations, or other instruments that are based on or related to such mortgages, that in each case was originated or issued on or before September 17, 2008.
(2) Secretary.--The term “Secretary” means the Secretary of the Treasury.
(3) United States.--The term “United States” means the States, territories, and possessions of the United States and the District of Columbia.

The New York Times reports in a story by David Herszenhorn on its website on Saturday: Rescue Plan Seeks $700 Billion to Buy Bad Mortgages. The amount is staggering as the story points out:

A $700 billion expenditure on distressed mortgage-related assets would be roughly what the country has spent in direct costs on the Iraq war and more than the Pentagon’s total yearly budget appropriation. It represents more than $2,000 for every man, woman and child in the United States.

Most of the assets in the S.& L. crisis were real estate — which are always going to have value. And the government didn’t have to acquire them; it simply took them over and, over time, sold them. This time, the assets are complex derivatives of uncertain value that the big firms will actually be selling to the government. But how is the government going to assess these securities — and what price will it pay for them? In many cases, these securities aren’t being sold because they are still overvalued on a firms’ books.

UPDATE: The NYTimes is reporting that the State of New York will allow AIG to borrow $20 billion from its own state-regulated subsidiaries.

ORIGINAL POST: Floyd Norris at the New York Times is "live-blogging" Wall Street crisis updates today. At 10:55AM he has some interesting analysis about the still-looming likely failure of insurance giant AIG:

It was a couple of years ago that we learned AIG had sold, and bought, so-called finite insurance to manipulate financial statements.[...] Lesson: If you find out management is willing to cut corners in the financial statements, you should flee.

Sunday was no Sunday at the beach for Wall Street self-proclaimed masters of the universe. We'll have to see what that ultimately means for small investors. Venerable investment bank Lehman Brothers announced it will file bankruptcy; Merrill Lynch likely dodged that bullet by finally agreeing to be acquired by Bank of America; and meanwhile, insurance colossus AIG and S&L giant Washington Mutual teetered. Following round the clock meetings all weekend, surviving bankers agreed to backstop themselves with a multi-billion dollar emergency borrowing facility while regulators who refused any more full Bear Stearns style bailouts for non-depository institutions that also thought they too were too-big-to-fail did agree to flexibility (New York Times story) in capital requirements and emergency loan standards. The operative words were the F-words fear, faltering, failure:

Even leaving aside the obvious need to regulate the shadow banking system — if institutions need to be rescued like banks, they should be regulated like banks — why were we so unprepared for this latest shock? When Bear went under, many people talked about the need for a mechanism for “orderly liquidation” of failing investment banks. Well, that was six months ago. Where’s the mechanism?

In an editorial Consumer Protection today, the New York Times calls for Presidential candidates to urge House leaders Speaker Nancy Pelosi (D-CA) and Majority Leader Steny Hoyer (D-MD) to bring the PIRG-backed Credit Cardholders' Bill of Rights to the floor for a vote and to introduce a similar Senate bill.

For all of these candidates who keep talking about helping the ordinary American, this should be an easy one. Get behind the Credit Cardholders’ Bill of Rights now, before the election.

One observer briefed on the situation described the session as a “game of chicken” between the government and the heads of the major banks.

We must avoid simply merging regulators and hoping for synergies. We need a system that focuses on the prevention of crimes and crises...

He makes the interesting proposal of walls between classes of customers. We are not sure that will be enough of a solution to address the meltdown that has been created by numerous factors ranging from the too-big-to-fail doctrine that placed deposit insurance and taxpayers at risk and the interconnections that created flashpoints and accelerants instead of fire breaks, but it could be a part of a solution. Excerpt:

Seventy-five years later, instead of trying to limit what products innovative financial firms can offer, it would be more prudent to limit the markets to which they can sell their wares. In other words, the customers, not the companies, should be divided. This could be accomplished by extending the current system of government classification of “qualified investors,” used to limit who can invest in things like hedge funds. By demonstrating expert knowledge or the ability to absorb loss (because of high net worth), qualified investors could be given a pass into the caveat emptor world of modern Wall Street. Those without the inclination, the sophistication or the deep pockets to qualify would be limited to the more closely regulated menu of stocks, bonds and mutual funds.

We often point out that all plastic is not created equal. This week, we joined Consumers Union in a petition to the FTC to improve the rights of gift card holders (AP story via Rocky Mountain News). If you were the recipient of a now-valueless Sharper Image gift card following its bankruptcy, you know what I mean. If not, here is an excerpt from our joint petition (the Consumer Federation of America and National Consumer Law Center also joined CU).

Gift cards do not have adequate consumer protections, particularly when a retailer files for bankruptcy. Consumers are now discovering their gift cards may be greatly devalued or not worth anything at all when a retailer declares bankruptcy. There is no guarantee to consumers that they will be able to obtain the prepaid value on their gift cards from struggling or bankrupt retailers.

Declare the sale of gift cards without both segregating the funds and holding those funds in a trust to be an unlawful and deceptive practice; and

Prescribe new rules that require retailers to both segregate and hold in trust gift card funds, and to automatically honor a consumer’s gift card from those segregated funds for goods or services until or unless a bankruptcy court orders otherwise.

There's a lot of bluster and blubber out on the net about Fannie and Freddie. If, instead, you want common sense analysis you can count on, check out the latest from public interest economist Dean Baker: Statement on the Conservatorship of Fannie Mae and Freddie Mac. He recognizes the importance of their role:

By creating the secondary-mortgage market, they created first a national and then an international market for home mortgages. This had the effect of equalizing interest rates across the country and making homeownership affordable to millions of families.

We would have benefited enormously had Fannie and Freddie operated in a conservative manner - buying up mortgages that met solid lending criteria, and packing them into standard mortgage-backed securities. Fannie and Freddie's eagerness to keep market share, even at the cost of acquiring riskier mortgages, was the main cause of their bankruptcy. Their innovative private-sector practices are likely to cost taxpayers tens of billions of dollars in this bailout, in addition to the much greater harm they caused to the economy by extending the housing bubble.

As expected (my previous blog), Treasury Secretary Paulson (remarks, fact sheets, etc) and the little-known Fannie/Freddie overseer, the Federal Housing Finance Agency director Joe Lockhart (statement), held a Sunday morning news conference to announce the takeover of the quasi-public Fannie Mae and Freddie Mac. Fed chairman Bernanke's statement. Joint bank regulator news release. New York Times website story. Washington Post website story. Floyd Norris in the NY Times. Blog by Dean Baker, an economist and co-director of the public interest think tank Center for Economic and Policy Research: "Yes, this was predictable." More from Baker:

From Dean Baker:

As I said back in September of 2002: "If housing prices fall back in line with the overall rate price level, as they have always done in the past, it will eliminate more than $2 trillion in paper wealth and considerably worsen the recession. The collapse of the housing bubble will also jeopardize the survival of Fannie Mae and Freddie Mac and numerous other financial institutions."

The Treasury Department on Sunday seized control of the quasi-public mortgage finance giants, Fannie Mae and Freddie Mac, and announced a four-part rescue plan that included an open-ended guarantee to provide as much capital as they need to stave off insolvency. At a news conference on Sunday morning, the Treasury secretary Henry M. Paulson Jr. also announced that he had dismissed the chief executives of both companies and replaced them with two long-time financial executives.

Freddie Mac and Fannie Mae have also inflated their financial positions by relying on deferred-tax assets — credits that the companies have built up over the years that can be used to offset future profits. Fannie maintains that its worth is increased by $36 billion through such credits, and Freddie argues that it has a $28 billion benefit. But such credits have no value until the companies generate a profit -- something they have failed to do over the last four quarters, and something that is increasingly unlikely within the next year.

The New York Times has a story today by Bob Driehaus -- Some States Set Caps to Control Payday Loans. It's a good overview of recent state efforts to push back against predatory payday lenders. The loan sharks enjoyed a good run for a while, and used massive campaign contributions to successfully pass numerous laws preserving their right to charge triple digit interest and keep consumers in perpetual debt, but state legislators are finally realizing that high cost lenders are bad guys, not good guys, and that payday loans aren't a choice worth having in the marketplace. Of course, as the story notes, the lenders are mounting ballot initiative campaigns in states where allowed, in efforts to try and overturn the new pro-consumer usury limits that many states have approved. My previous blog.

In an extraordinary move, the government is moving to place the once high-flying, once public, long "private" government sponsored enterprises (GSEs) that securitize mortgages -- Fannie Mae and Freddie Mac -- into conservatorship. In this case, average shareholders will apparently be left with nothing, but the banks and financial institutions that hold the firms' preferred stocks will get some value. The latest story, Loan Giant Overstated the Size of Its Capital Base, by Gretchen Morgenson and Charles Duhigg for tomorrow's New York Times, says that both, but especially Freddie, cooked the books to make their financial situation appear less precarious.

I used quotes around the word "private" up above because the two GSEs had long enjoyed a presumption of government backing and loan guarantees that had enabled them to grow perhaps too large in shareholder value as well as in political power and arrogance. This led to them losing touch with their primary mission as they sought to increase profits. Even though they serve a critically important role in the liquidity of the housing marketplace, this rampant political power probably caused Congress and even some outside groups to let the firms' growing abuses of accounting standards slide for too long, despite the warnings of a significant group of academic and independent critics. Worse, their executive bonuses spun out of control, beyond rational or reasonable levels, as if the executives who worked there -- even for very short times -- had been deserving entrepreneurs who'd bootstrapped the firms' successes from inventions in their own garages based on their own genius, rather than leaned back in their leather chairs and relied on the explicit and implicit government guarantees and a booming housing market and economy for their actual successes.

See a recent Congressional Research Service summary of GSE issues. See also an older CBO study. While few would doubt that the dire circumstance of the interconnections between the U.S. housing crisis and the world economy necessitate some sort of drastic, rapid action by regulators, this entry by Alan White over at Consumer Law and Policy blog points out that:

The imminent nationalization of Fannie Mae and Freddie Mac (NYTimes story) while perhaps restoring some confidence in the short-run, cannot resolve the underlying debt crisis. The GSE's are being hit by both the decline in home values and the losses on subprime mortgage-backed securities they hold. Without government intervention to stop the tide of foreclosures and their attendant loss and waste, taxpayers will have to absorb continuing losses after the GSE shareholders are wiped out. As the taxpayers become the mortgage investors of last resort, it seems all the more reasonable for taxpayers to demand action to broadly restructure existing mortgages to align them with home values, instead of allowing foreclosures at 50% loss rates to continue.

Robert Greenstein, director of the respected Center on Budget and Policy Priorities, has issued a statement regarding the new Census Bureau data on poverty, income and health insurance. Excerpt:

Despite modest improvements in overall median income and health insurance coverage, the new Census data are disquieting. Though 2007 was the sixth (and likely the final) year of an economic expansion, poverty was significantly higher, the median income of non-elderly households significantly lower, and the number and percentage of Americans who are uninsured substantially greater than in 2001 - even though the economy was in recession that year. This is unprecedented. Never before on record has poverty been higher and median income for working-age households lower at the end of a multi-year economic expansion than at the beginning. The new data add to the mounting evidence that the gains from the 2001-2007 expansion were concentrated among high-income Americans.

Well, it appears that the federal captive regulator known as the OCC (our historical page OCCWatch) was asleep at the switch again, as it apparently let Citibank steal from its credit card customers for over a dozen years, with the theft continuing even after a whistleblower informed higher-ups. Fortunately,

California Attorney General Edmund G. Brown Jr. today announced that he has reached a settlement with Citibank after a three-year investigation into the company’s use of an illegal “account sweeping” program. Nationally, the company took more than $14 million from its customers, including $1.6 million from California residents, through the use of a computer program that wrongfully swept positive account balances from credit-card customer accounts into Citibank’s general fund. “The company knowingly stole from its customers, mostly poor people and the recently deceased, when it designed and implemented the sweeps,” Attorney General Brown said. “When a whistleblower uncovered the scam and brought it to his superiors, they buried the information and continued the illegal practice.”

There's always good stuff in the Multinational Monitor. From this month's issue:

Yesterday NCPIRG staff attorney Shana Becker and coalition colleagues rolled out NC SAVE$, an alternative to the controversial Duke Energy plan to charge ratepayers $16 each for compact fluorescent light bulbs worth less than two bucks each, all supposedly in the name of energy conservation. The coalition (Carolina Newswire) proposed that the state Utilities Commission establish NC SAVE$, instead of allowing Duke to run a ratepayer-fueled boondoggle for its shareholders.

NC SAVE$ would be an independent non-profit established by the Utilities Commission. Historically, the Utilities Commission has established non-profits to meet needs underserved by the utility companies. Advanced Energy Corporation was established to promote alternative energy generation methods, and to maximize the energy currently produced.

Over at the Consumer Law and Policy blog, Chris Peterson has a piece expanding on an Ohio NPR story about how Ohio Payday Lenders Caught Lying in Ballot Initiative Signature Drive. Listen here. My previous blog.

If you're an Ohio farmer and can't wait until the crops are in to get paid, not to worry. The Ohio payday lending industry wants to help you with a short-term high-cost payday loan, but only if a planned referendum repeals the new Ohio law strictly regulating payday loans. They're running a TV and Internet ad featuring a rare, salaried, "farmer" urging you to sign a petition to put the repeal on the ballot. Their main message is that the predatory industry creates jobs, as the "farmer" points out while talking in dialect out of the old Hee-Haw TV show: "They’re riskin' six thousand good payin' Ohio jobs by passin' laws that would shut um down." Previous blog. Expect the industry to spend millions, since they make many millions.

Parade Magazine says: Don't Get Clobbered By Credit Cards!. It's a good story on the reforms being pushed in Congress and offers helpful tips. Click on the link and you can also "vote" in an online poll. 97% of respondents -- so far --support Congressional action against unfair credit card company practices.

Over at Mother Jones, Stephanie Mencimer has a detailed piece Civil Rights Groups Defending Predatory Lenders: Priceless on the relationship between the Southern Christian Leadership Conference, (yes, the civil rights group once led by Martin Luther King) and the predatory lender CompuCredit, which has been sued by both the FTC and FDIC. In June, I had asked the Washington Post, which had naively published a deceptive piece by the current head of the SCLC, to run a version of my previous blog as a rebuttal letter or op-ed to that column by SCLC head Robert Steele. Instead, as Bill Moyers points out at the end of his excellent story The Business of Poverty, which ran this week on PBS, the Post merely ran a tiny, murky clarification that Steele had failed to tell them that SCLC had a previous business relationship with CompuCredit. Of course, leading civil rights groups are steadfastly aligned with consumer and anti-poverty groups against the predatory lenders.

Meanwhile, while its reporters and syndicated columnists have done an excellent job of covering the the credit card issue, the Post editorial board weighs in with this typically overly balanced no-real-position effort: Good Credit--The credit card industry could use a dose of wise regulation. We think it's sort of for our position that the credit card industry is out-of-control, if we presume that the last sentence includes a typo. Here's the end:

So far, light regulation of the credit card business has been a good thing. But it is possible to have too much regulation.

If you think that the excesses of the credit card companies are limited to the United States, think again. In search of new business, the companies have expanded worldwide into cultures where debt had been a stigma. From the story The Debt Trap: Outside U.S., Credit Cards Tighten Grip appearing in Sunday's New York Times:

[Turkey:] As the American blessing of credit cards became widespread, so did the American curse of debt. Outstanding card debt here ballooned to nearly $18 billion last year, six times the level five years earlier. [...]By 2001, Mr. Uzel was deep in debt. Earning the equivalent of $4,360 a year, he had nearly $6,000 in unpaid balances on five credit cards. Seven years later, after borrowing from family, friends and even his boss to meet payments, he finally paid off his cards. “My best years as a young man have been wasted,” said Mr. Uzel, 32, fingering a set of worry beads. “I haven’t had a social life for 10 years. I’ve given the last penny in my pocket to the banks.”

In Turkey, change was prompted by a grim statistic. From 2003 to 2006, consumer groups said, 41 people died because of credit card debt, either through suicide or homicide.

The California Reinvestment Coalition has a new video on the mortgage crisis Mo'Money, Mo'Money, Mo'Money: How Greedy Corporations Destroy the American Dream. CRC made the video

to show how the foreclosure crisis affects everyone. Foreclosures destroy the dreams of California families and threaten the stability of small businesses, city governments and neighborhoods.[...] It also reveals how this disaster could have been avoided if regulators and government officials did not ignore predatory lending practices.

UPDATE: Check out today's New York Times editorial Listen to the 56,000 [comments to the Fed on credit card reform]. Last night, U.S. Rep. Carolyn Maloney (D-NY) and I appeared in a story (watch video) on New York City's WNBC-TV discussing the historic victory last week in the House Financial Services Committee, which approved her Credit Cardholders Bill of Rights on a 39-27 vote (previous explanatory blog) and sent it to the floor for possible action in September. The story also has soundbites from a variety of street interviews, where New Yorkers explain how their credit card company tricked them and trapped them into paying unfair fees and interest rates.

Also this week, we filed comments to the Federal Reserve Board, the Office of Thrift Supervision and the National Credit Union Administration in support of their credit card rules, which mirror the Maloney bill's provisions and would ban many common credit card company tricks and traps as illegal unfair and deceptive acts and practices. We also joined the National Consumer Law Center and others in more detailed, extended comments.

The House Financial Services Committee has scheduled a vote, or markup, of HR 5244, the PIRG-backed Credit Cardholders' Bill of Rights, to begin Wednesday at 2pm. Some other bills will also be voted on, so the event will most likely become a multi-day vote-a-rama.

After the Federal Reserve proposed surprisingly tough unfair and deceptive practices rules (still time to comment) that were quite similar to the original HR 5244, and in some ways stronger, the sponsors, subcommittee chairwoman Carolyn Maloney and Chairman Barney Frank, have modified the "committee print" of the bill to be considered to be virtually the same as the Fed proposal.

Congress should approve the bill: If it does, it in effect codifies into law a good proposed rule, which would take away two key uncertainties of waiting for the Fed: (1) That the final rule ends up weaker than the proposed rule after industry comments (possibly a problem) and (2) that the banks sue to delay, harass and overturn the rule (definitely a problem).

The banks are pulling out all the stops to defeat it. In 19 years in DC, I am unaware of any banking committee ever approving a bill that the credit card industry opposed. In 1987, before I got here, disclosure legislation was approved, resulting in the so-called Schumer Box on solicitations. But legislation making a variety of common bank practices illegal? Never. This is a big vote. We'll see which members resist the pressure from the banks to do the wrong thing. More information here in our letter to the committee.

Of course, I am aware that legislation on credit card interchange fees imposed on merchants passed the House Judiciary Committee earlier this month, but that, after all, is the Judiciary Committee, an away game. Plus, the banks were up against another powerful interest, small business. It was a big defeat for credit card companies, which means they are working even harder to delay or block or defeat legislation on their home field.

You can comment -- until August 4 -- to the Federal Reserve on its very important pro-consumer proposals to ban the worst unfair credit card practices. I agree with Bob Sullivan of MSNBC (he's got 231 interesting consumer comments on his blog post-- so, I hope they all took the extra few minutes and also filed with the Fed) on the easiest way to file.

Filing comments: Scroll down almost to the bottom of this page at the Fed website to where it says

Proposals for Comment
Regulation AA (Federal Trade Commission Act) -- Unfair or Deceptive Acts or Practices
Submit comment

In today's New York Times, Ron Lieber's story Danger Lurks When Shopping for Student Loans explains that when you shop for a student loan, the resulting inquiries, or hits, to your credit report

may damage your credit score. Since lenders quote higher interest rates to applicants with lower scores, some students could end up paying thousands of dollars more in interest over the life of their loans.[...] mortgage and auto loan seekers who comparison shop within a relatively short period of time do not see their credit scores suffer.

With the growth of risk-based credit pricing in the 1990s, the Fair Isaac Corporation (FICO) -- which uses secret algorithms to generate credit scores derived from credit reports -- became a powerful gatekeeper. Scores were objective and applicants could be ranked. The business grew. The lower your FICO, the more you paid, to offset the higher risk that you would default. FICO did a good PR job over the years of protecting its data algorithms as a black box. People knew what came in and what came out, but no one could look inside the box to see how it worked.

But from the beginning, advocates and agencies knew that the models had flaws. I've blogged previously on the well-known discriminatory impact of scoring generally (not only FICO's scores, all scores). All other things being equal, it's better to be white.

But another of the FICO model's biggest flaws was its failure to accurately discern the difference between shopping around for deals (good behavior) and pre-bankruptcy credit shopping sprees (bad). The model punished consumers for "too many inquiries." Essentially, this showed that the black box wasn't really as complicated inside as they pretended that it was. If it couldn't tell the difference between good behavior and bad behavior-- how sophisticated could it be?

As long ago as 1998, the FTC was concerned about consumer complaints when they shopped for cars. In many of these cases, car dealers were pulling credit reports illegally on people who were merely shopping around. When the car dealers foolishly asked the FTC for an opinion that would allow looking at the reports of consumers who hadn't applied for credit, it gave the FTC a chance to slap the practice down.

But the practice illuminated the problem with the FICO model-- if you went to 5 car dealers and they all (illegally in most cases, but that's part of the problem) pulled your report, when you actually applied for a car loan later that day, you paid more, because of "too many inquiries." Again, the model confused the rational consumer looking for the best deal with the consumer it was supposed to catch-- the last chance, desperate consumer looking for credit everywhere all at once. You would think, with all their data (billions of bits of data), they could do better.

As I noted, under pressure, several years later, FICO finally modified the scoring model, so that multiple inquiries for cars or mortgages in a short period of time would essentially be considered as one inquiry. Why did it take so long? Well, they aren't really regulated and they had a strong monopoly then and a pretty good one still.

But, as the Lieber article points out, they never made the change for student loans. Why not? I find it hard to believe that there have only been "5" complaints as a credit bureau flack asserts in the story. Lieber notes that action by Attorney General Andrew Cuomo of New York may help. It often does.

The disagreement wouldn’t matter if Fair Isaac bowed to the will of the New York State attorney general’s office. The office has been investigating the student loan industry for more than a year and has asked Fair Isaac to treat student loan borrowers like car and home shoppers. So far, Fair Isaac has refused to change its policy.

Journalist Ken Harney has been covering credit scoring for years. Several years ago, it took threats from Congress prompted by Harney columns for Sallie Mae to stop using its knowledge of the FICO algorithm to game the system and keep its own customers from shopping around for better deals.

Lenders know how the black box works, since they have thousands of data points of their own to test against the scores that the models spit out. Capital One and Citibank are among the large credit card companies that have also been accused of (and in Cap One's case, admitted to Congress that it was proud to do so) degrading their own customers' scores (by not reporting completely) so that those customers became captive and could not shop around. Again, Harney.

Here's my previous blog on credit scoring, Sallie and FICO.

If you want an idea of just how profitable predatory payday lending is, take a look at these astonishing new lobbying expenditure numbers from Richmond, where the payday lenders dumped $3.8 million into legislative lobbying. The last I checked (and I've been there), Virginia remains a part-time legislature of citizen legislators -- paid a nominal $18,000/year -- who meet just a few months each year. Yet, here's the headline in the Richmond Times Dispatch:
Lobbyists' spending sets record: Payday-lending backers spent $3.8 million while total topped $20 million. If the predatory payday lenders can afford to spend that much money in just one state in one year, that should give you an idea of how much they are taking out of the wallets of hard-working Americans each year.

While their efforts prevented the legislature from enacting a tough interest rate cap sought by low-income advocates, the legislature did enact numerous new restrictions on their activities. No doubt the industry upped its efforts after getting thrown out of neighboring DC, as well as Ohio and New Hampshire recently. They're on the way out everywhere. Unfair practices like these can only be sustained for so long by lobbying. The public and the military (see my older blog Marine General calls payday lenders "parasites") have turned against them. A few more years and the rest of the legislators who haven't gotten the message yet will agree.

Our colleagues at Consumer Action have released their annual credit card survey. From the release:

Notable findings:

Four of the top ten credit card issuers cited factors beyond a consumer’s control that might cause an interest rate increase such as: "market conditions," "the economy," and "business strategies."

77% of surveyed credit card issuers (17 of 22) answered "Yes" to the question "Can you increase my APR or change my terms 'any time for any reason'?" This includes all Top Ten issuers - even Citibank which pledges not to change a customer’s terms before the card's expiration date.

Five financial institutions told CA surveyors that they would reduce a cardholder's credit limit because of perceived customer risk. Factors include: a decline in credit scores, late payments and balances that go too close to the credit limit.

From today's earnings announcement from Bank of America:

Kenneth D. Lewis, chairman and chief executive officer, said: "Outside of real estate-related products, our operating results were quite good [...] Record quarterly net revenue of $20.32 billion was driven by an expanded net interest yield, loan growth and higher income from service charges, mortgage banking and investment and brokerage services [...]

From Earnings Fall 44% at Bank of America by Eric Dash on the New York Times website:

Bank of America, the country's largest retail bank, said on Monday that its second-quarter earnings fell 44 percent as real estate-related losses overwhelmed record revenue across its businesses. The bank said that higher income from higher lending margins and fees from its consumer banking operations along with stronger investment banking results helped it muscle through a challenging economy.

The service allows customers to check balances, pay bills, transfer funds, view posted and pending transactions and locate banking centers and ATMs, accompanied by maps and directions.

As she often does, Gretchen Morgenson of the New York Times has yet another story explaining how the banking system has gone awry, and now the economy itself is suffering. Her story in Sunday's paper explains how banks no longer merely earn money from reasonable interest, but instead have developed perpetual interest practices magnified by punitive fees to drive Americans deeper into debt. It's backfired as her story Given a Shovel, Digging Deeper Into Debt explains:

While the circumstances surrounding these downfalls vary, one element is identical: the lucrative lending practices of America’s merchants of debt have led millions of Americans — young and old, native and immigrant, affluent and poor — to the brink. More and more, Americans can identify with miners of old: in debt to the company store with little chance of paying up. It is not just individuals but the entire economy that is now suffering. Practices that produced record profits for many banks have shaken the nation’s financial system to its foundation. As a growing number of Americans default, banks are recording hundreds of billions in losses, devastating their shareholders.

Lenders have found new ways to squeeze more profit from borrowers. Though prevailing interest rates have fallen to the low single digits in recent years, for example, the rates that credit card issuers routinely charge even borrowers with good credit records have risen, to 19.1 percent last year from 17.7 percent in 2005 — a difference that adds billions of dollars in interest charges annually to credit card bills.

Average late fees rose to $35 in 2007 from less than $13 in 1994, and fees charged when customers exceed their credit limits more than doubled to $26 a month from $11, according to CardWeb, an online publisher of information on payment and credit cards. Mortgage lenders similarly added or raised fees associated with borrowing to buy a home — like $75 e-mail charges, $100 document preparation costs and $70 courier fees — bringing the average to $700 a mortgage, according to the Department of Housing and Urban Development. These “junk fees” have risen 50 percent in recent years, said Michael A. Kratzer, president of FeeDisclosure.com, a Web site intended to help consumers reduce fees on mortgages.

"Today the focus for lenders is not so much on consumer loans being repaid, but on the loan as a perpetual earning asset," said Julie L. Williams, chief counsel of the Comptroller of the Currency, in a March 2005 speech that received little notice at the time.

From Professor Elizabeth Warren over at the Credit Slips blog (excerpt):

A new academic paper, Bankruptcy Reform and Foreclosure, argues that the 2005 bankruptcy amendments are deepening the mortgage crisis. The article was written by David Bernstein, an economist at the U.S. Treasury who chose to post this analysis as private citizen listing only his home address and home e-mail address. Drawing on data from the Survey of Consumer Finance, he links credit card debt, access to bankruptcy, and mortgage foreclosures.

The papers are awash with stories about the imminent collapse of Fannie and Freddie and what that could mean for homeowners, taxpayers, investors and the financial system. Treasury Secretary Paulson, Senate Banking Chairman Dodd and other political leaders spent most of the end of last week propping up the firms with soundbites, because some investors and analysts had the long knives out and their stock prices were tanking. Things seem to have settled and there will likely be no bailouts tomorrow.

The two were, until recently, high-flying stocks that were once government-sponsored enterprises (GSEs) that went private yet managed to maintain the illusion that they were 100% backed by the government and too-big-to-fail. This allowed them to grow even faster and larger. At times in the past 20 years, Fannie Mae and Freddie Mac grew almost exponentially but their fiscal controls did not match either their diversification into riskier businesses or the growth of their political power. That political power was enough to keep most members of Congress, regulators and even outside groups from making an adequate critique.

Julie Creswell's New York Times story Protected by Washington, Fannie and Freddie Grew does a good job of explaining how the firms built unprecedented political power in Washington through sophisticated influence-peddling and strategic contributions to the hill and even to community groups to deter criticism. Importantly, the story also points out that "some of their longtime critics say the crisis has been building for years." Yet, the firms were so powerful very few people would criticize them, although Creswell quotes two: former House Banking Chairman Jim Leach (R-IA) and former Rep. Richard Baker (R-LA).

I attended a 1998 conference by Essential Information -- a Nader think tank -- called "Appraising Fannie and Freddie." As these minutes of the event from an industry analyst's newsletter point out:

Participants at the conference were reluctant to ask questions during the conference at the risk of being identified as criticizing the practices of Fannie and Freddie. None of the name badges of the participants listed company affiliations and some of the name badges only listed first names because according to conference organizers, some in attendance expressed concern ahead of time about being identified.

Gretchen Morgenson's story The Fannie and Freddie Fallout, also in the New York Times also makes this important point:

The surprise is not that Fannie and Freddie grew too large for the taxpayers’ good. That was to be expected among companies run by executives whose pay is based on profit growth. Rather it is that Congress and the various financial regulators, especially the Fed and the Office of Federal Housing Enterprise Oversight, did little to keep the companies from getting out of control.

Get any email from your frequent flyer program lately urging you to take action on oil prices? Today's Wall Street Journal has an article about the airlines' joint campaign www.stopoilspeculationnow.com against oil price speculation. The story Airline Oil Lobbying Alarms Financial Firms (pd subs. req'd) by Elizabeth Williamson says:

Many economists join financiers in saying the attacks on speculators, while politically appealing, make little economic sense. They say speculation is less responsible for spiraling oil prices than is turmoil in supplier countries and the weakness of the dollar on world markets.

Dr. Cooper says:

The upward pressure that speculation puts on prices is not limited to crude, but applies to the whole energy complex and recent months have seen sharp increases in gasoline prices despite weakening fundamentals.[...]Growing global demand certainly has played a role in triggering the price spiral of recent years, but in a well-functioning market, steadily growing demand would not cause such a powerful upward surge in prices and a huge increase in volatility (see Attachment 5). It is the failure on the supply-side to invest, mergers resulting in highly concentrated markets, and barriers to entry that have allowed the cartel and the oligopoly to profit at the expense of the public. Speculation magnifies the upward spiral.

Oregon's payday lending industry shrank dramatically in the year since the state cracked down on the short-term lenders' soaring interest rates. Three out of four Oregon payday lending stores have closed, and most stores still operating depend on check cashing and other money services to stay in business.

Payday lenders fighting to repeal a statewide crackdown on their industry on Monday sued two of Ohio's top elected officials, arguing that repeated hurdles the lenders have faced in getting the issue on the November ballot are unconstitutional.

UPDATE: Alan White of Consumer Law and Policy blog has an item with links to the Illinois and concurrent filings by Washington State and California against Countrywide.

Original post: In today's New York Times, Gretchen Morgenson reports in Illinois To Sue Countrywide that Illinois Attorney General Lisa Madigan will file suit in state court today against Countrywide, the once-high flying predatory lender run by the flamboyant Angelo Mozilo. The firm is at the epicenter of the mortgage meltdown:

"People were put into loans they did not understand, could not afford and could not get out of," Ms. Madigan said. "This mounting disaster has had an impact on individual homeowners statewide and is having an impact on the global economy. It is all from the greed of people like Angelo Mozilo."

AARP's research arm has released a report -- Generations of Struggle -- written by three of the nation's leading academic scholars on bankruptcy.

Their findings reveal grim news for older adults. The rate of bankruptcy filings among those ages 65 and older has more than doubled since 1991, and the average age for filing bankruptcy has increased. Other important findings are:

Americans age 55 or older have experienced the sharpest increase in bankruptcy filings.

Americans age 34 or younger have experienced the greatest decrease in bankruptcy filings.

The influence of Baby Boomers on bankruptcy filings has moderated substantially.

Yesterday, the FTC filed a lawsuit "charging CompuCredit Corporation and its wholly-owned debt collection subsidiary, Jefferson Capital Systems, LLC, with deceptive marketing practices in selling credit cards to consumers in the subprime market."

Separately, the FDIC, using its own authority to enforce the FTC Act, filed parallel actions against CompuCredit and two banks that provided cover for the firm's practices by issuing its credit cards, while settling with a third bank. From the FDIC release:

The enforcement actions seek orders that would correct the FTC Act violations, and provide restitution to consumers in the form of credits for certain fees and charges arising from the deceptive marketing practices. It is estimated that such credits will exceed $200 million. The restitution is being sought against CompuCredit, First Bank of Delaware, Wilmington, Delaware, and First Bank & Trust, Brookings, South Dakota. The FDIC is also seeking civil money penalties (CMPs) of $6.2 million against CompuCredit, and a total of $431,000 against First Bank of Delaware and First Bank & Trust.

The cards that CompuCredit issues are referred to by the National Consumer Law Center as fee-harvester cards. A card with a $300 limit might have a $100 or more application fee and numerous other fees, leaving a credit availability of as little as $53, according to the FDIC, which also results in the potential for instantaneous over-the-limit charges.

According to Jean Ann Fox of the Consumer Federation of America, a leading expert on predatory small loans, the complaints also involve ongoing payday loan-like practices. One of the defendants, for example, First Bank of Delaware, had been a "rent-a-bank" to payday lenders until the FDIC and other regulators dis-allowed that practice, yet, in the instant complaint, continued similar practices with "installment loans" issued in association with payday lenders over the Internet. The FDIC's complaint against FBD alleges these products violated the Electronic Fund Transfer Act, the privacy provisions of the Gramm-Leach-Bliley Act, the Equal Credit Opportunity Act, and other laws.

In an interesting sidebar, the Wall Street Journal notes today in a story by Robin Sidel called Card Fray Brushes Big Brands (pd. subs. req'd.) that:

Long known for its "Everywhere You Want to Be" slogan, Visa Inc. and its powerful brand name have landed in an awkward spot: a federal crackdown on subprime credit-card practices.[... ]

It's a good question. Here are a few more: Why don't Visa and Mastercard protect consumers from identity theft better by holding firms that use their networks to higher security standards? Why don't Visa and Mastercard prohibit lengthy holds on debit card transactions that lead to other bounced checks and debits? Why don't Visa and Mastercard start making their imposition of interchange fees on merchants more transparent and more negotiable?

Today's New York Times column The Great Seduction by David Brooks could have easily been written by his colleagues Paul Krugman or Bob Herbert. Coming from the more libertarian Brooks, it is even more important. He discusses a new report from the think tank known as the Institute for American Values. The report is called For A New Thrift: Confronting the Debt Culture: A Report to the Nation. From Brooks:

But the most rampant decadence today is financial decadence, the trampling of decent norms about how to use and harness money. [...] The deterioration of financial mores has meant two things. First, it's meant an explosion of debt that inhibits social mobility and ruins lives. [...] Second, the transformation has led to a stark financial polarization. On the one hand, there is what the report calls the investor class. [...] On the other hand, there is the lottery class, people with little access to 401(k)'s or financial planning but plenty of access to payday lenders, credit cards and lottery agents.

WE ARE SEEKING COLLEAGUES for a national campaign to confront the linked problems of high rates of personal and societal debt, low savings, and growing inequality. In this campaign, we will propose initiatives for a new thrift culture that can provide competitive alternatives to the current debt culture.

Overindebtedness has become an American way of life. The national debt has ballooned in recent years, the savings rate currently stands below zero, and roughly 2 million more Americans are likely to lose their homes in the coming year. In addition, many families are carrying high balances on a fistful of credit cards, raiding equity in their homes to pay for short-term wants and needs, and putting their faith in the lottery as the only way out of debt.

The agents of destruction are many. State governments have played a role. [...] Payday lenders have also played a role. They seductively offer fast cash -- at absurd interest rates -- to 15 million people every month. Credit card companies have played a role. Instead of targeting the financially astute, who pay off their debts, they’ve found that they can make money off the young and vulnerable. Fifty-six percent of students in their final year of college carry four or more credit cards. [...]

Fed Richmond Bank President Jeffrey Lacker and Fed Philly Bank President Charles I. Plosser both gave speeches yesterday (Washington Post and Bloomberg via New York Times) criticizing the bailout of the investment bank Bear Stearns by the New York Fed. The Post story lists a number of other insider critics of the action, which could lead to greater risk-taking. When financial companies can count on the fact that they are seen as too-big-to-fail, they take bigger risks. It's also called moral hazard. Our previous Bear blog.

As long as we're on the topic of the Fed, Professor Robert Auerbach of the LBJ School at the University of Texas has a new book out-- Deception and Abuse at the Fed: Henry B. Gonzalez Battles Alan Greenspan's Bank. Auerbach served as chief economist under Chairman Gonzalez (and other chairs) of the old House Banking Committee. The book is getting good reviews. I look forward to reading it, as among the events it chronicles are the first five years, 1989-94, that I spent in Washington, while Henry B. -- a consumer and community champion -- supervised the savings-and-loan cleanup. Excerpt from the book:

The Fed could not silence or intimidate Gonzalez. Greenspan and his staff of lobbyists made the rounds in Congress without making any sales that mattered to Gonzalez. The congressman saw to it that the Banking Committee would maintain an arm's-length relationship with Greenspan and institute actual checks and balances. Gonzalez wanted action taken on issues that were important to the country. The heat generated by the Fed and its sympathizers never caused Gonzalez to stop an investigation.

Ohio Governor Ted Strickland (his release) has essentially thrown the predatory payday lenders out of Ohio by signing long-fought legislation that holds payday lenders to a strict 28% APR usury ceiling on their (until-now, anyway) extremely profitable short-term loans secured by your uncashed personal check. AP story Payday Loan Curbs Now Law via Cincinnati Inquirer. Some stories are reporting that the law is "controversial." While nearly all laws have supporters and opponents, that doesn't make their passage controversial. In this case, the opponents of the law were marketing a usurious product that kept working-class Ohio families in perpetual debt.

The supporters of the law represented a broad and diverse group of Ohioans. They started with a bi-partisan group of legislators and included a coalition that ranged from the religious community to military commanders, as well as the social justice and consumer communities. What's controversial about an anti-predatory lending bill that passed with such broad-based, bi-partisan support? Our previous blog. More on payday loans from paydayloaninfo.org, a site run by our colleagues at the Consumer Federation of America.

Another head has been placed on a pike by a bank. The New York Times has a story on its Dealbook blog about the mega-bank Wachovia firing CEO G. Kennedy Thompson. The nation's #4 bank had the sector's recent subprime mortgage woes pile on top of a number of major scandals and investigations, ranging from allegations of money laundering cover-ups to the bank getting fined for looking the other way while its accounts were used to "bilk" the elderly. In that scandal, a gross failure of management was that it ignored numerous warnings of malfeasance coming from other banks whose customers were being ripped off in favor of raking in fee income from the fraudulent operators. Our previous blog.

Pennsylvania law has long banned payday lending because it violated the state's usury ceiling. Yet, the company Advance America, among others, used various contrivances such as the "rent-a-bank" loophole to keep doing business in the state. When the FDIC closed that door a few years back, the company tried to re-invent the payday loan under a bizarre new variation on the theme. Didn't work. Pennsylvania whacked that mole. This week the PA Supreme Court confirmed a lower-court ruling that had thrown Advance America out of the state in December. From the AP story Supreme Court says high-cost loans violated Pa. banking laws via phillyburbs.com.

The Pennsylvania Supreme Court ruled Thursday that payday loans that cost borrowers a $150 monthly fee plus 6 percent interest violate state consumer law.[...] The state Banking Department sued Advance America over its "monthly participation fee" for their $500 lines of credit, calling them illegal and usurious.

The Company is involved in a number of active lawsuits, including lawsuits arising out of actions taken by state regulatory authorities, and is involved in various other legal proceedings with state and federal regulators. The Company is vigorously defending against all of these actions. The amount of losses and/or the probability of an unfavorable outcome, if any, cannot be reasonably estimated for these legal proceedings.

Should your car insurance bill be based on how many claims, accidents and speeding tickets you have? Makes sense to us but not to the insurance industry. They want to base your rates on whether you paid your Mastercard on time last month and whether your credit score is high enough. Today, Consumer Federation of America's Bob Hunter (an actuary, a former Texas Insurance Commissioner and a former U.S. insurance czar) will urge the House Financial Services Committee and its Subcommittee on Oversight and Investigations to look at how insurance credit scoring is not based on legitimate insurance rating factors and hurts non-whites even worse than whites. Details in previous blog.

Update: Republicans and Democrats alike were incredulous over the card associations' (Mastercard and Visa) testimony. Here is my testimony (my copy here is low bandwidth but go here on the committee site a clunkier apparently scanned high-bandwidth copy.

One point I made at the hearing is that there is similarity between the merchants' helpless plight and that of consumers. For many years the card issuers got away with any and all unfair tricks and traps for consumers because the regulator/cheerleader known as the OCC let them. Now, the Fed has stepped in to help consumers. Now, the Judiciary Committee appears to be playing the same role as the Fed: it has the merchants' back in their fight with the card associations.

Original post: The second highest cost of running a convenience store is credit card fees. That raises the costs for all consumers, including cash customers, at the store and at the pump. We testify today before the Antitrust Task Force of the House Judiciary Committee on interchange fees imposed on merchants by credit card companies. Link to previous testimony.

On Thursday, during consideration of mortgage meltdown response legislation, the House overwhelmingly passed on a 256-160 vote (Pro-consumer vote is AYE) the bi-partisan Miller-(D-NC)-LaTourette-(R-OH) amendment. This previous blog has details. Over at the Credit Slips blog, Professors Elizabeth Warren and Adam Levitin discuss the vote. Professor Warren (after noting that even the national bank regulator known as the OCC has previously ceded foreclosure law to the states) makes the following points:

There are no federal foreclosure laws. Any mortgage holder--including a national bank or thrift--must abide by the terms of the state's foreclosure laws. But in the past few weeks, national banks have started making a new argument: state laws are pre-empted whenever a national bank holds the mortgage, so the states can't make them follow the local rules.[...] The scope of this argument is stunning. Because there is no federal foreclosure law, would the banks be free to do whatever they wanted? Could they simply order families out of their homes? Would federally-charted banks start buying up troubled loans from other banks, then doing their own vigilante expulsions?

I would only add that for those who believe that we need a legal and policy marketplace with 51 or more -- not just one -- innovation centers, it's nice when we win, even when it appears that the correctness of our position is obvious to anyone with knowledge of the subject. But wherever they can, powerful interests are seeking to make it harder for consumers to obtain justice in the state courts, for state attorneys general to exercise their traditional police powers to protect their citizens and for state legislatures to act as laboratories of innovation. More than a few of the powerful interest efforts can be characterized as vigilante policy power plays, but the current courts and administration players are largely with them. We must exercise eternal vigilance to hold their efforts back.

Note that our letter refers to Miller-LaTourette as an amendment to HR 5830, the American Housing Rescue and Foreclosure Prevention Act. HR 5830 became part of a floor package known as HR 3221, which after consideration of a variety of amendments, passed the full House but faces a complicated road, as noted in today's New York Times story Housing Bailout Bill Seems to Be on Shaky Ground by Stephen Labaton and Steven Weisman.

As for the OCC, I have previously and variously referred to it as not just a regulator but as a regulator-cheerleader-preemptor-in-chief.

The Student PIRGs are partners with Demos in their important conference -- A Better Deal: Reclaiming Economic Security For A New Generation -- this Thursday and Friday in Washington DC.

It's getting harder for young adults to get ahead in America. Compared to previous generations, today's 20-somethings earn less, carry more debt and pay more for everything from health care to housing. With young people voting in record numbers, it's time to put this generation's economic crisis on the national agenda and build a movement for a better deal.

As expected (previous blog explains the highlights), yesterday the Federal Reserve, OTS and NCUA issued proposed joint rules ("Danger, Will Robinson! 269 page pdf file!" with a lot of additional materials available in html format). The rules which will appear in the Federal Register with a formal public comment period in a few days -- take what is for the regulators the virtually unheard-of-step of actually banning some unfair credit card and checking account practices. Why?

"Unfair practices can impose significant costs on credit card users," said Federal Reserve Board Governor Randall S. Kroszner. "The new proposed rules would provide the benefit of substantial protection against practices that can harm consumers."

The New York Times in its editorial today The Fed Aims at Credit Cards supports our call for further Congressional action.

The banks will now do at least two things: they will lobby that these rules trump the need for Congressional action (wrong, but their phalanx of lobbyists will repeat it so many times that many in Congress will believe them) and they will lobby against implementation of the rules (for once, thankfully, they've got their work out for them, as Governor Kroszner, pictured in this New York Times story today explaining the move, appears to have a lot of ammunition for his 269-page proposal).

Here are more stories on the release: first, two from by Nancy Trejos of the Washington Post, who has covered this issue extensively (today and yesterday), a blog from professor Adam Levitin and one from Consumers Union, a story by Paul Adams of the Baltimore Sun, and a blog by Connie Prater over at creditcards.com.

In her story at Marketwatch, Ruth Mantell quotes my testimony from last month:

"The credit-card industry operates without fear of either market or regulatory action to temper its excesses, at the expense of the public's welfare," Mierzwinski testified.

The Office of Thrift Supervision has posted a summary of anticipated rules preventing unfair and deceptive credit card and overdraft checking practices. OTS writes rules for thrifts; the Fed for banks. The National Credit Union Administration will join the Fed and OTS and tomorrow (or soon) all three agencies are expected to post the detailed rule for comment.

"Once all three agencies have approved, each will post the proposal to its website. Upon publication in the Federal Register, the notice will be open for public comment for 75 days. The agencies expect to finalize the rule by the end of the year."

While the devil may be in the details (and undisclosed but hinted at "exceptions") we haven't seen yet, for credit cards, the proposal includes several significant and positive reform elements of proposed Congressional credit card legislation; for overdraft checking plans, consumers are protected not so much.

Here's more on the highlights of the proposed prohibitions, again, this is based on a press release, not the specific rule, so we reserve the right to change our mostly positive preliminary views tomorrow:

The regulator/cheerleader known as the Office of the Comptroller of the Currency does not have its own rulemaking authority. That's a good thing. When the Fed's version of these rules becomes final, then OCC would presumably have to enforce them against its own national banks. While the OTS website says OCC was consulted, to my knowledge nothing in these rules has ever been been supported in OCC testimony or enforcement actions, except for certain actions it has taken against predatory "fee-harvester" cards, which would also be restricted under this proposal.

If the rules are generally as strong as they appear from the press release (and have I said that the devil is always in the details?), we fully expect that the bank associations will be encouraging banks to oppose these rules in any way possible. We'll then of course ask you to support them and strengthen them. Here is our most recent testimony, from an April 17 hearing before the House Financial Institutions and Consumer Credit Subcommittee, on these issues. here is our Truthaboutcredit.org website.

[Update: Somewhat predictable, somewhat self-serving, somewhat inconsistent industry response to the WSJ is here. Not really worth writing much more about, but there's a link.]

Borrowing a tactic from the tobacco industry -- which, among its many influence-peddling efforts once pressured arts groups in New York City to oppose anti-smoking ordinances or lose grant money -- a big payday lender, the now-diversified predatory lending operation Rent-A-Center has asked food banks to "withdraw from the Ohio Coalition for Responsible Lending. The coalition has been pressing the state legislature to cap high interest rates charged on payday loans." That's according to a story Payday Lender Presses Charity to End Support for Tighter Rules by Michael Phillips in today's Wall Street Journal (pd. subs. req'd. but here's a Reuters version. According to the Cleveland Plain Dealer story Ohio House OKs 28% cap on payday loans the proposed legislation to limit payday loans to 28% has strong bi-partisan support.

Rent-A-Center has long been leader of the rent-to-own boys, which make the promise that you can own furniture or electronics if you make between 78 to 104 or more weekly payments at triple-digit interest rates. Oh, my bad, they are not selling it, they claim, so there is no interest. Probably not making that ridiculous "no-interest" claim for their payday products, which in some states are sold at rates of 1,000 percent APR or more (More at our colleague CFA's website www.paydayloaninfo.org.)

We spoke today at Chairman Chris Dodd of the Senate Banking Committee's news event announcing the introduction of the Credit CARD Act (previous blog). Senator Dodd was joined by 4 Senators -- Senators Carl Levin (D-MI), Bob Menendez (D-NJ), Claire McCaskill (D-MO) and Jon Tester (D-MT) -- and by Professor Elizabeth Warren of Harvard Law School, as well as by leading consumer groups and labor organizations. Here is Senator Dodd's release and statements of support from Senators, Representatives and groups, including U.S. PIRG. Here is a summary of the bill, which should be available tomorrow. The little camera-phone flash was somewhat overwhelmed by the klieg lights of the Senate Banking Committee hearing room, but the photo shows Senator Dodd at the microphone, with Professor Warren behind him and Senator Levin at right. Our letter of support to Senator Dodd. In addition to the bill's strict prohibitions on unfair consumer practices, the bill includes a study of the unfair interchange fees imposed on merchants. See previous blog (last paragraph) for more on interchange fees.

When the somnolent regulators over at the regulator/cheerleader known as the Office of the Comptroller of the Currency (OCC) issue a civil penalty (OCC release) against one of the members of their country club --in this case, the nation's #4 bank, Wachovia -- think Halley's Comet, think hundred year flood, think Cubbies win the World Series -- you get the idea. Also think: who got there first and shamed the OCC into action? In this case, it was a Page One New York Times story nearly one year ago by Charles Duhigg, Bilking the Elderly, With A Corporate Assist. That story reported that at last one victim had been scammed as early as 2003, and that several banks had warned Wachovia since then that its accounts were being used to fleece their customers (our previous blog after release of "Yikes! Double Yikes!" Wachovia emails). As Duhigg reported in his story Friday on the settlement:

The bank's actions were "part of a pattern of misconduct" that resulted in Wachovia’s collecting millions of dollars in fees, regulators wrote. Wachovia has agreed to pay a $10 million fine, contribute $8.9 million to consumer education programs and make restitution to victims that could top $125 million. In a statement, the bank said this "situation was unacceptable and we regret it happened."

severed relationships with Mexican foreign-exchange firms in December and January after authorities began their inquiries. Some have struck agreements with the government to improve their efforts to fight money laundering, avoiding prosecution.

In 2005, [Wachovia] introduced the Dinero Directo card to facilitate cross-border remittances. The bank pushed into the business despite well-publicized concerns from U.S. law enforcement that such firms were sometimes used to launder drug money. Wachovia declined to discuss why it pursued this business despite the warnings. Internal emails and documents filed in federal courts in Miami, Chicago and New York describe former ties between Wachovia and money-changing firms.

... Lee has continued to do business with banks and licensed mortgage brokers who fail to detect questionable actions by him and the people working for his companies. Last year, Wachovia, the fourth-largest U.S. bank, funded 196 loans totaling about $54.2 million that Lee brought to the financial institution, according to an e-mail sent to Lee by Scott Davenport, a former national account executive with Wachovia.

Davenport sent the e-mail several months after The Washington Post and other publications reported that cease-and-desist orders had been issued against Lee in Maryland and Georgia for originating loans without a license. Soon after I inquired about Wachovia's business transactions with Lee, Davenport was fired. Wachovia confirmed that Davenport was terminated but declined to comment why.

2 bad 4 us that the big bnks & OCC r BFFs (Best Friends Forever).

Back to Duhigg: His story also points out that not everyone is happy with the OCC action, which requires bilked consumers to run through a complicated, if court-approved, rat maze to obtain restitution:

Under the terms of the settlement, victims will not automatically receive compensation from Wachovia. Instead, they will have to submit claims through a complicated bureaucracy. Because many of the victims are elderly or poorly educated, it is likely many of them will stymied by these obstacles, Mr. Markey said. In previous cases, the comptroller’s office, also known as the O.C.C., has mailed checks to victims of fraud, rather than requiring them to file claims. [Release from U.S. Rep. Ed Markey-D-MA: Weak Wachovia Deal Shortchanges Elderly Fraud Victims]

The Consumer Federation of America's Bob Hunter -- the nation's leading independent insurance expert (actuary, former federal insurance czar, former Texas insurance commissioner) -- has a new report: State Automobile Insurance Regulation: A National Quality Assessment and In-Depth Review of California’s Uniquely Effective Regulatory System , 04/24/08 (109 page pdf). Here is an excerpt from the shorter news release.

[The report] found that rates have risen more slowly in the fifteen states that require insurers to receive advance approval of rate increases from the state. States with “prior approval” regulation also performed well in spurring competition and generating significant profits for insurers. The top-performing state in keeping rates down and providing comprehensive consumer protections was California.

PIRG studies have shown that the average cost of college textbooks per year is now $900. That's on top of rising tuition and fee costs. That Book Costs How Much? is the title of an editorial in today's New York Times. The editorial supports our Student PIRGs Campaign to Maketextbooksaffordable.org. We are working on college campuses to urge faculty to use Open Educational Resources, such as web-based non-copyrighted books. We are working in Congress to take House-passed affordable textbook legislation over the finish line. From the New York Times:

A study being carried out by the geographer Ronald Dorn at Arizona State University suggests that students who use free online textbooks perform as well academically as students who buy expensive copies from traditional publishers. Colleges and universities should take advantage of these new developments. Cash-strapped students and their families need all the relief they can get.

The State Foreclosure Prevention Working Group has released its second major report. This multi-state group is comprised of bank and credit regulators and state attorney generals representing at least 37 states. Here's an article on the study by one of the nation's leading financial reporters, Jonathan Epstein of the Buffalo News. From the WV Attorney General's office release:

Major findings of the Foreclosure Working Group included:
Seven out of ten seriously delinquent borrowers are still not having alternatives to foreclosure identified by their mortgage servicers. The number of borrowers having alternatives to foreclosure identified by their servicer has increased, but it has been matched by an increasing level of delinquent loans; thus, the relative percentage has remained about the same.

One in 33 homeowners is projected to be in foreclosure primarily over the next two years, as a result of subprime loans made in 2005 and 2006.... Defaulting on the Dream: States Respond to America’s Foreclosure Crisis is the first-ever, comprehensive look at what all 50 states and the District of Columbia are doing to try to address the subprime mortgage fallout. The report finds that more often than not, states are at the forefront of developing policies and programs aimed at preventing more irresponsible loans from being made and improving residents’ ability to stay in their homes.

Today and tomorrow the House Financial Services committee will mark up, or vote on, two housing crisis reform bills:

HR 5830, the FHA Housing and Homeowner Retention Act, to expand the FHA program to help refinance at-risk borrowers into viable mortgages and also requires the Federal Reserve Board to conduct a study on the need for an auction or bulk refinancing mechanism. The second measure, H.R. 5818, the Neighborhood Stabilization Act of 2008, introduced by Subcommittee on Housing and Community Opportunity Chairwoman Maxine Waters, will provide loans and grants to states and cities to deal with problems associated with large numbers of foreclosures in neighborhoods across the country.

Moreover, most proposals in Congress will take several months or longer to implement, leaving those in immediate danger of foreclosures at the mercy of failed industry policies. For example, the “FHA Housing Stabilization and Homeownership Retention Act of 2008” (H.R. 5830) – a leading proposal in Congress – has the potential to provide relief to troubled homeowners. However, we are concerned that the voluntary nature of the legislation will not be enough to help homeowners in danger of foreclosure. In order to be successful, this and other proposals should include incentives for the industry to re-write bad loans and provide a safety net to families that may otherwise fall through the cracks. H.R. 3609 accomplishes this goal and should be added into any final floor package.

UPDATE: C-Span has archived the hearing. These links will open in Realplayer (on my computer, if you click "launch application") and maybe in other players. Here is a link to the Senators and the Consumer-Victims (panels 1&2). This link is to the Regulators and Bankers/Consumer Advocates (panels 3&4).

Well, as expected, the hearing lasted nearly all day. Senator Levin (D-MI) led off with a blistering condemnation of the unfair credit card practices that his own Senate Permanent Subcommittee on Investigations has explored in depth. The three consumer victim witnesses were brave messengers -- not afraid to explain their own financial stories -- after being given more time to consider the waivers that they had refused to sign at the eleventh hour before last month's hearing, when they refused to testify. Interestingly, no committee members or bank witnesses seemed interested in trying to impeach the victims by using account-related information from the waiver. It would have been tough, since they were all so solid. Noteworthy testimony was then given by Marty Gruenberg, vice-chairman of the FDIC. Why? The FDIC largely supported the PIRG-backed Credit Cardholders Bill of Rights, HR 5244, which was the subject of the hearing. Conversely, Julie Williams, chief counsel over at the regulator/cheerleader known as the OCC (the agency that regulates most credit card companies) largely opposed the bill. And while some Representatives said "wait for the proposed Fed disclosure rules," we and the other consumer advocate witnesses urged Congress to act now. Just yesterday, 4 more co-sponsors logged on, bringing us to an even one hundred co-sponsors. We'll continue to work with Chairwoman Maloney (D-NY) to get her bill passed. My testimony here. All testimony here.

And as for that live blogging from the thumb-thumping blackberry, we'll reserve that for short emergency posts. But it's nice to know we can blog from anywhere, if we only have our phone! It's certainly easier from the laptop.

We appeared this week in an interview on the Christian Broadcasting Network, talking about the credit card industry's stranglehold on Congress. Rep. Carolyn Maloney (D-NY) also appears to talk about her PIRG-backed Credit Cardholder's Bill of Rights proposal. At the end of the video segment, the Rev. Pat Robertson, founder of CBN and its 700 Club, comes on for an editorial comment. He says "I don't like government regulation" but then makes an exception for credit card reform. He talks about the companies placing consumers in "credit card bondage for the rest of their lives." He says the companies are "doing everything possible to keep those checks from coming in on time" to earn more late fee income, including "hiding" the mailed payments, and that credit card companies "prey on the poorest members of society" while making massive campaign contributions to "George Bush" and "Republican and Democratic members of Congress" to block reform. It's great to get support from evangelicals. Here's a previous blog where I mention a new evangelical law professor blog on financial issues.

Bad news. Tonight, the U.S. Senate tabled (defeated) on a 58-36 vote (the pro-consumer vote is NAY) an important amendment by Majority Whip Dick Durbin (D-IL) that would have given bankruptcy judges limited authority to help 600,000 families avoid foreclosure and stay in their homes. The critical amendment was supported (our joint letter) by a wide range of consumer, community and civil rights groups including U.S. PIRG. Excerpt from our letter:

It will give bankruptcy judges, within guidelines set by Congress, the narrow authority to modify some harmful mortgages marketed by non-traditional sub-prime lenders in recent years, in order to provide families with a chance to save their homes from foreclosure.

(I got back from the hill too late to sign U.S. PIRG on, but we agree.)

Senate Throws Out Single Most Needed Step to Help Millions of American Families Keep Their Homes

Joint Statement from Civil Rights, Consumer, & Housing Groups

"The Senate Housing package misses the single most significant step needed to help the 20,000 American families with subprime loans that are losing their homes each week through foreclosure: the bankruptcy amendment.

We are left with a bill loaded with special considerations for mortgage companies and builders that does very little for homeowners who were sold predatory loans by mortgage lenders.

Any final bill hammered out between the U.S. House and Senate that is a serious effort to stem the foreclosure crisis must include meaningful relief to families to modify their mortgage in bankruptcy. Bankruptcy relief will stabilize communities, keep more than half a million families in their homes and provide lenders at least as much income as they would receive through foreclosure.

As the Senate bill stands, we will continue to see foreclosures tear down communities and wipe out the most important source of financial security that most Americans have.

We are encouraged that there is recognition that the bill under consideration by the U.S. Senate today is only part of the solution. Without bankruptcy relief, Congress will be condemning hundreds of thousands of American families this year to losing their homes."
Center for Responsible Lending

Leadership Conference on Civil Rights

ACORN

American Federation of Labor and Congress of Industrial Organizations

Consumer Action

Consumer Federation of America

Consumers Union

Lawyers' Committee for Civil Rights Under Law

NAACP Legal Defense & Educational Fund, Inc.

National Association of Consumer Advocates (NACA)

National Association of Consumer Bankruptcy Attorneys

National Consumer Law Center

National Association of Neighborhoods

National Community Reinvestment Coalition

National Council of La Raza

National Fair Housing Alliance

Opportunity Finance Network

Service Employees International Union (SEIU)

We've just released a major report on campus credit card marketing. The Campus Credit Card Trap is based on over 1500 surveys collected from students at 40 campuses in 14 states. More info is here at truthaboutcredit.org. In addition to the detailed survey results, we include links to documents in two important areas:

This study is an in-person survey of a diverse sample of over 1500 students, primarily single undergraduates, at 40 large and small schools and universities in 14 states around the country conducted between October 2007 and February 2008. It analyzes how students pay for their education, how many use and how they use credit cards and, as an important goal of the survey, their attitudes toward credit card marketing on campus and whether or not they support principles to rein in credit card marketing on campus.

The findings confirm that students are using credit cards in significant numbers and that a significant number are paying the price through late fees, high balances and delinquencies. The findings also show that banks are marketing aggressively to students through a variety of channels. Finally, the findings demonstrate that an overwhelmingly majority of students support limits on credit card marketing on campus to rein in unfair bank practices.

Along with asking colleges to adopt fair credit card marketing principles, we're conducting FEESA (sounds like VISA) credit card counter-marketing campaigns on colleges around the nation. We hand out financial education literature and "don't be a sucker" lollipops, not sandwiches, t-shirts, cash-back or iPod Shuffles. And, we don't require a completed application.

When one of my favorite consumer champions in the Congress, Rep. Joe Kennedy (D-MA), retired ten years ago, he went back to running "Citizens Energy Corporation, a non-profit he founded that provides energy assistance to low-income families."

In Saturday's Wall Street Journal, he has a column We Need a New Bargain With Big Oil (pd. subs. req'd). He suggests a number of policy changes to ensure adequate supplies of oil at fair prices and he also points out that big oil needs to do a much better job of helping to fund low-income energy assistance. Excerpt:

Finally, our political leaders should work with the oil companies to become better caretakers of those most harmed by rising energy prices. When we at Citizens Energy write to oil companies to ask that a small slice of their profits be used to help the poor -- the same message sent by a bipartisan group of 10 U.S. senators to the industry in 2005 -- the usual response is that the proper source of aid is the federal Low Income Home Energy Assistance Program (LIHEAP).

That's the same program that was shortchanged at its birth some three decades ago. If the oil industry marshaled its robust phalanx of Washington lobbyists to push as hard for increased federal fuel aid as they fight to retain their subsidies, LIHEAP could expand beyond the five million families it currently serves -- less than 20% of those eligible -- and increase a benefit that today buys less energy than ever. [...]

More than a century ago, President Theodore Roosevelt, a Republican reformer and environmentalist, raised the wrath of his own class in taking down Standard Oil and the petroleum oligarchs for the good of the nation. The new social compact did not destroy the industry, it simply managed it for the good of our country.

Twice before in our country's history, outsized profits by Big Oil prompted government to step in to protect our nation by redrawing the corporate compact with petroleum barons. Such a moment has arrived again. Our nation needs a new bargain with Big Oil that serves the interests of our economy, our environment and our most vulnerable citizens.

Today's Washington Post features an op-ed column Preventing Profit From Debt Help from my colleague Johanna Neumann, director of Maryland PIRG. She and other consumer advocates in Annapolis are fighting a proposal to allow for-profit debt counseling.

What's wrong with the proposal? Remember Andris Pukke? Probably not, but he's a big part of the reason the original 2003 law was passed to limit for-profit counseling. Despite his apparent status as a previously-convicted federal felon, he and his wife Pamela were the principals in a Maryland-based debt counseling mill with various names, most commonly Ameridebt and DebtWorks, that masqueraded as a non-profit debt collector even though its basic business purpose was to take money -- many millions of dollars -- from desperate debtors and enrich the Pukkes. From the FTC in 2006:

The Federal Trade Commission today put a successful end to the largest case against deceptive credit counseling and debt management brought by the agency. The FTC announced a settlement with Andris Pukke, founder of AmeriDebt, Inc., and with a related company owned by Pukke, DebtWorks, Inc. The agreement, if approved by a federal court in Maryland, would require Pukke to give up virtually all of his assets for a consumer redress program for victims of the deception, a fund that ultimately could total as much as $35 million. [...] "Our case alleges that these defendants used their credit counseling business to deceive nearly 300,000 consumers about the services they provide, the fees they charged, and their status as a non-profit company," said Lydia B. Parnes, director of the FTC’s Bureau of Consumer Protection.

What if the price you paid for your car loan or mortgage wasn't based on your qualifications, but how big a kickback the broker received? And what if that spread between what you should have paid and what you were forced to pay was even worse if you were black or brown? When do legal commissions become illegal kickbacks? Are improper incentives to brokers and executives material to the foreclosure crisis that's led to the economic crisis? What if you got bad investments because your mutual fund manager was seduced by a party-lifestyle involving luxurious spas and dwarf-tossing contests, paid by brokers? Does a corporate captain who took the lifeboat while his passengers drowned deserve to walk away with millions of dollars?

Here are some recent stories.

Days at Wimbledon. Nights at U2 concerts. Flights aboard the Concorde. And a dwarf to toss.

Chief executives of three financial companies who received outsize pay packages even as their shareholders lost billions in the spreading credit crisis are scheduled to testify before Congress on Friday...

Here's a few more:

In Illinois, Attorney General Lisa Madigan is trying to determine whether Countrywide, the nation's largest mortgage lender, and Wells Fargo, the second-largest lender, put black and Latino borrowers in subprime or other high-cost loans when they could have qualified for a lower-cost loan.

If the subpoenas find evidence of discriminatory lending practices, Ms. Madigan may push lenders to more aggressively modify loans to minority borrowers in financial distress so they can stay in their homes, or seek other monetary remedies in addition to changes in how loans are made, said Deborah Hagan, chief of the Illinois Attorney General's Consumer Protection Division. The investigation might be extended to other lenders, she added.

In their efforts to avoid a tightening net of strict state enforcement against triple-digit payday lending, some lenders have taken to the virtual world of the Internet, largely to make it harder for enforcers to find and penalize them. Now comes the FTC with this announcement:

Three payday lenders have agreed to settle Federal Trade Commission charges that their Internet advertising stated the cost of loans without disclosing annual percentage rate information that federal law requires.

The McClatchy papers are running a nice story today by Christina Rexrode. The story is titled Your low-interest credit card? Yeah, well ...Some consumers' rates are rising for mysterious reasons. The piece highlights how Bank of America, in particular, is among the credit card companies jacking up the rates of good customers, perhaps because it lost money on its mortgage and hedge fund business recently, but also, of course, because it can:

Some consumers and analysts say Bank of America, which saw profits all but disappear in the fourth quarter, is trying to squeeze money out of its credit card users to make up for disappointing earnings.

But what I liked most about the story is the illustration, torn from the pages of George Orwell's 1984:, "If you want a vision of the future, imagine a boot stamping on a human face - forever." If that Orwellian dystopia doesn't best describe both the effect of perpetual debt brought on by penalty interest rates and the attitude credit card companies have toward consumers, what does? Kudos to the unnamed illustrator.

We're disappointed that Spencer Bachus (R-AL), ranking Republican on the House Financial Services Committee, who has played a key role in several hearings on unfair credit card practices, has sent a letter to members urging members not to co-sponsor the Maloney credit card reform bill, HR 5244. Seems now Mr. Bachus wants to wait for more hearings, wait for Fed rules to take effect, wait for more voluntary actions, and, of course, doesn't want to jeopardize the stimulus (expect this argument against regulation to be used a lot by a lot of people). It's too bad for consumers but we hope Mr. Bachus will vote for the bill after the anticipated hearings. After all, he already knows what's wrong, and he should know that the Fed rules don't really address the problems that the bill addresses. How do we know this? Here are excerpts of the encouraging things he was saying at hearings last year:

My introductions are in bold or comments in italics. Other material is direct quotes from Mr. Bachus:

Unfortunately, the FSC committee has a lot of Democrats as well as Republicans who haven't yet co-sponsored this bill, which we and others have called a "an important step forward."

On Thursday, U.S. Rep. Carolyn Maloney (D-NY), who chairs the key House subcommittee with jurisdiction over unfair credit practices, along with full Financial Services Committee chair Barney Frank (D-MA) and 44 others, introduced the Credit Cardholders Bill of Rights Act, HR 5244. Along with other leading consumer groups and SEIU, we support the bill as an "important step forward." Among its highlights are provisions to address these unfair practices:

Here's a comment on the bill from the Seattle Post-Intelligencer. Here's a copy of our joint release. The bill will need a lot of support to pass, because the banks have already started their counter-campaign. They'll be calling it "price-fixing" and worse. They'll be reminding Congress that (primarily through their own mistakes and missteps), they've just lost a lot of money in the mortgage meltdown. Yet, according to the Federal Reserve, credit cards are consistently the most profitable line of business for banks (the 2007 report; older reports are here (scroll down) on this hidden internal Fed page. Don't even think about expecting a press release when it comes out-- the Fed hates that Congress even requires it to conduct this study.

The simple fact of the matter is this: Owning a credit card company is a license to steal. You can change the rules at any time for any reason, including no reason. You can change the price of products that consumer already bought-- with retroactive interest rate hikes applied to previous balances. You can raise rates of customers who've never broken your rules-- to north of 36% APR or more. A consumer cannot take you to court if your practices are unfair-- his or her only recourse is the corporate-controlled private court system known as binding mandatory arbitration. Here are more credit card ripoffs from our PIRG Truthaboutcredit.org campaign. A highlight of the campaign is our FEESA counter-marketing campaign on college campuses.

In most cases, we find state attorneys general taking tough stances against unfair consumer practices. I am sure on most matters, Utah Attorney General Mark Shurtleff is no different. But at a debate last week against law professor Chris Peterson (a leading predatory lending expert and also a former PIRG advocate), the general backed triple-digit payday lending, using many arguments straight out of the industry's playbook. You can read about it in Lee Davidson's story Shurtleff defends payday loan rates in the Deseret News:

Utah Attorney General Mark Shurtleff said Tuesday that banning "payday loans" could hurt the poor more than it would help them and could force more of them into bankruptcies or repossessions. But debating against that was University of Utah law professor Christopher Peterson, an expert on predatory lending. He said payday loans are essentially legalized loan sharking that can bury the unwary into deep debt. He said societies for millennia have banned the sort of high interest rates that payday lenders now charge.

On another predatory lending matter, I missed the New York Times story by Jim Dwyer this weekend on rent to own -- For Just a Few Dollars, a Big TV and Years of Debt -- but Jeff Sovern has an interesting entry over at Consumer Law and Policy blog. And over at Credit Slips blog, Elizabeth Warren discusses the way payday lenders and other industry players understand the Power of Numbers to frame public policy debates. Oh, it doesn't matter if the numbers are true or used correctly.

Papers are reporting that the FBI Economic Crimes unit has announced a criminal inquiry into the mortgage meltdown (New York Times, F.B.I. Opens Subprime Inquiry by Vikas Bajaj and Los Angeles Times, FBI is pursuing 14 probes of lenders by Scott Reckard). Two interesting points:

Officials at the Securities and Exchange Commission are conducting more than 30 investigations into the mortgage meltdown. Erik R. Sirri, head of the SEC's market regulation division, said recently that securities firms and banks sold "too many lottery tickets" tied to home loans and failed to look closely enough at their growing risks. The FBI is looking at many of the same cases as the SEC, the agency said.

Bill Clinton and Arnold Schwarzenegger have an op-ed today in the Wall Street Journal (pd. subs. req'd) called Beyond Payday Loans. They want to terminate demand for payday loans by opening up a supply of better-priced, affordable bank accounts. The Democratic former President and the Republican governor of California say the following:

The American dream is founded on the belief that people who work hard and play by the rules will be able to earn a good living, raise a family in comfort and retire with dignity. But that dream is harder to achieve for millions of Americans because they spend too much of their hard-earned money on fees to cash their paychecks or pay off high-priced loans meant to carry them over until they get paid at work. Here is one initiative that can unite progressives and conservatives as well as business leaders and community activists: helping the "unbanked" enter the financial mainstream by opening checking and savings accounts, and working collaboratively with financial institutions and community groups to develop and market products that work for this untapped market. This will put money in the pockets of individuals and grow the economy. And it won't cost taxpayers a dime.

We support their efforts to open up accounts for the unbanked. We, of course, also strongly support efforts to strictly regulate check cashers, payday and other predatory lenders.

Since you asked, we have a few more ideas for what government and employers can do to rein in the predatory practices of the banks themselves.

Over at the Consumer Law and Policy Center blog, Brian Wolfman has posted an entry with links to the press release and the two complaints in this important effort by the state. Our previous blog is here.

The New York Times is reporting in a story State Makes Bid to End Costly Tax-Refund Loans by Nicholas Confessore that that New York state has filed civil rights complaints against two large tax preparation firms -- Jackson Hewitt and Liberty Tax Service.

New York officials filed civil complaints on Thursday against two tax preparation firms that offer high-interest loans against income-tax refunds, saying the companies had aimed the loans at low-income black and Hispanic families and military families in violation of state antidiscrimination laws.

Tom Fahey of the Manchester (NH) Union-Leader is reporting that the New Hampshire House votes to limit interest on payday and auto title loans to 36 percent. That full House action was in defiance of a legislative committee:

The 207-124 vote to pass the rate cap overturned a 12-6 vote by the Commerce Committee recommending the bill be killed.

The Virginia State Corporation Commission will not reveal the details of the case against Check 'N Go. But each violation of the state laws can carry a maximum $1,000 fine. That means the company was willing to settle the state charges by paying the equivalent of 100 violations fined at the maximum rate.

Chairman Henry Waxman (D-CA) of the House Committee on Oversight and Government Reform has "invited" Angelo Mozilo (pictured left), of Countrywide, Charles Prince of Citibank and Stanley O'Neal of Merrill Lynch, all deposed or soon-to-be-deposed CEOs of firms implicated in the mortgage lending crisis, to a February 7 hearing on "executive compensation and severance arrangements for CEOs involved in the ongoing mortgage crisis." Each of the invitation letters refers to "tens of millions of dollars in payments and other compensation" that was (or in Mozilo's case, will be) received upon departure. Mr. Waxman asked Mr. Mozilo:

I request that you be prepared to provide your perspective on this reported pay package. You should plan to address how it aligns with the interests of Countrywide's shareholders and whether this level of compensation is justified in light of your company's recent performance and its role in the national mortgage crisis.

I've just received the current issue of Consumer Action News from our colleagues at Consumer-Action.org. This issue is all about debt collectors and your debt collection rights. Worth the read.

We've issued a news release with the Consumer Federation of America and the National Consumer Law Center critiquing last week's IRS actions on privacy and predatory lending. Here is the lede from our release:

Consumer group representatives condemned new taxpayer "un-privacy" rules recently issued by the IRS for expanding rather than closing "gaping loopholes" that already allow sharing and marketing based on tax records, but issued cautious support for a separate IRS request for comments on developing new regulations that could rein in the marketing of predatory refund anticipation loans by tax preparers. On the same day that it issued its weak final privacy rule, the IRS asked for comments on developing rules restricting the sharing of tax return information to market refund anticipation loans, refund checks, audit insurance and other high cost products typically sold to low income taxpayers.

Over at the Credit Slips blog, Adam Levitin has a detailed piece commenting on yesterday's Wall Street Journal story by Eleanor Laise:

Treasury Plans Social Security Debit Card. Adam explains the issues involved in Social Security's move to pre-paid debit cards instead of checks for unbanked consumers:

This is significant for two reasons. First, it redistributes the costs of Social Security payments among the federal government, social security recipients, merchants, and banks. Second, it represents the federal government's most major outsourcing of payments and creates a potential benefits provision monopoly.[...]While the prepaid Social Security debit cards are more secure than checks, and help unbanked Social Security recipients avoid check-cashing fees, they have costs of their own for Social Security recipients.

As more and more transactions are now plastic, we need to make all plastic card rights equal to credit card rights.

More resources: Gail Hillebrand explained pre-paid debit card legal issues in her Consumers Union blog entry last month. Here is our debit card fact sheet. Finally, here is an AP story Social Security Plans To Offer Debit Cards by Marty Crutsinger via the Washington Post.

We wonder if the officials behind this policy have ever tried to repair a bad credit report -- an experience that rivals Dante's "Inferno."

Dr. Michael Hunt, emergency physician at Swedish Medical Center, said he has seen injuries from clamshell packages. Lacerations from using a knife are most common. "People get frustrated and vigorous," he said. "That's when the mishaps occur. People don't appreciate the integrity of the packaging. You become rushed and not slow and considered in your approach."

Whatever the reasons, state lottery officials and the companies they hire to run the games appear to be concentrating on the heaviest players.

Sallie Mae Bids to Raise $2.5 Billion In Stock Sale by David Hilzenrath: The planned stock sale is part of an effort to extricate the company from a financial bind -- another link in a chain reaction of trouble set off by the collapse of negotiations to sell the company and the collapse of its stock price.

Sallie Mae, the troubled student loan giant, said Wednesday that it would raise $2.5 billion by selling stock in the public market and would use most of the money to pay off a disastrous bet that the company made on its common stock price.

Former Bush economic adviser Greg Mankiw, now back at Harvard but also advising candidate Mitt Romney, has a column How to Avoid Recession? Let the Fed Work in today's New York Times. Mankiw reiterates all the old money-supply arguments and says in regard to the possible "painful" economic downturn we face that "Sometimes, bed rest and wait-and-see are the best we can do."

The problem, of course, is that Mankiw sticks to his Economics 201 discussion of the Fed's central bank role and fails to admit that Alan Greenspan and later, Ben Bernanke, may have mis-played the dot-com and mortgage bubbles. Worse, Mankiw doesn't even discuss that the Fed has other roles than monetary policy that it failed to fulfill. While we can argue about monetary policy choices, there is certainly no argument that the Fed has never performed its consumer protection role adequately. The Fed has long had discretionary authority to rein in unfair lending practices. Since the Fed is loathe even to implement Congressionally-mandated consumer protection rules, you can see the problem in relying on its discretionary authority.

As the Center for Responsible Lending pointed out last week when the Fed finally reacted to the crisis by proposing new rules under 1994 high-cost loan legislation:

An unregulated market has led to irresponsible lending practices where lenders often don't even assess ability to repay. The resulting high rate of foreclosures due to this abusive lending may well bring this country into recession--yet the FRB has chosen to issue rules that leave out many loans or will be unenforceable.

By averting its eyes to both the dot-com and housing bubbles, the Fed lulled even professional investors into believing that commonplace risks could be eliminated through "new era" designs.

Thanks to vigilance by state legislators, state enforcers and the FTC, store-issued gift cards have even fewer fees than before and are an even better deal than high-priced fee laden bank and mall issued cards, according to a story Gift Cards Coming With Fewer Strings by Nancy Trejos of the Washington Post. The story goes on to also point out:

Many retailers have responded to consumer complaints that gift cards are too laden with fees and expiration dates, experts said. In its fifth annual gift card survey, Montgomery County's Office of Consumer Protection found that 18 of the 22 retail cards examined had no fees and no expiration dates and could be replaced if lost or stolen or had scratch-off PINs for security.

In my testimony Wednesday before a House Financial Services subcommittee. I had some harsh criticism for the Federal Reserve Board, which has failed on numerous occasions to use existing authority to protect consumers. Incredibly, on Wednesday, the Fed even opposed a measured, incremental proposal by subcommittee chair Carolyn Maloney to require the federal bank regulators to implement a shared hotline to help consumers. Even the notoriously anti-consumer OCC supported the bill, with what former Fed chairman Alan Greenspan might have even called "exuberance." But it is always tough to beat Financial Services Committee chairman Barney Frank, who had this to say to the Washington Post about the Fed's latest voluntary mortgage reform proposal:

"If I was going to list the top 87 entities in Washington in order of the history of their efforts on consumer protection, the Fed would not make it," Rep. Barney Frank (D-Mass.) said.

We joined SEIU leaders today in a telephone news conference to announce their new campaign to hold the biggest banks more accountable (news release):

"We've passed the point where an 'anything goes' motto can be tolerated for the biggest and richest banks in the country," said Andy Stern, SEIU International Executive President. "We're sending a message today on behalf of all working families: enough is enough."

Our views on the Bush mortgage relief plan echo those of the Center for Responsible Lending. Excerpt:

CRL estimates the President's plan will only help about 7% of subprime borrowers--about 145,000 families--because of the program's limited scope. [...]The plan relies on voluntary decisions by individual mortgage servicers and investors, does not remove the strong financial and legal incentives servicers have to foreclose on loans rather than modify them, and ignores the obstacles to modification posed by "piggyback" second mortgages.

UPDATE 10:05Am: The hearing is live on Senate TV and the consumers are telling powerful stories. Here is Senator Levin's news release and here is his list of exhibits explaining the problems of the 3 consumer witnesses and 5 other consumers as well. Here is an AP story.

Expect Senator Carl Levin's Permanent Subcommittee on Investigations to hold a blockbuster hearing today at 9:30am. His witnesses include "a panel of cardholders who experienced interest rate increases, as well as representatives from credit card companies." The last time Levin held a hearing, Citi gave up one unfair practice and Chase gave a sort of half-hearted public apology to a consumer it had previously thrown under a bus. Chase also decided that it had already dragged him under the bus long enough, so it waived the remainder of the punitive interest and fees he still owed. Well, since he had already paid back more than double his original balance in interest and fees, Chase did OK on that loan, so don't feel sorry for them. We summarize Wesley Wannemacher's story at our truthaboutcredit.org site. He unknowingly borrowed just $100 over his $3,000 limit, to pay unexpected costs at his wedding. He then paid unexpected costs in recurring over-the-the limit and late fees at punitive penalty interest rates. He paid back well over $6,000 in principal, interest and fees but still owed another $3,500. Chase waived it on the eve of the Levin hearing in March. We're looking forward to more stories today about the unfair ways big credit card companies make money. Here's a hint-- they don't earn it, they take it.

Last week I linked to an excellent new spoof website -- the Predatory Lending Association. Now, thanks to a tip from Bob Lawless over at the consumer blog Credit Slips, here's a link to a youtube video offering some amusing loans from the American Association of Payday Lenders. I think it's a parody. I hope it's a parody.

Here is our coalition news release opposing the mortgage bill passed by the House last week. Also, here is a news story from Financial Services Committee ranking member Spencer Bachus's (R-AL) home state. Finally, over at Consumer Law and Policy Blog, Deepak Gupta has commented several times on the bill.

UPDATE: Our coalition letter in opposition.

Along with other advocacy groups, we've been working many months with House Financial Services Committee Chairman Barney Frank (D-MA) to craft a strong bill to prevent mortgage abuses. His efforts have been laudatory, but largely because the Congressional process is so dominated by special interests, his modified compromise bill HR 3915, sponsored with others including Brad Miller (D-NC), no longer achieves the goals he set out for it. In particular, its broad sweep of preemptive limits on state law remedies outweighs its benefits. We are joining with the National Association of Consumer Advocates and the National Consumer Law Center -- expert groups whose lawyers represent in court the low-income consumers who have been most hammered by abusive mortgage practices -- in a letter in opposition to the bill. I will post our letter when finalized. If the bill passes (and those special interests still oppose it from the wrong side so the outcome is not clear) we hope to improve it in the Senate.

Very high production values. Check it out at predatorylendingassociation.com:
I particularly like the trademarked

Poor Finder(tm): Pinpoint the Working Poor
It's easy to find the working poor, but our studies reveal that a difference in location of even a few city blocks can impact profits by as much as 45%.

Over at the New York Times today, Gretchen Morgenson reports that Borrowers Face Dubious Charges in Foreclosures. The story includes data from research of Iowa law professor Katie Porter (who blogs over at Credit Slips). According to the Times:

In one example, Ms. Porter found that a lender had filed a claim stating that the borrower owed more than $1 million. But after the loan history was scrutinized, the balance turned out to be $60,000. And a judge in Louisiana is considering an award for sanctions against Wells Fargo in a case in which the bank assessed improper fees and charges that added more than $24,000 to a borrower's loan.

Mr. Frank's proposed change would not improve borrowers' ability to pursue legal remedies against Wall Street under federal law. In addition, it would prevent borrowers from seeking redress on the state level, which sometimes offers stronger protection than federal law. Specifically, state law would be pre-empted with regard to too common predatory practices.

It's illegal to impersonate a police officer. But dress up like a prosecutor so you can better threaten consumers into paying off small debts? Heck, the prosecutors actually let debt collectors do this-- why? In return for kickbacks of course! The debt collectors "rent out a prosecutor's name and authority."

Do the debt collectors then gain the right to break the debt collection laws, by arguing that the sovereign immunity of the government official extends to them? Over at Consumer Law & Policy Blog, Deepak Gupta, a Public Citizen consumer attorney who has been fighting these tawdry arrangements (which have even been legitimized by Congress) reports that important progress is being made in the courts.

Sovereign immunity, the court said, "has never been held to apply simply because an independent contractor performs some government function." The decision has potentially far-reaching implications for holding all sorts of government contractors--from private prisons to Blackwater--accountable in the federal courts.

titled "Prisoners of Debt," by reporters Robert Berner and Brian Grow. The piece focuses on how big lenders and credit card companies keep squeezing money out of consumers whose debts have been discharged in bankruptcy, and on the selling and buying of those discharged debts.

The National Consumer Law Center has a new report Fee-Harvesters: Low-Credit, High-Cost Cards Bleed Consumers. The report provides an excellent overview of the entire credit card industry, the history of its rapid growth under deregulation and preemption and how its staggering profits have been fueled by abusive practices affecting all consumers. It then focuses on the fee-harvester cards, which "represent an extreme version of the abuses by the card industry." It describes how the companies use sophisticated algorithms and access to credit report data to target vulnerable consumers, not for true credit solicitations, but for fee-harvesting. I could use the metaphor of a parasitic alien, jumping on the backs of consumers and sucking out their money, fee by fee, but the report does better.

In the 1975 movie "Jaws," a marine biologist played by Richard Dreyfuss makes this observation about the great white shark: "What we are dealing with is a perfect engine, an eating machine. It's really a miracle of evolution."

One of the fee-harvester cards featured in the NCLC report comes with a credit limit of $250. However, the consumer who signs up for this card will automatically incur a $95 program fee, a $29 account set-up fee, a $6 monthly participation fee, and a $48 annual fee -- an instant debt of $178 and buying power of only $72. Fee-harvesting is extremely lucrative for the industry. In 2006, Atlanta-based CompuCredit -- one company featured in the NCLC report -- collected $400 million in fees from a portfolio of fee-harvester cards that by mid-2007 had saddled cardholders with nearly $1 billion in debt.

The report points out that "fee-harvester cards have very little purchasing power" for the consumers who "use" the cards: "much of the unpaid balances represent fees rather than payments for purchases to third-party merchants." The report describes in detail how credit card banks, large and small, obscure (CorTrust) and well-known (Capital One and HSBC) have developed the fee-harvesting business model to target sub-prime consumers with low credit scores. The report provides a detailed explanation of the techniques used by fee-harvester cards to deplete millions of dollars annually from consumer wallets -- from down-selling and abusive debt collection to the slice-and-dice, used by the massive "What's In Your Wallet?" lender Capital One:

Slice and dice: Rather than increasing the credit available on an existing card with a low limit, a bank will sometimes issue an additional card that also has a low limit. That increases the odds that a cardholder will incur penalty fees or rates by exceeding the limits or missing payment deadlines on one of multiple cards. A 2006 report in Business Week magazine identified five consumers who ended up mired in debt after they were issued multiple credit cards by Capital One Bank. A Capital One spokeswoman told the magazine that the "vast majority" of Capital One cardholders had only one account, but that "a very small percentage" had three or more cards.

Reverse redlining. Lenders have historically denied residents of minority communities equal access to credit, a form of discrimination known as redlining. Some issuers, seeking to exploit that history, have launched "affinity" campaigns that market high cost products, including fee harvester cards, to minority communities. For example, a marketing company called Urban Television Network distributed the Freedom Card, a fee-harvester card that often had a credit limit of only $300. Promotional efforts for the Freedom Card included a contract with musician Queen Latifah.

Today's Wall Street Journal has a front page expose on the business of "lead cards" called Marketers Use Trickery To Evade No-Call Lists (pd. subs. req'd). The story by Jennifer Levitz and Kelley Greene explains that "Older Americans around the country are getting duped by a seemingly innocuous tactic that can expose them to hard-sell pitches from the insurance industry." Read the story and you won't be surprised to find that right in the middle of it are the data brokers, led by ChoicePoint (you remember ChoicePoint, the ones who sold consumer dossiers to identity thieves and paid a $15 million fine including victim restitution to the FTC). Well, according to information obtained during a successful lawsuit by AARP to defend its name:

In internal emails, ChoicePoint employees attributed the cards' success in generating responses to their "fear factor" and described response rates that "tumbled" when AARP's name was temporarily removed from mailings.

In April 2006 it [AARP] won a permanent injunction in U.S. District Court in Jacksonville, Fla., prohibiting a company owned by ChoicePoint Inc., a big Alpharetta, Ga., seller of personal data, from referring to AARP on its lead cards and from using a Washington, D.C., return address unless it had an office there. In a settlement, ChoicePoint also agreed to destroy lead cards violating the injunction and paid an undisclosed sum to AARP.

When the virtually unregulated data brokers lobby Congress for exceptions from privacy laws, they argue that they deserve the right to use non-public personal information like Social Security Numbers because their practices are allegedly in the public's interest. They point to their relatively minor efforts to find lost children or missing heirs, track potential terrorists and expose miscreant "deadbeat dads." Funny, I haven't seen the legislative fact sheet that explains the public benefits of misusing AARP's name to trick seniors into dropping off the federal Do Not Call list so that they can be scammed out of their life savings. Here's some older material of ours explaining the data brokers' unregulated "parallel universe."

The story also explains that many state attorneys generals, including Illinois AG Lisa Madigan, are attacking the deceptive use of "lead cards" to trick consumers, especially seniors, into dropping off the federal Do not call list designed to protect their privacy:

The technique is centered on a marketing tool called the lead card, and it became popular after the federal government created its Do Not Call Registry in 2003 to shield consumers from unwanted solicitors. Sent through the mail, the lead card invites the recipient to mail off an enclosed reply for free information about, say, estate planning. But the cards fail to warn that by sending off replies, recipients are giving up their right to avoid telephone solicitations from the sender -- even if their phone numbers are on the Do Not Call list. "It's a huge loophole," says Pam Dixon, executive director of the World Privacy Forum...

We'd all be better off if states figured out a better way to raise money for education and other government services than their regressive lottery systems, which rely heavily on the dreams and paychecks of the poor for funding government programs. It's the wrong way to run a government. Even worse, as the New York Times points out on Sunday in its latest expose (link to the series) on these legalized gambling systems, just two firms have used "heavy-handed" tactics to divide up the domestic state and now international lottery business into their own cash machines. The story Divide and Conquer: Meet the Lottery Titans, by Ron Stodghill and Ron Nixon, alleges that the duopoly has used "heavy-handed" tactics, sometimes including bribes, to dominate the industry and make billions feeding at the public trough:

Every business has its titans, of course. But according to analysts, lottery officials and public documents, Gtech and Scientific Games have done more than just ride the gambling boom -- they have strong-armed their way to the top of a publicly sponsored industry that they now dominate. [...] Gtech, in particular, has been heavy-handed at times. According to court papers and regulatory filings, the company's representatives have drawn persistent allegations of bribing their way into contracts.

Most of the nation's bank regulators don't have an adequate understanding that their role as public servants involves protecting the public, not merely serving the interests of regulated banks. Over at the Federal Deposit Insurance Corporation (FDIC), Chair Sheila Bair and Vice-Chair Marty Gruenberg have a different plan. They're public servants who try and make safe and sound regulatory policy as if people mattered. In today's New York Times, Bair's op-ed column Fix Rates to Save Loans says that subprime servicers and lenders should work with borrowers to restructure costly and dangerous 2/28 and similar mortgages into fixed rate loans, as she proposes an effort to save homes, and neighborhoods: "Subprime borrowers need a better deal -- one that they can afford."

The U.S. PIRG Education Fund's new truthaboutcredit.org campaign to get predatory credit card marketing off college campuses is picking up steam, with major stories yesterday in the New York Times (Pushing Colleges to Limit Credit Offers to Students by Charles DelaFuente) and today in the Washington Post. And, we're even getting requests for our FEESA--Free Gifts Now, Huge Fees Later counter-marketing project's cool light blue FEESA logo polo shirts. I don't even have one yet! Here's an excerpt from Washington Post syndicated columnist Michelle Singletary's story The Extra Credit Students Don't Need:

Many schools have signed lucrative affinity deals with credit card companies in which they provide contact lists of students or allow sidewalk-marketing by the credit pushers. It's an insidious relationship. [...] I don't think any college student needs a credit card. If students don't have the money to pay for school supplies, textbooks or food (the top reasons they use credit), what are they going to do when the bill comes due? Oh yes, they'll do what many seasoned cardholders do. They will roll over their balances to the next month and dig themselves deeper into debt.

You can always find a few interesting items in the New York Times to blog about. From Monday's paper:

Home buyers in predominantly black and Hispanic neighborhoods in New York City were more likely to get their mortgages last year from a subprime lender than home buyers in white neighborhoods with similar income levels, according to a new analysis of home loan data by researchers at New York University.

"There's no question that if you live in a predominantly African-American and Latino neighborhood you're going to be paying more for your mortgage," said Sarah Ludwig, executive director of the nonprofit [Neighborhood Economic Development] Advocacy Project, which is based in New York.

Two of the nation's leading consumer protection groups, our close allies the Center for Responsible Lending and the National Association of Consumer Advocates, have launched "the Institute for Foreclosure Legal Assistance (IFLA) to support groups giving legal representation to families facing foreclosure and financial ruin because of abusive subprime mortgages. The Institute was launched with a $15 million grant from investment management firm Paulson & Co. Inc." Full release should be up soon on their sites.

In Gretchen Morgenson's story Can These Mortgages Be Saved? about Countrywide in the Sunday New York Times, every consumer and community advocate says the same thing:

But borrower advocates who work with a broad array of lenders say that none make it harder to modify loans than Countrywide, the nation's largest mortgage originator and loan servicer.

"When you look under the surface, they are counting deeds-in-lieu as a modification," said Martin Eakes, chief executive of the Center for Responsible Lending, a nonprofit and nonpartisan research organization. "When you've taken someone's house, even without the foreclosure process, to count that as a modification is worse than fiction."

The story points out that, in general, consumers trapped in bad mortgages with other lenders also face difficulty, yet even government officials put a rosy face on the problem:

Lenders, government officials and loan servicers, who take in borrowers' monthly mortgage payments, contend that troubled borrowers everywhere are being helped to stay in their homes by those overseeing their loans. But neither data nor anecdotal evidence supports this view.

Why block mutually beneficial deals? As the article points out, Countrywide can make money from the fees it charges on foreclosures, while the losses from mortgages that could have been saved, but weren't, are borne by others.

We joined other leading consumer groups in signing on to testimony by the National Consumer Law Center before the Senate Finance Committee yesterday. The hearing concerned whether banks are failing to protect Social Security recipients from illegal and improper seizure of their exempt benefits. The issue has grown in importance as more and more consumers receive benefits electronically. Excerpt from testimony by Margot Saunders of NCLC:

We estimate that on a monthly basis thousands of low income recipients of Social Security, SSI and other federal payments whose benefits are entirely exempt from claims of judgment creditors are left temporarily destitute when banks allow attachments and garnishments to freeze their only assets. As was illustrated in a recent Wall Street Journal article ("The Debt Collector vs. The Widow -- Viola Sue Kell thought her Social Security benefits were safe in the bank. She was wrong."), when a bank applies an attachment 14 or garnishment order to the exempt funds in a low income recipient's bank account, the consequences are generally devastating. There is no money for food or medicine. Checks written for rent or the mortgage are bounced. People go hungry. They get sick or sicker. They suffer anxiety. They are forced to pay steep bank fees and fees to merchants because the checks they wrote when they had money in the bank now bounce.

The banks (backed by their captive regulators, at least until yesterday's hearing), of course, use the first part of the Bart Simpson defense: "it's not my fault, I wasn't there, I didn't do it." More from our joint NCLC testimony:

We disagree with this assessment as a legal matter and as a policy matter. Legally, the cases have not yet caught up with the technological situation that exempt funds directly deposited in bank accounts presents, but the case law presents no bar to such a requirement. As a policy matter, how can there be any dispute that the funds provided by American taxpayers to keep this nation's elderly and disabled from starvation and destitution should be kept available rather than frozen for the convenience of creditors who have no right to the monies?

In July, U.S. PIRG Consumer Blog broke the story that Bank of America would raise double-dipping ATM surcharges to $3, becoming the first big bank to hit the $3 level for double-dipping ATM surcharges. When a non-customer used a BofA machine, it now costs him or her $5.50 or so, since their own bank also charges them a foreign ATM fee of $2-$2.50, which it shares with the ATM owner, in this case, BofA. (You need to look at your monthly statement to learn about the foreign fee.)

Well, Kathy Chu of USA Today did a nice story on the problem today, and now everyone's finding about it.

So bank at a credit union, not at a bank. Most credit unions waive surcharges on other credit union members. There aren't as many credit union ATMs, but there are some, especially in metropolitan areas. And plan your trips so you have enough cash so you don't need to stick your card into one of Bank of America's or some other big bank's double-dipping ATMs.

On September 18th the D.C. City Council is expected to finalize action on legislation sponsored by Councilmember Mary Cheh (Ward 3) to subject predatory payday lenders to the 24% APR usury ceilings other small loan companies face. Payday lenders in the District now charge annual interest of up to 550% -- more than 20 times the legal limit for other lenders. Bill B17 -0132, the Payday Loan Consumer Protection Act of 2007 is supported by all leading consumer, civil rights, poverty and religious action groups and a coalition. The coalition has a news conference (scroll down) with several former payday staffers turned whistle-blowers scheduled for Wednesday September 12 at the District building. On July 10, the preliminary vote for the legislation was 12-0-1, with former Mayor (some time ago now!) Marion Barry, the only abstention. Barry (Ward 8), originally co-introduced the bill with Cheh, but has since joined forces with the industry lobby, which has been spending a lot of the cash bilked out of D.C. residents' pockets on a series of ads claiming that they are, in fact, the good guys. Well, did you expect them to say, "Yes, we are loan sharks?" Expect Barry to offer and withdraw, for lack of support, a pro-industry amendment to "regulate" the industry, but not "ban" it.

Check out the new website Bank of America Bad for America. SEIU, the Service Employees International Union, says:

Instead of living up to its obligation to employ responsible business and banking practices, Bank of America is using its size and market dominance to run up fees and credit card rates, cut corners on community reinvestment efforts, deny loans to working families and minority communities, avoid paying taxes, and actively eliminate thousands of jobs.

When everyone with good credit has too many credit cards already, banks eager to increase profits in the already extremely lucrative credit card business have three choices:

College students and immigrants are favorite targets as new customers. Previous bankrupts are also targeted, because they have what's been called "a taste" for credit. Today's New York Times editorial The College Credit Scam cautions against the most aggressive and unfair practices that the card companies use on campus:

Colleges, which often allow solicitation on campus, need to do more to protect their students from taking on credit card debt that can severely damage their economic prospects once they graduate from school and join the world of work.

Two good consumer money stories in the New York Times this weekend, plus a nice one in the Detroit Free Press:

In terms of being unresponsive to what was happening, to sticking it out the longest, and continuing to justify the garbage they were selling, Countrywide was the worst lender. And anytime states tried to pass responsible lending laws, Countrywide was fighting it tooth and nail.

In the last couple of years, credit card companies have created cards that are a hybrid of credit, debit and gift cards -- and the companies are marketing them squarely at teenagers. [...] And some companies promote the cards as a step toward using credit cards. The parental information section on the MYplash Web site says: "This will give your son/daughter a chance to get acquainted with a cash card prior to getting a credit card."

Our view: Paying with plastic is too much like magic to learn the value of money. Sure, the banks claim that the parent can track spending on whiz-bang computer interfaces and then have meetings with the kids to explain money, but what do you expect the banks to say?

Saving me the trouble, the Credit Union National Association (CUNA) has issued a release refuting a silly "survey" from the American Bankers Association purporting that most Americans pay less than $3/month in bank fees. From CUNA:

In 2006 U.S. banks reported a record $36 billion in service charges on deposit accounts, which works out to roughly $360 in yearly charges for each household with a bank relationship.

What if there were a credit bureau that only reported negative information and your better payment of your more recent bills wouldn't help your score? Actually, there are numerous credit bureaus that only collect negative information, which is then used to blacklist consumers or workers. Among these are bounced check databases, workers' compensation bureaus and tenant screening bureaus. Bankrate.com has a good explanation of the problems renters face due to the often sloppy practices of tenant screening bureaus.

The big 3 credit bureaus (Experian, Trans Union and Equifax) collect both positive and negative information about how you pay your bills and then combine it with public record financial data (generally all negative) to compile credit reports. You can improve a bad credit report by improving your bill payment history, since positive information raises your credit score. You can also attempt to correct mistakes, of course.

It's worse with a blacklist bureau, where all the information is negative. What if you were legally withholding rent because the landlord hadn't completed repairs? What if the tenant screening bureau reported you'd been sued by a landlord but not that you'd won the case, including damages against the landlord for a retaliatory eviction? What if you were mixed up with someone else who'd filed for bankruptcy or been convicted of a crime? You can attempt to correct mistakes, of course, just as if it were one of the Big 3. But when all the information is negative, it's harder to climb out of the hole. Attorneys who go after these tenant screening bureaus tell me that their attitude is often even more arrogant than that of the Big 3. You are entitled to look at your file, of course, but first you have to know if you have one, and at which tenant bureau. Bankrate has a recent list of some of the major specialty bureaus, of all sorts.

There's a fascinating article by Gail McGovern and Youngme Moon in the June Harvard Business Review: Companies and the Consumers Who Hate Them (long summary is free, download full article for a fee). The article picks on practices including tricky bank fees, cell phone early termination fees, unfair longterm health club contracts from Bally's and others, Blockbuster's business model built on late fees, not rentals and a variety of other scams. Then, it points out that ING Bank, Virgin Mobile pre-paid cell phones, Curves and other health clubs and Netflix are among those firms that have taken advantage of the large pool of disgruntled "defecting" consumers who simply want to be treated fairly in the marketplace. These firms and others have a business model that puts "customer satisfaction and transparency first." From the summary:

Why do companies bind customers with contracts, bleed them with fees, and baffle them with fine print? Because bewildered customers, who often make bad purchasing decisions, can be highly profitable. Most firms that profit from customers' confusion are on a slippery slope. Over time, their customer-centric strategies for delivering value have evolved into company-centric strategies for extracting it. Not surprisingly, when a rival comes along with a friendlier alternative, customers defect.

This week the FTC finalized a consent order against KMart for deceptive gift card dormancy fee practices. Consumers who can jump through the government's hoops may be able to obtain refunds. But, in a letter to our pro bono attorney David Balto, the FTC rejected arguments made (previous blog1 and blog2) by U.S. PIRG, Consumers Union and Consumer Federation of America to improve the order in several ways, including our request that KMart disgorge its ill-gotten gains collected from bewildered consumers whose gift cards shrunk in value due to the deceptive fees.

Two of five FTC commissioners, Pamela Jones Harbour and Jon Leibowitz, agreed with us on disgorgement. Without disgorgement, what incentive is there to deter future corporate criminals? What message does our lead consumer protection agency send when it issues wrist-slaps for ripping off consumers? We doubt very many consumers will collect refunds under this scheme:

Under the order, consumers may contact Kmart to determine if they are eligible for a refund, and must provide to Kmart: 1) a Kmart gift card identification number, 2) a mailing address, and 3) a phone number. If it is determined that a consumer’s Kmart gift card had a dormancy fee imposed against it, Kmart will mail the consumer a new gift card with a balance equal to the amount deducted in fees.

As more and more transactions are made with stored value and other new types of debit cards, there is a growing need to improve consumer protections. Your rights with a credit card are strong. Your rights under law with an ATM/debit card are less strong (and it is your own money at risk). Following recent regulator actions, your rights with a payroll debit card are better than before. But with other stored value and prepaid cards, your rights are "not so good" or "it depends." Why shouldn't all plastic have equal, strong consumer rights under law?

A small, but growing, number of law and social science professors are investigating the implications of unfair consumer credit practices on consumer-debtors. Many of them are now blogging. Two good blogs are Credit Slips and the Consumer Law and Policy blog. One Credit Slips blogger, Katherine Porter, an associate professor at the University of Iowa College of Law, has recently posted an important new study to the Social Science Research Network (SSRN). You can download Professor Porter's paper -- Bankrupt Profits: The Credit Industry's Business Model for Postbankruptcy Lending -- at the bottom of this abstract page.

The study, based on a longitudinal study of bankrupt families, finds empirical evidence to challenge the conventional wisdom (fueled by repeated industry claims), as one bank association lobbyist once said with a straight face opposite me in a TV interview, that most bankrupts are bad guys whose purported inability to handle credit is actually calculated, who often go on pre-bankruptcy "mall shopping sprees" (yes, the bank lobbyist said that on TV) and engage in other opportunistic abuses of the credit system. Professor Porter's robust analysis, however, shows that "industry's characterizations of bankrupt families as opportunistic or strategic actors" are false. Instead, Porter finds that the system works the opposite way-- it is the lenders that are opportunists:

many lenders target recent bankrupts, sending these families repeated offers for unsecured and secured loans. The modern credit industry sees bankrupt families as lucrative targets for high-yield lending, a reality that has important implications for developing optimal consumer credit policy and bankruptcy law.

College students and postbankruptcy debtors both face difficulty in meeting bills without borrowing. The credit industry's intense marketing to postbankruptcy families parallels their efforts to lure other vulnerable borrowers into lending relationships. Because bankruptcy is a public process, recent bankruptcy debtors offer a useful group to study to understand creditors' strategies for profiting from financially vulnerable consumers. If lenders' intense solicitation of such customers indeed is drive by these families' propensity to pay late, go over the limit, and revolve large balances, society may wish to prohibit or constrain such lending. Lending strategies that profit from financial distress may be suboptimal because they force society to bear the costs of such distress.

One bank spokesperson has asserted that any credit card offers that it sends to people who have filed bankruptcy are inadvertent. The data cast doubt on this denial. Major lenders deploy sophisticated analytical tools to identify future customers and their anticipated profitability. This strategy has been fundamental to the price and term differentiation that dominates the current lending environment. During the same period in which the bankruptcy rate escalated, technology improved the credit reporting and scoring systems. Simultaneously, marketing departments launched powerful incentives such as create "teaser" interest rates and affinity programs to attract customers. Given this formidable marketing prowess, accidental offers are probably rare.

As policymakers on Capitol Hill evaluate legislative changes to rein in dubious and unfair credit card industry practices and fix the mortgage mess that threatens the world economy, this study provides important information about lenders' intent. It deserves widespread circulation. News on the study: AP story; Bankruptcy expert and Professor Elizabeth Warren's blog entry; the Iowa Press-Citizen.

I recently upgraded from an old (really old) Acura to a newer (almost new) Civic. I called my insurance company to report the change. I then received an absurd letter stating that I would be receiving a "good," but not the "best," insurance rate. Why? Because my credit score was very good, but not the "best." Reason stated: because I had "too few" credit cards, even though they are paid as agreed and in good standing.

A big problem here: My auto insurance rate should be based on factors including "too many miles driven" or "too many moving violations or fender benders," not a credit score, especially one based on flimsy data such as "too few" credit cards.

But it's worse if you're non-white.

As syndicated Washington Post financial columnist Michelle Singletary points out in her Color of Money column Your Car and Your Credit today:

Consumer advocates say using credit scores to set insurance rates unfairly hurts African Americans and Hispanics because those groups tend to have lower credit scores and thus end up paying more for their auto insurance. They also complain that errors in credit files can result in lower scores and therefore higher insurance premiums.

Update 7/27-- hearing indefinitely postponed. (Update a few hours later-- Reorganized and expanded--I added a section on consumer/civil rights critique of the FTC report, and an excerpt from a new CEJ/NCLC report). Today, MASSPIRG's Deirdre Cummings and Center for Insurance Research's Stephen D'Amato have a Boston Globe op-ed column What's driving the new auto insurance plan? Also, on Friday, the House Financial Services Committee holds a hearing on Credit-Based Insurance Scores: Are They Fair? The hearing is intended to review a controversial new study of credit scoring by the FTC. In a release this week, consumer and civil rights groups led by Birny Birnbaum, an economist and head of the Center for Economic Justice, issued a harsh rejoinder to the FTC study:

Representatives of the Consumer Federation of America, the National Fair Housing Alliance, the National Consumer Law Center, and the Center for
Economic Justice said the FTC study is fatally flawed because the insurance industry controlled the data used in the analysis. Instead of requiring the submission of comprehensive policy data by a large number of insurers, the FTC used data handpicked by the insurance industry.

For a counter-analysis to the FTC, see the June 2007 report by Chi Chi Wu of the National Consumer Law Center and Birnbaum of CEJ: Credit Scoring and Insurance: Costing Consumers Billions and Perpetuating the Economic Racial Divide Excerpt:

Study after study has documented the fact that credit scores disfavor minority consumers. Since 1994, at least 5 studies of traditional credit scores (for credit granting purposes) have shown that African Americans and Latinos have lower scores as a group. At least two studies by state insurance bureaus have found that African Americans and Latinos are overrepresented among consumers with low credit scores and under-represented among those with high credit scores. Furthermore, minority consumers are more likely to lack the credit history necessary to even generate a credit score.

Anti-discrimination laws present limited avenues to challenge the racial disparities created by credit scoring. There are some viable theories to challenge insurance scoring in home insurance, but fewer challenges available in auto insurance.

Finally, we argue that racial disparities in credit scoring are a product of historical economic discrimination against minorities. Government policies that economically boosted whites while leaving minorities behind are responsible for the racial wealth gap. Credit scores act as both a numerical reflection of that gap as well as a force widening the gap. We echo the call of many advocates to ban the use of insurance scoring in order to stop the perpetuation of economic discrimination. If states do continue to permit their use, insurers must be required to develop scoring systems that do not have a disparate impact on minority populations.

From the Boston Globe column by Cummings and D'Amato on the terrible new insurance deregulation proposal in Massachusetts:

When Insurance Commissioner Nonnie Burnes released her decision last week to change the way auto insurance is sold in Massachusetts, insurance companies popped the proverbial corks after reading the fine print. Burnes, recently appointed by Governor Patrick, also released a cover letter with the decision. The letter is so diametrically opposite in tone and content to the decision that it is hard to imagine the same person wrote them. [...] Consumer groups have consistently opposed this industry-sponsored proposal because it permits insurers to reject drivers by using the same unfair criteria -- credit scores, income, education, home ownership -- that the cover letter attacked.

Insurers should not be able to use credit scores derived from credit reports to deny consumers insurance or to place consumers in higher-risk (higher-cost) product pools. Insurance companies claim that there is a correlation between a consumer's score and the chance that he or she will file a future insurance claim. But they have kept their scoring formulas secret, preventing an independent, public review of the actuarial soundness of their claim. In addition, any correlation is insufficient to justify the use of insurance credit scoring. Some studies demonstrate that credit scoring may simply be a double counting of other risk factors, such as policyholders' geographical locations, that already are taken into consideration when setting insurance rates. Scores also may be a proxy for rating factors that insurers are prohibited from using, such as race. This model law prohibits insurers from using information regarding a consumer's creditworthiness, credit standing, or credit capacity for the purpose of determining rates for insurance or eligibility for coverage.

The Massachusetts Insurance Commissioner has decided to deregulate insurance rates at the request of powerful insurance companies seeking to use random factors including credit scores to set insurance rates. From a release from MASSPIRG and the Center for Insurance Research:

Based on industry estimates, eventually more than a million drivers are expected to be rejected annually under the proposed plan. Rejected drivers will be randomly assigned to another insurer. As a result, they will lose the freedom to choose their insurer, will be subject to discriminatory underwriting practices, and will often face higher insurance costs.

UPDATE 24 July: Here's a link to the full hearing and to my testimony last week. I was very impressed with the level of concern evidenced by committee members over the practice of Visa/Mastercard imposing high merchant interchange fees. Rep. Darrell Issa (R-CA), a business owner, expressed disdain over the industry witnesses specious claim that banks would negotiate fees. Rep. Ric Keller (R-FL) was among the many committee members with well-thought-out, insightful questions of the industry witnesses, who included Tim Muris, former FTC chair.

Original post: I testify this afternoon in House Judiciary on credit card interchange fees, which are the fees merchants pay to accept credit and debit cards. I will post my testimony when it is released by the committee. No secrets in it: consumers, whether they pay with cash or plastic, pay more at the store and more at the pump because Visa and Mastercard use their anti-competitive market power to impose high merchant interchange fees. These are passed along to everyone. Here's a link to my testimony last year in House Energy and Commerce.

Freshman U.S. Rep. Keith Ellison (D-MN) has quickly emerged as a leading champion of working families both on the House Financial Services Committee and on the House floor. Here's an excerpt from his column Saving the golden goose: preserving America's middle class today in The Hill:

As more working families turn to credit, more are subject to unfair and abusive practices by some elements of the credit industry. From unfair high-interest credit cards, to payday loans and tax-refund anticipation loans, a whole industry has spawned to take advantage of working families trying to make ends meet. My passion for consumer justice issues stem from my belief that we must help return economic prosperity to working families. Ensuring that working families are protected from credit abuse will help Americans have more money in their monthly budgets to afford healthcare, college for their children and food for their table.

What could be worse than rent-to-own, where storefront predatory lenders promise the American dream of ownership of TVs, refrigerators and computers and then take it away with harsh and deceptive loan terms based on ad infinitum weekly payments "as low as $10.99?" At least with rent to own, you have the use of the TV you pay for again and again. How about an Internet-based layaway system where you make even higher weekly layaway payments for months and months but then never receive the product? Recently, Maryland Attorney General Doug Gansler brought suit and settled with Baltimore-based consumer product finance company BlueHippo.com:

the Division estimates that as many as two-thirds of BlueHippo's Maryland customers never received the computers or televisions they ordered. Additionally, when consumers failed to receive the goods and requested to cancel their orders, BlueHippo allegedly refused to refund the consumers' payments, violating Maryland law.

Last July, Ms. Trammel paid $99 down, agreed to yearlong deductions of $41 a week from her bank account and waited for her new laptop to be sent after the first three months of payments. Six months later a broken computer arrived. Two nonworking computers later, after having spent well over $1,000, she demanded a refund from the sales company, BlueHippo. She got it only after endless complaints to the Better Business Bureau and the Maryland attorney general.

Yesterday the DC City Council voted 12-0-1 to effectively ban payday lending by subjecting it to usury ceilings. A second confirmation vote will occur in the fall. The notable abstention to the unanimous vote was from deposed former mayor Marion Barry (now the councilmember from Ward 8). Barry once supported the bill. Now, his soundbites sound as if they were written by one of the pack of payday lender lobbyists scurrying about town hoping to reverse this vote in the fall. Councilmember Mary Cheh (Ward 3) is championing Bill 17-132, the "Payday Lenders Consumer Protection Act of 2007," which sailed through committee mark up with no amendments on July 5 with a 3-1 vote. The bill would repeal the exemption for payday lenders from the District's 24% usury cap, a carve out that the payday lenders have benefited from since 1998.

Along with the Consumer Federation of America and others, we've issued a news release in support of new legislation from Reps. Tom Udall (D-NM), Luis Gutierrez (D-IL), Keith Ellison (D-MN) and Jan Schakowsky (D-IL). The Payday Loan Reform Act of 2007 prohibits lending based on checks or debits drawn on depository institutions. Last year Congress enacted this protection for Service members and their families.

Yesterday, while I was in Philadelphia speaking on unfair binding arbitration, a number of my reform colleagues (Hendricks, Wu and Bennett) testified to inaccuracies in credit reports and the failure of the Fed and other bank regulators to implement new rules required by 2003 amendments.

But the missing new rules are only part of the problem. According to the Boston Globe, at the hearing, the Fed's witness, Sandra Braunstein, also "said the agency had never imposed a fine on a bank for providing bad information to credit bureaus."

Two weeks ago, I testified that the powerful, if obscure, federal bank regulator known as the OCC was too cozy with credit card companies, since it hadn't imposed a public penalty since 2000 on a Top Ten bank. In his questioning of OCC chief John Dugan on this very point, Rep. Emanuel Cleaver (D-MO) had Dugan flustered.

AS for an excuse for the lax attitude of the Fed toward the new rules, Braunstein then gave the tired response that "More complex regulations might cause some retailers to drop out of the credit rating system completely."

Dugan and Braunstein, and her bosses, the Fed governors, who've also been providing such incredibly out-of-touch testimony on consumer issues lately you'd think that they were space aliens new to Earth, and other bank regulators, need to get out more into the real world. If the banks they're cozy with don't feel the pain of civil penalties, they will continue to make sloppy or anti-consumer behavior part of their business model. At least the Federal Trade Commission is throwing an occasional small fine at the Big Three credit bureaus, although much more could be done.

Most Americans think that everyone with a dispute has the right to a day in court. Wrong. On Tuesday, I am speaking on a panel in Philadelphia, at a conference of the National Association of Consumer Agency Administrators. The topic: Binding mandatory arbitration. It's an important access to justice issue that may finally be receiving serious legislative scrutiny, with hearings and bills to protect consumers, employees and farmers under consideration in both the House and the Senate. And, investor arbitration is the topic of Washington Post syndicated columnist Michelle Singletary's column today: If you take on your broker, you're likely to lose.

Who is being forced into arbitration? Pretty much everyone, including identity theft victims of MBNA credit card bank. Identity theft victims? They never had an account! Yet, as described in recent testimony by Paul Bland of Public Justice, MBNA routinely files arbitration claims seeking "unpaid" debts from the victims, and gets its favorite arbitration company to "blackball" arbitrators that rule for the consumer, even once.

Did I say "pretty much everyone?" Wrong. Car dealers convinced Congress to pass a law a few years ago protecting them, as "small" guys, from mandatory arbitration in disputes with car manufacturers (big guys). What about car buyers? Arbitration. Must be as big and powerful as car dealers. However, at the end of the last Congress, the Sens. Jim Talent-R-MO and Bill Nelson (D-FL) amendment banning mandatory arbitration as an unfair practice in predatory loans to military personnel became law as part of S. 2766, the 2007 Defense Appropriations bill. That was an important step.

Over the last 15-20 years, a concerted effort by corporations and their law firms has resulted in the insertion of binding mandatory arbitration clauses into virtually all consumer, employee, investor, small farmer and other small business contracts. In many cases, the consumer never even signed that contract (and most are one-sided standard form contracts, anyway, not negotiable contracts); rather, it was amended with a "blow-in insert" to a monthly credit card or other bill, sometimes with a "right" to opt-out or decline the change. Employees have no real choice, either, of course, other than quitting. As for the farmers, when the agribusiness truck full of baby chicks arrives, they don't get the truckload unless they sign the receipt that includes an "I agree to arbitration" line.

In his recent detailed testimony at a hearing (all testimony) of the House Judiciary Committee, consumer lawyer Paul Bland of Public Justice explained that private arbitration firms are using practices that make arbitration even more unfair:

Private arbitration companies are under great pressure to devise systems that favor the corporate repeat players who draft the arbitration clauses (and thus decide which arbitration companies will receive their lucrative business). For example, arbitrators who rule against corporations and in favor of individuals are often blackballed from serving as arbitrators in future cases. Also, some arbitration companies have undertaken advertising campaigns aimed at prospective corporate clients which make a number of inappropriate promises of favorable treatment.

The Singletary column reports on a study that finds it is getting harder and harder for small investors to win claims against their brokers. While this is true, the small investor arbitration system run by the private regulator known as the NASD remains one of the few arbitration systems that is not stacked completely against the consumer. As an example concerning the private firm known as the National Arbitration Forum in Paul Bland's testimony explains:

From material taken from NAF's website disclosures pursuant to California's disclosure requirement, enclosed as Exhibit 8 hereto are the results from a single quarter's worth of decisions by just one NAF arbitrator. This person handled 80 cases brought by banks against individuals, and ruled for the bank in all 80 cases. In 78 of the 80 cases, she gave the bank 100% of the amount it claimed, in two cases, she gave slightly less. She also ruled on one claim brought by a consumer against a bank, and dismissed it.

A large number of cases have been documented establishing that the NAF has entered awards in favor of MBNA and other lenders against persons who were identity theft victims who did not, in fact, owe any debts.

Among the pro-small guy arbitration bills that have been introduced in the 110th Congress are the following:

We expect many more bills to be introduced. And we expect a lot of Congressional action to restore access to justice. Visit the PIRG-backed Givemebackmyrights.org campaign for more information.

The Federal Reserve held a hearing today in response to the massive problems affecting consumers and communities across the nation due to subprime loan foreclosures. We joined the Center for Responsible Lending and other groups in a release urging the Fed to end its 13 years of inaction despite a Congressional mandate to take strong action against abusive, unfair or deceptive mortgage lending practices. Here is my statement from the release:

"Federal bank regulators have long failed to require basic standards of decent lending, especially for debt-strapped families and communities of color targeted by subprime lenders. We expect that the entire country will suffer adverse effects from the massive wave of subprime foreclosures--foreclosures that could have been prevented if the Board and other agencies had not ignored rampant predatory activity in the marketplace."

After my entry the other day about the credit union that charged a $2 fee for pulling up to the drive-through without your arm hanging out the window ready to lob your pre-prepared envelope through the slot, people asked me: "Ed, was that your own credit union?" The answer is "nope." I heard this from Amy Reinink of the Gainseville (FL) Sun, and now that she has written her story, Bank fees growing more numerous and expensive, I can let Amy tell you the name of the CU and a little bit more:

First, Sun State Credit Union charged Gainesville resident Karen Soesbe $2 for coming in more than four times a month. Next came the charge for not having her transaction slip ready at the drive-through window. When Soesbe was charged for not using the credit union's telephone banking system, she decided to fight back, sending an angry letter to the credit union's president and filing a formal complaint with the National Credit Union Association.

We had a lively credit card hearing today in the U.S. House Financial Institutions and Consumer Credit Subcommittee. The hearing was a response to the Fed's recent issuance of a 700 page proposed re-write to credit card disclosure laws. One panel had six federal or state agency heads; the second had Kathleen Keest (her testimony) of the Center for Responsible Lending and me (my testimony) representing consumers, along with four industry witnesses and a small business representative. The hearing lasted about 4 hours, not including another hour or so of floor vote breaks. A surprising number of Representatives stayed and engaged both panels. Representatives of both parties had detailed and deeply-held concerns about a variety of unfair credit card practices. The bankers were contrite and generally said: "We don't do that anymore." A few highlights: First, Chair Carolyn Maloney (D-NY) announced she would hold a credit card summit with consumer groups, regulators and credit card companies.

To discuss these issues and others, I am planning a Credit Card summit. Among the results I want to achieve from this meeting is a way to use private forces to keep the spotlight on issuers and encourage best practices. For example, what if industry, working with consumer advocates, developed a Gold Standard for credit cards and certified that certain of their products met this standard.

We look forward to working with Chair Maloney on further investigations and inquiries.

Along with our colleague Kathleen Keest of the Center for Responsible Lending, I am representing consumers at a hearing on unfair credit card practices (committee announcement: Improving Credit Card Consumer Protection: Recent Industry and Regulatory Initiatives) Thursday before the House Financial Institutions Subcommittee of the Financial Services Committee. There are apparently six regulators and five industry lobbyist witnesses. Not to worry. The Texas Rangers motto, I think, is "One riot, one Ranger." With me and Kathleen, we've got an extra Ranger. By the way, if you want a preview of my testimony, there's a video excerpt of my interview from a forthcoming documentary on credit cards, UR Pre-approved, available on the movie's "trailers" page. Scroll down.

Latest from the student loan scandal firehose: In Fortune Magazine, Bethany McLean outlines powerhouse Sallie Mae's latest "unpleasant" efforts to block PIRG-backed reforms that will cut subsidies to lenders and help make college more affordable. From McLean's Fortune story Saving Sallie:

"And right now, Sallie's lobbying involves a particularly unpleasant form of racial politics.[...]Sallie has been reaching out to members of the Congressional Black Caucus, implying that a decrease in its subsidies will mean that the company will be forced to cut back on loans to students who attend historically black colleges and universities."

The poor pay more, lots more, according to Business Week's cover story The Poverty Business: Inside U.S. companies' audacious drive to extract more profits from the nation's working poor, by Brian Grow & Keith Epstein. The story is a must-read if you want to know how "buy here, pay here" used car dealers, rent-to-own stores, payday lenders, high-cost subprime loan operators, trade school loan scammers, remittance (foreign money transfer) shops and others in "The Poverty Business" use deception and a lack of fair laws to gouge working class Americans to the tune of $250 billion a year. As BW explains, many of the lenders don't actually think of themselves as selling products; instead, they sell high-cost financing, with the car, or computer, or TV, as a come-on:

"It's the finance business," explains Russ Darrow Jr., a Byrider franchisee in Milwaukee. "Cars happen to be the commodity that we sell."

Byrider, with at least 124 locations, is an example of the growing corporatization of the poverty loan business. Similarly, the rent-to-own industry, once comprised of small ma-and-pa furniture lenders, is now nationalized and led by the massive Rent-A-Center. Check cashing is certainly still done at local liquor stores, but the big money is in high-cost payday lending operations led by Advance America.

A variety of news stories have noted the investment in subprime mortgage loans and even tawdry refund anticipation loans (RALs) by affiliates of some of the nation's largest banks. As BW goes on to point out, the big banks are directly in the poverty business, and also back it with business-to-business financing and securitization services.

Mainstream financial institutions are helping to fuel this explosion in subprime lending to the working poor. Wells Fargo & Co. and U.S. Bancorp now offer their own versions of payday loans, charging $2 for every $20 borrowed. Based on a 30-day repayment period, that's an annual interest rate of 120%. (Wells Fargo says the loans are designed for emergencies, not long-term financial needs.) Bank of America's revolving credit line to Byrider provides up to $110 million. Merrill Lynch & Co. works with CompuCredit to package credit-card receivables as securities, which are bought by hedge funds and other big investors.

Last night, after a two-hour weather-caused flight delay, President William Jefferson Clinton finally joined his fellow honorees, the historian John Hope Franklin and Iraq War veteran L. Tammy Duckworth, at the Leadership Conference on Civil Rights' (LCCR) annual Hubert H. Humphrey Civil Rights Award Dinner. Hundreds of us had waited (it wasn't hard as the LCCR brought up some powerful witnesses to history for impromptu speeches to fill in the time). In his acceptance speech, the former President urged the completion of Nobel Laureate Dr. Martin Luther King's call for an end to the barrier that is a lack of economic opportunity. Clinton specifically condemned the impact on minorities and all Americans of a wide variety of "toxic" predatory loan practices from unfair subprime mortgages to payday loans and refund anticipation loans and even their variant, the paystub loan. He said that these Americans have worked an "extra two weeks each year" to pay unfair fees that they cannot afford. He also called for more banks to work harder to solve the cost (costs of entry to the bank system are too high) and presence (there are no banks where many people live) barriers facing the 28 million unbanked Americans. He urged more banks to follow the lead of the (labor-founded) Amalgamated Bank, which recently opened a branch in an under-served area of Queens, NY. He told the story of one of the latest Nobel Laureates, economist Muhammad Yunus, and his Grameen Bank of Bangladesh, and their successful micro-loans to the poor. And finally, in calling for a commitment to a "clean, independent energy future," he said that greater emphasis on "green buildings" would also help create jobs, because you "cannot outsource green roofs to India because somebody's got to be up on the roof."

In today's Wall Street Journal, Joseph Barnes, an official of the Congressionally-chartered Fleet Reserve Association, and co-chair of The Military Coalition, has a nice letter (pd. subs. req'd) rebutting a 2 April WSJ editorial, Mayday for Payday Loans, that opposed a bi-partisan 2006 law banning usurious loans to military personnel. The WSJ editorial read like something from the payday lending press machine. From the Barnes rebuttal letter:

The provision in the law is supported by a number of consumer groups and The Military Coalition, which represents 35 military/veterans organizations with collective membership totaling more than five million members. These organizations agree with the Department of Defense that abusive lenders who target service members not only harm the finances of our fighting men and women, but damage the readiness of our military forces.

It's bad enough when a tawdry payday lender uses your un-cashed check as collateral on a triple-digit predatory small loan. Many people may not be aware that in some states, car title pawn companies are allowed to use a copy of your car keys as well as your actual car title as collateral for a similar small loan of a few hundred dollars. Can't pay back your $200 loan? They take your car, no matter what it's worth. Here's Iowa Attorney General Tom Miller's statement on Iowa's new ban on car title pawn. Meanwhile, Blue Oregon critiques a car title ad running on Oregon TV.

For many years, we've worked with the National Consumer Law Center and the Consumer Federation of America in efforts to expose and restrict the outrageous practice by most tax preparers: convincing low-income customers to borrow Refund Anticipation Loans (RALs) against their refund at rates of 500% APR or more. Now, according to the New York Times, Tax Loans Are Losing Some Allure. The story, reporting on the latest (January 2007) CFA/NCLC report, notes that if you file electronically, the government itself will process your refund in about a week, at no charge. It goes on to point out that even the preparers are coming out with better products:

At the same time, the largest tax preparer, H&R Block, has cut fees for the loans as much as a third and issued a debit card that consumers without bank accounts can use that gives them the opportunity to bypass the loans altogether. [...] "It's a decent product," said Chi Chi Wu, a staff lawyer at the National Consumer Law Center in Boston. Coming from a consumer advocate who has spent years chastising the tax preparation industry for its practices, that is hardly faint praise. The product wins kudos because it is not just for the refund anticipation loans. It allows people who do not have bank accounts to get some of the advantages provided to those who do. "We have been supportive of that," Ms. Wu said.

This is a form of corporate profiteering. It's a shame that big banks and commercial preparers pocket a chunk of anti-poverty benefits meant to help hardworking Americans.

We've set up a new site over at StudentPIRGs.org to collect complaints (or praises) from college students and other young people about their interactions with credit card companies.

Carrying a credit card is practically a necessity these days for young adults. One-quarter of students report using credit cards to pay for the cost of books and tuition. Students should get the credit they deserve, but they pay more than they bargained for. Irresponsible credit card companies pile the debt on young adults.

What with 10 days in Europe and all, I am behind on checking out the consumer blogs. So, here are a few excellent posts from the last few weeks: Over at Credit Slips, the consumer credit and bankruptcy professor blog:

In the paper, I build off their ideas to develop a proposal for "self-directed credit cards," which would allow consumers to pre-commit to set levels of credit-card usage and avoid the temptation to spend or borrow more in the heat of the purchasing moment.

If the average card offers is about $5,000 in pre-approved credit, that about $365,000 in offers for every American household--or about $1000 a day, every day of the year. By comparison, median household income is about $46,000, or about $127 a day. It wouldn't be unreasonable to speculate that many families are offered about seven times their annual incomes in credit card debt.

And, over at his Digital Destiny blog, Jeff Chester has some prolific and thoughtful posts:

Today, according to Kathleen Day's story in the Washington Post, Chase Card's CEO will apologize at a Senate hearing to Ohio resident Wesley Wannemacher for "charging him $7,500 in interest charges and late fees on purchases of $3,200." Last week, Citibank announced it would end two sordid practices. What's going on? Are we living in Superman's Bizarro World, where everything is backwards? Is owning a credit card company no longer a license to steal, but all of a sudden an altruistic venture?

No, nothing that complicated or moral. What's happening is that Congress is finally taking a hard look at the credit card industry. The industry is simply taking minimal prophylactic steps to deter actual reform legislation and protect the most profitable form of banking, credit card banking. Today, Senator Carl Levin's Permanent Subcommittee on Investigations holds an oversight hearing to follow up on the results of a GAO investigation it released last fall. We've signed on to testimony by Alys Cohen of the National Consumer Law Center. We also have issued a news release and detailed reform platform jointly with several groups. More:

What unfair practices has Citibank promised to stop?

These are useful promises by one company, but Citi's goal, and Chase's, too, is simply to deflect potential legislation. See our testimony and detailed reform platform above for details on what needs to be done.

Oh, and by the way, if you catch Citibank breaking its new promises, you cannot take them to court. There's another clause in your credit card contract that says you've got to go to binding mandatory arbitration instead.

The new, and acclaimed, indie documentary on credit card debt, Maxed Out, is opening in select cities (find yours) around the country this week. Here's a nice review titled A Horror Movie For Our Times by the Washington Post's Michelle Singletary. We're working with both Maxed Out director James Scurlock and the new consumer coalition Americans For Fairness In Lending (or AFFIL) to maximize the movie's message that unlike crime, high-cost debt does pay. It pays credit card companies and debt collectors, with your money.

As reported by Stuart Elliott in today's New York Times in the story Critics of Lending Practices Adopt a Harder Edge, AFFIL is rolling out a series of message ads in major magazines this spring calling for restrictions on unfair lending practices. MORE:

The ads depict unhappy families and their meager possessions in makeshift circumstances, as if they were evacuated or rescued from nature's wrath. In each instance, readers are told that the "crisis," "tragedy" or "disaster" was caused by "credit card debt," a "400 percent payday loan" or a "late mortgage payment" rather than, as they would expect, a natural calamity. Depicting the effects of "abusive lending practices" in that provocative manner "really helped people understand it much better," said Howard Benenson, chief executive at Benenson Janson, compared with other approaches the agency tested.

Yesterday, our colleagues at Demos and The Access Project held a U.S. Capitol briefing to discuss the findings of their recent joint report Borrowing To Stay Healthy: How Credit Card Debt Is Related To Medical Expenses. The event featured report authors Cindy Zeldin of Demos and Mark Rukavina of Access, along with Jonathan Cohn, who is Senior Editor, The New Republic, Senior Fellow, Demos, and author of the forthcoming book Sick: The Untold Story of America's Health Care Crisis-And the People Who Pay the Price. MORE:

The report contributes to the growing body of literature linking financial problems including bankruptcy to the onset of sudden medical problems of both the uninsured and the under-insured.

Most Americans with health insurance have coverage through their own or a family member's workplace. As employers look to rein in their benefit costs, however, more are turning towards health insurance arrangements that feature greater employee cost sharing through higher deductibles, co-payments, and other forms of out-of-pocket expenses. Some are eliminating coverage altogether, and the share of working-age adults covered by employer-sponsored health insurance is in decline.

Medical debt can also be tied to less-comprehensive insurance. As Health Savings Accounts (HSAs) and high deductible health plans grow more common, patients face higher first-dollar expenses and may become more susceptible to medical debt.

Its most important contribution, in my view, is its documentation of the growing link between HSAs and credit. It describes special medical lines of credit tied to HSA debit cards. The report notes the development of "health credit cards" such as the Aetna Health Living Credit Card and about the insurer UnitedHealth's forming its own bank, Exante, with an HSA card and line of credit:

In recognition of the growing market for patient out-of-pocket costs, the credit card industry has developed "medical credit cards" designed specifically for medical expenses, which have recently entered the marketplace. In some cases, health insurers and financial institutions are teaming up to offer products featuring high deductible health insurance and lines of credit to meet the increase in out-of-pocket expenses associated with the higher deductible. Several HSA servicers are now incorporating integrated lines of credit into their HSA products. That there is a market for credit cards specifically designed for these out-of-pocket costs indicates that patients are having difficulty meeting these expenses.

Washington Post syndicated financial columnist Michelle Singletary has a strong critique today -- Payday Loans: Costly Cash -- of the payday lenders and their new multi-million dollar campaign to make people like them, while somehow ignoring the cold hard fact that their business model is to make triple-digit predatory loans (my previous entry). Singletary expresses her surprise and disappointment that some minority groups are partnering with the payday lenders:

Why would they do this, I wondered, especially when so many payday storefronts are located in economically depressed minority neighborhoods? Well, it turns out there's money in it for the minority groups....$2 million to fund financial literacy programs for two groups [National Conference of Black Mayors and National Black Caucus of States Institute]...

...As the trade group says in its news release, the partnership will "educate African-American legislators and community leaders on critical issues regarding consumer credit, and provide community volunteers with resources they need to educate consumers in their communities on how to become credit savvy."

Clearly, the savvier one is the payday industry. What better way to try to fend off regulation than to partner with minority groups supposedly looking out for the very people their opponents say the industry is taking advantage of?

Spending a small amount of the profits taken from the wallets of hard-working Americans, the payday lenders launched their $10 million campaign (previous blog with details) against more regulation yesterday with a full page ad blitz in papers across the country and even, apparently, in some TV ads. As I told NPR's Chris Arnold (listen to NPR story), they're not about to change their profitable business model that traps people into paying them and paying them again in an endless cycle of debt. Instead, they're simply trying to get Congress and state legislatures "to look the other way." Jean Ann Fox of the Consumer Federation of America explained their financial literacy proposal this way to the Air Force Times:

"I'm not sure what the content of their program will be, but even if they are the gold standard of financial literacy education, it still does not make sense to get a payday loan," Fox said. "It's like selling cars without brakes, then funding driver education."

The Community Financial Services Association -- the leading front group for payday lenders -- is ratcheting up its efforts to prevent states from extending tough new federal predatory lending protections for military families to all consumers. Today, it has announced some supposed new best practices including the notion of an extended payment plan. As Chris Conkey of the Wall Street Journal reports today (pd. subs. req'd):

Consumer advocates said they are skeptical the industry's modifications will make much difference to regular borrowers who routinely roll over multiple loans. "They just want to offer you a once-a-year, get-out-of-jail card in the hope that legislatures think that looks like reform," said Jean Ann Fox, consumer-protection director at the Consumer Federation of America.

In a story today Credit Union Dispute Is Far From Over, Kathleen Day of the Washington Post continues her coverage of the proposed but now-canceled (over member vote count irregularities) conversion of the local Lafayette Federal Credit Union in Kensington, MD to a for-profit bank. Similar conversions have resulted in massive windfalls to officers and managers (my previous blog). Members had disputed a very close vote in favor of the conversion, then, the firm that had run the election decertified its results. According to Day, the dispute is growing online, it's moving to the courts, and it continues among the members. In the courts, Day reports:

Lafayette has sued the credit union's former president and chief executive, William A. Brooks, and his son, William A. Brooks Jr., a former credit union employee. Lafayette is seeking $3 million in damages for the Brookses' role in opposing the plan, claiming the two violated a settlement agreement by publicly criticizing Rosenthal and other executives.

It's icy cold here in Washington, DC, but in Arizona, the predatory payday lenders are feeling the Arizona heat, since reformers are pressuring the legislature to negotiate a new and better law in the sunshine of a floor vote, not the legislative backrooms and hallways where paid lobbyists like to skulk and cut deals. Kelly Griffith, deputy director of the Southwest Center for Economic Integrity and Don Carson, vice president of the nondenominational Little Chapel of All Nations, have a guest column It's high time to shut down predatory lenders in the Tucson Citizen today:

In the seven years since the industry won exemption from the state's 36 percent usury limit, the number of predatory storefront lenders has skyrocketed to about 775, many within blocks of each other...For too long, industry lobbyists have guided backstage tinkering with the law to provide the appearance of reform.

A few items from the payday lender blotter:

So, the letter says, there is no need for the Congress to preempt the states with any federal consumer protection legislation. Well, I wish they'd extend that "no need to preempt the states" rhetoric to help U.S. PIRG defeat the myriad preemptive proposals that the Financial Services Committee routinely rubber-stamps whenever a powerful interest wants a federal ceiling against actual state consumer laws.

But that isn't the case here. Far from it. Unfortunately, many states have legalized payday lending at rates as high as 1000% APR. The so-called repayment reforms proposed in this letter simply won't work. This letter, while it may come from two well-intentioned Representatives who worked against payday lenders as state legislators, serves the payday lenders well by having the effect of delaying and deflecting needed Congressional oversight of the loan-sharking practices of payday lenders.

This is not an industry that can be separated into good guys and bad guys. Consumers aren't burned by a few bad actor payday lenders-- the business model of the entire industry is to trap consumers into a recurring cycle of untenable debt. For more information, go to Consumer Federation of America's paydayloaninfo.org website.

We filed comments Monday urging the Pentagon not to weaken one of the most important recent consumer laws, the Military Lending Act. You can read other comments here at the clunky government site Regulations.gov, if you can find them.

Rev. Jesse Jackson is among the pro-consumer witnesses, including both predatory lending victims and our coalition partners, at a Senate Banking Committee hearing today: Preserving the American Dream: Predatory Lending Practices and Home Foreclosures. That link will have a live webcast beginning at around 10 AM Eastern time. The hearing is expected to focus on the personal and economy-wide impacts of a dangerous form of hybrid Adjustable Rate Mortgages, known as 2/28s. I call these loans HARMS-- while there is a low payment for 2 years, there are virtually no rules, restrictions or APR caps worth mentioning for the next 28 years. Cities, including Denver, are already feeling the effects of multiple foreclosures.

The end of the day this Monday, 5 February, is the deadline for filing comments to the Pentagon in support of the new Military Lending Act. It's the most important pro-consumer law enacted by the Congress in years. Its foes -- from the banks to the predatory lenders -- are lining up their lobbyists in Armani and Gucci-clad ranks to convince either regulators or Congress to weaken the new protections that apply to the camouflage-clad ranks [along with their families back on base] that we're sending to Afghanistan and Iraq to protect us.

The Military Lending Act protects active duty servicemembers and their families from abusive credit practices. It was passed with support of an unprecedented coalition of military family support groups, consumer advocates and the Pentagon itself, aligned because crippling, punitive predatory loans imposed on low-paid soldiers and sailors were hurting the nation's military preparedness.

The new Military Lending Act caps interest rates at 36% annual interest including extra fees and insurance premiums. It also prohibits securing loans with personal checks (payday loans), or through electronic access to the Service member's bank account, mandatory allotments, or car titles. Procedural rights are safeguarded through its ban on mandatory arbitration clauses, waiver of rights, and other burdensome requirements. You can comment at the Federal eRulemaking Portal. Follow the somewhat clunky instructions for submitting comments. Comments are posted to the public, so be careful about personal information. Include the agency name (Department of Defense) and docket number: DOD-2006-0S-0216; FR Doc. 06-9518. What should you say? Here are some ideas:

1. Congratulate the Department of Defense on its thorough report to Congress (large pdf) on the impact of predatory lending on Service members and their families. Urge quick implementation, by 1 October 07.

2. Urge DOD to automatically provide coverage to servicemembers. Tell personal stories. By far, that's my most important advice. If you've been victimized by predatory practices--explain how it worked and how it hurt you and your family.

3. List the protections in the Military Lending Act that are important to you: The 36% interest rate cap (usury ceiling) that includes all costs of borrowing in its definition, the ban on soliciting unfunded checks as security for a loan, the protections against unfettered access by collectors to bank accounts or military pay, and the civil justice protections.

4. Urge DOD to deliver on the promises of the new law by applying it to all types of lenders, especially including banks, and to all types of loans, especially including all open-end credit (e.g., credit cards) as well as bounced check overdraft "protection" loans. These are a source of inordinate predatory profit for the nation's well-heeled banks [and, think about it, are such a deal, since you can avoid those shabby payday lending storefronts. Your bank will gouge you just the same right there on your monthly statement or at its well-appointed branch office.]

These are significant protections that will eventually -- if we work hard -- be extended to all Americans. For now, however, we must simply work hard to make sure that the banks are included and that rules aren't gutted. The banks are trying to create the false inference that the only problem the new law was intended to address was payday lending, not unfair bank and credit card practices. Wrong. Their record profits have been largely fueled by their virtually unregulated and growing use of predatory practices, from credit card tricks to bounce protection loans. They, along with the full-time predatory lenders, have many friends on Capitol Hill. The banks also have many friends at the Federal Reserve and the OCC (the obscure, but arrogant chief regulator of national banks). These bureaucrats are upset that the Military Lending Act passed through the Congressional military committees, not the banking committees, and that the Pentagon, not them, was given lead rulemaking auuthority, and have been whining ever since at their lack of control of the process. [They're not left out, they're just down a ways on the chain of command structure.]

By the way, we call it the Military Lending Act, for short, or the Sens. Jim Talent (R-MO)-Bill Nelson (D-FL) amendment to the John Warner National Defense Authorization Act for Fiscal Year 2007, in Congressional longhand.

The Center for Responsible Lending has published a critique of major analytical flaws in a new working paper Defining and Detecting Predatory Lending on payday loans by Federal Reserve economist Donald P. Morgan of the Federal Reserve Bank of New York. The Fed paper comes to the preposterous conclusion that while payday lending is "expensive," it is not "welfare-reducing" and therefore not "predatory." I had a premonition that this paper would contain such out-of-step findings when the first reference I saw to it was a laudatory pre-publication tease, with excerpts, on a rent-to-own industry website. From the Center for Responsible Lending critique:

Morgan's findings are flawed for three key reasons:

The analysis contains fundamental errors in its characterization of which states allowed payday lending. Example: Morgan identifies North Carolina--which had at least 500 stores during the analysis period--as a non-payday lending state.

Key definitions utilized by the research are overly narrow or are contradicted by available data. Example: Morgan, in part, defines vulnerable households as those with unpredictable future income. However, an industry survey notes that households are nearly three times likely to borrower payday loans because of unexpected expenses.

Morgan's finding that unlimited payday lending leads to lower prices is flatly contradicted by other research. Example: Researchers from the FDIC, using a national, random sample, found that most payday companies charge the maximum rate permitted by state law.

Syndicated columnist Michelle Singletary reports today in Fewer Ads for Free Filers in the Washington Post on the IRS Free File program and its new limits designed to prevent the government's "partners" at tax preparation firms from gouging low-income taxpayers with predatory Refund Anticipation Loans. Michelle comments on the latest RAL study from our colleagues Jean Ann Fox at Consumer Federation of America and Chi Ch Wu at National Consumer Law Center. My previous commentary on this dumber-than-dirt IRS program.

ATM and debit card fees are the banks' holy grail. Banks punish consumers with foreign ATM fees and surcharges, of course. The banks also collect fees from merchants when consumers pay with plastic. Debit replacing cash is their targeted growth area here. And, the banks collect bigger fees when you pay at the pump or cash register without a PIN, so the banks offer Cash Rewards and greater liability protection for signature debit. Today's Wall Street Journal (paid subscription required) has a good story today As Card Fees Climb, Merchants Push PINs by Robin Sidel on the long-running battle between merchants and banks over PIN vs. signature. With Rewards, the banks have been successful in enlisting consumers as their paid mercenaries, but everyone pays more at the pump or the cash register, whether they pay with cash or plastic, because stores must raise their prices to compensate for the punitive "interchange fees." Your cash payment subsidizes my cash reward. Thank you, I think. (Satirical wink.) Previous blog with links to our hill letters and testimony.

Members of Congress now have a choice which predatory small lender trade group to be influenced by. Yesterday, the Coalition for Financial Choice came on the scene. It joins one of our favorites, the Community Financial Services Association. Primary membership of both groups is payday lenders, with a smattering of hybrids and check cashers thrown in. Why the new group? To counter what its fact sheet claims are:

...misguided and punitive measures that are hurting the vibrant alternative financial service provider industry and the millions of consumers who use their products and services responsibly and depend upon these vendors to conduct their personal financial business. Absent the existence of the regulated financial service provider industry, these consumers will be forced to use unlicensed, unregulated and underground sources where no consumer protection laws exist to protect them. Such a black market is bad for everyone, regulators and consumers alike.

Yesterday, as expected, the U.S. Supreme Court rejected, without comment, a petition from Rent-A-Center to re-hear an important PIRG-backed New Jersey Supreme Court decision, Rent-A-Center v. Perez (previous blog), holding that predatory rent-to-own businesses were subject to New Jersey's 30% APR ceiling for criminal usury. Of course, the rent-to-own boys preposterously claimed that renting to own doesn't involve purchasing over time or ownership, even though a typical RTO contract is for 78 weekly payments and ends in ownership after the consumer pays 2-4 times the retail value of the television or refrigerator at interest rates of 100-300% APR. Yet, none of that extra cost of ownership is attributed by the rent-to-own boys' math to either interest or a finance charge. Wrong again, boys. Do the math.

Good news. Washington State's Department of Financial Institutions has fined two predatory payday lenders a total of $1.2 million for state law violations. From the Seattle Times:

The Department of Financial Institutions accused the owners of Zippy Cash and Advance Til Payday with exceeding the state's $700 maximum loan limit for outstanding short-term, high-interest loans to a single person. The companies, which together operate 33 lending stores in Washington, skirted the law by allowing customers to obtain thousands of dollars in loans from different branches, often on the same day, according to the state's charging papers.

A few years ago, I visited Gallup, NM, along with local NMPIRG leaders organizing against predatory lenders (previous blog). The town is perched in the northwest corner of one of the nation's poorest states and acts as a gateway to the massive multi-state Navajo Reservation known locally as "the res." I was struck by a statement from a local legal services attorney we met, who quoted General William Tecumseh Sherman from the 1870s: "A reservation is a parcel of land inhabited by Indians and surrounded by thieves."

A lot of the thieves have set up shop in Gallup, surrounding that gateway. From Eric Eckholm's story Seductively Easy, Payday Loans Often Snowball in today's New York Times:

Payday lenders have proliferated over the last 15 years, including here in Gallup, a scenic but impoverished town of 22,000 with a mix of Indian, Hispanic and white residents and a striking density of storefront lenders. At least 40 lending shops have sprung up, scattered among touristy "trading posts," venerable pawn shops and restaurants along the main street (old Route 66) and with as many as three crowding into every surrounding strip mall. "Payday lending just keeps growing, and it just keeps sucking our community dry," said Ralph Richards, a co-owner of Earl's, Gallup's largest and busiest restaurant. Mr. Richards sees the impact among his 120 employees, mainly Navajo, some of whom become trapped by payday loans they cannot repay and, he said, "develop a sense of hopelessness."

The Lafayette Federal Credit Union in Kensington, MD is claiming on its website that members have approved management's "take-the-money-and-run" plan to convert to a for-profit bank. Meanwhile, according to the Washington Post, insurgent members continue to organize to oust the board members seeking conversion. Also, the Post reports that the National Cooperative Business Association continues to assist members who say they never received ballots. The conversion vote must still be approved by regulators at the National Credit Union Administration. Our previous blogs explain the problem of credit union conversions, which are being driven not by the business needs or original public-interest, community welfare purposes of these member-owned bank alternatives but instead by a small number of wrong-way leaders dreaming of potential personal profit.

The Department of Education is considering placing needed limits on the collection fees -- ranging up to 66% more than the amount owed -- some colleges charge former students for unpaid student loans. Read a transcript of or listen to a Marketplace Radio interview today with PIRG Higher Education Project's Luke Swarthout. Excerpt:

Under federal law Universities determine the penalties on defaulted loans, so long as those fees are "reasonable." But Swarthout says that's where the rub is.

SWARTHOUT: A student who already has a challenge repaying a $10,000 loan is going to have an even greater challenge repaying $16,000 in debt if you tack on a 60 percent collection fee.

Universities say they need to recoup those costs in order to fund new student loans. The Department of Education's proposal would likely cap fees closer to the 16 percent average for student loans administered by the government.

A new report by the non-profit Center for Responsible Lending, an important ally of ours in the fight for fair financial practices, predicts that 1 in 5 recent subprime mortgage loans will end up in foreclosure (New York Times). From the CRL release:

CRL finds that despite low interest rates and a favorable economic environment during the past several years, the subprime market has experienced high foreclosure rates, and we project that one out of five (19.4%) subprime loans issued during 2005-2006 will fail. The report discusses a number of factors that drive subprime foreclosures--these include adjustable rate mortgages with steep built-in rate and payment increases, prepayment penalties, limited income documentation, and no escrow for taxes and insurance. We also determine that these features cause a higher risk of default regardless of the borrower's credit score.

Today about 80 percent of all subprime loans come with adjustable rates. A majority of these are 2/28 mortgages, known as "exploding ARMs," which begin with a temporary low fixed payment, but then shift to an adjustable rate payment that rises dramatically . After the introductory low payment ends, the monthly payment on these loans jumps by 30 to 40%--a significant amount for any family. In addition, many of these loans come with expensive prepayment penalties--meaning the homeowner must pay thousands of dollars when forced to refinance to avoid the unaffordable high payments. To top it off, subprime lenders often approve these loans without considering whether the borrower can actually afford the loan when scheduled payment increases occur or even documenting the amount of the borrower's income.

All of these loan features--adjustable rates, prepayment penalties and limited income documentation--increase the risk of foreclosure significantly. In fact, our study shows that the risk on an ARM versus a fixed-rate mortgage is 72% higher. That's an increased risk regardless of the borrower's credit.

In today's Washington Post, Kathleen Day reports that a membership vote is occurring this week on the proposed conversion of the Lafayette Federal Credit Union (located just outside DC in Kensington, MD) to a for-profit bank. As I pointed out last summer in this blog entry: bank lobbyists seeking to eliminate competition from low-cost, member-owned credit unions have been running campaigns to convince credit union members into agreeing to convert their charters to a mutual savings bank ownership structure. On the banks' side? A few credit union leaders who want to take the money and run. As Day's story today explains:

In a study of five conversions, industry trade group the Credit Union National Association found that stock and other awards averaged $742,000 for each director and more than $1.2 million each for the chief executive and other top executives.

After years of pressure (previous blog) from the Consumer Federation of America (CFA), National Consumer Law Center (NCLC), U.S. PIRG, Community Reinvestment Association of NC, Senators Chuck Grassley (R-IA) and Max Baucus (D-MT), and even its own taxpayer advocate, the IRS has finally realized that its corporate welfare program known euphemistically as "Free File" was nothing more than a conduit allowing predatory lenders to use the imprimatur of the federal government to deceive lower-income taxpayers into paying them millions of dollars in unnecessary triple-digit APR Refund Anticipation Loans (RALs), even as they paid their taxes online for "free." This week IRS announced that the tax preparers could no longer trick Free File taxpayers into buying RALs. (In Washington, stopping dumb, unfair programs is actually progress.) Now, the IRS needs to take the next step: giving every taxpayer the right to pay taxes online for free. The tax preparers will still be the government's contractor for online filing, and only some taxpayers can file for "free."

What can only happen in Washington, of course, is that the person responsible for the dumber-than-dirt program, IRS chief Mark Everson, and the person speaking for the groups feeding at the taxpayer trough, Tim Hugo, claimed they made the change voluntarily. According to USA Today:

Commissioner Mark Everson said the change was made voluntarily after we heard many legitimate concerns about the marketing of ancillary products during the last filing season. The head of the Free File Alliance, Tim Hugo, said that with the voluntary elimination of the offers, "the Free File Alliance takes another giant leap forward on behalf of the taxpaying public.

In November, Everson had given a major speech (previous blog) to the rapacious tax preparation industry warning he was under intense pressure and was going to have to turn off the profit spigot soon. Voluntary? Giant leap forward? This week's IRS release explained how the program worked:

Preparation and e-filing of federal tax returns have been free since the inception of Free File. However, manufacturers have offered refund anticipation loans and other products for which they charge a fee. RALs use a taxpayer's refund as collateral for a same-day, interest-charging loan. Taxpayers must enter Free File through the IRS Web site.

This short USA Today story from Tuesday links to an older (September) story with rich detail. Here's a recent RAL warning from CFA and NCLC. Here's a blog from Martin Bosworth at ConsumerAffairs that summarizes a lot of the issues.

And as for anyone who thinks there's no money in offering services to these modest-income taxpayers, think again. One of the nation's most important tax programs is the Earned Income Tax Credit (EITC), which most of these taxpayers were eligible for. The tax preparers didn't just want a cut of the modest taxes that the taxpayers might owe; they wanted a cut from all of us -- they wanted to skim off the top of the EITC transfer that all taxpayers shift to lower-income taxpayers. That's where the really big money was for preparers such as HR Block, Jackson Hewitt and their ilk. That's corporate welfare at its worst.

Let's hope Sens. Grassley and Baucus keep the pressure on the IRS to allow all Americans to completely eliminate the relationship between IRS and these tax preparer companies. All citizens should be able to directly pay their taxes online for free. The IRS shouldn't be propping up businesses that can't make it unless they're fed at the taxpayer trough.

In a story MasterCard Europe to Reduce Debit-Card Fees Amid EU Probe, the Wall Street Journal (pd. subs. requ.) reports today that Mastercard will be cutting fees it charges merchants on debit card transactions dramatically -- in hopes of staving off further regulatory scrutiny.

One of the biggest of the big lies is when the banks tell us that they don't make any money on consumers who pay off their credit cards each month. Actually, they do. They take a hefty cut of every merchant credit or debit transaction. All customers, cash or plastic, pay higher costs for goods to offset these fees. A series of lawsuits in the U.S. has questioned whether the way the bank associations (Visa and Mastercard) set these fees for both credit and debit card interchange violates the antitrust laws and has helped reduce the excess profits they've been making on these merchant interchange fees. Here's recent PIRG Congressional testimony. The WSJ reports fees will go down up to 60%. From the WSJ:

MasterCard Europe said its new fee structure would take effect in January 2008. The new fee for a Euro50, or about $67, transaction paid with a Maestro debit card would be between nine European cents and 20 European cents (12 cents to 27 cents), down from the current 25 European cents to 59 European cents, it said.

Two consumer groups have issued a warning that predatory lenders are offering tax Refund Anticipation Loans (RALs) with a new twist-- the virtually no-risk but high-cost short-term loans secured by your anticipated tax refund are being offered now, much earlier than W-2 season, as either "pay stub RALs" or "holiday RALs." From the release by our colleagues at the Consumer Federation of America and the National Consumer Law Center:

Refund anticipation loans (RALs) are high cost loans secured by and repaid directly from the proceeds of a consumer's tax refund from the Internal Revenue Service (IRS). About 12 million taxpayers took out RALs in 2004, costing them over $1 billion dollars in loan fees. Pay stub RALs differ from a traditional RAL because they are offered earlier, before a taxpayer receives her W-2. Since a taxpayer cannot file a tax return without a W-2, pay stub RALs are made before the tax season officially starts, from January 2 to mid-January, and are based on the consumer's most recent pay stub. Holiday RALs are made even earlier, during November and December. Both types of loans are offered by tax preparers, and are expected to be repaid from the proceeds of the consumer's tax refund....Pay stub RAL fees can be as high as $102, translating into triple digit APRs. In addition, at least one tax preparation company, Jackson Hewitt, charges a $50 "deposit" for services when making the loan. Furthermore, Hewitt customers must pay for another RAL or a refund anticipation check to repay the pay stub RAL.

The consumer groups go on to warn that Jackson Hewitt, for one, is requiring these pay stub RAL customers to come back for more financial punishment:

Another problem with pay stub and holiday RALs is the fact that one tax preparation company, Jackson Hewitt, is apparently forcing pay stub RAL borrowers to return to the same tax preparer and same office for tax preparation. This prevents borrowers from seeking a less costly alternative for tax preparation, such as filing the return themselves through the IRS Free File program or obtaining free tax preparation services from a VITA site. Pay stub RAL borrowers cannot even comparison shop for a less expensive commercial tax preparer.

A significant threat posed by pay stub and holiday RALs is the fact that they enable the RAL industry to keep draining tax refunds and Earned Income Tax Credit (EITC) benefits. The IRS has been working on efforts to speed the delivery of refunds, which should help to reduce the use of traditional RALs that put cash in taxpayers' pockets within a day or two of filing the tax return. Instead of phasing out controversial tax refund loans, the RAL industry appears to be responding to the potential of faster IRS refunds by introducing a loan product that can get the "jump" on tax filing season, allowing tax preparers and high rate lenders to continue exploiting the tax refunds of cash-strapped low-wage workers.

Finally, we really don't like it when predatory lenders prey on anyone, but in this case there are numerous alternatives. VITA is one of the many free tax preparation programs for low income, or military, or elderly taxpayers. Find out more from the IRS itself.

"With credit cards, you actually can make all of your payments, and you can even make your payments on time, and still find yourself in the crosshairs of a powerful industry that is thriving in part on unfair, confusing practices." Senator Carl Levin (D-MI) (News Journal-DE)

This week, Senator Levin, incoming House Financial Services Chair Barney Frank (D-MA) and Sheila Bair, the new head of the FDIC, all made speeches on important consumer financial issues. The messages were generally very encouraging and reflective of concerns we've been raising for years.

Yesterday, the Supreme Court heard a bank law case (Wachovia v. Watters (previous blog with links to materials including our brief) that could have implications for all state consumer and environment enforcement. The good news is that a variety of news stories (and you can read the court's transcript) indicate that Chief Justice Roberts, Justice Scalia and other justices have the same trouble as we do understanding just what law exactly gave the federal bank regulator known as the OCC the supposed power to do whatever it wants to do to weaken strong state consumer protections while enforcing none of its own, and to somehow claim that any entity affiliated with a national bank is under its thumb. Here's an excerpt from the Washington Post story Federal Oversight of Banks Risks Abuse, States Argue by Tomoeh Murakami Tse on yesterday's oral argument: MORE:

In oral arguments, E. John Blanchard, who represented Michigan and whose case is supported by the 49 other states, argued that "preemption" of local authority by the OCC would prevent states from protecting their residents. "Michigan and the states want to be able to help their citizens with abusive and predatory lending complaints," he said.

Questioning Wachovia Bank attorney Robert Long, Chief Justice John Roberts suggested the bank wanted to have its cake "and eat it too," by pre-empting Michigan laws against predatory lending, while being shielded from any liability the subsidiary might incur. Mr. Long didn't dispute the liability protections of structuring the business that way, but said "managerial reasons" made the state subsidiary-national bank parent model a "useful tool of banking."

California Attorney General Bill Lockyer has settled a lawsuit with the nation's largest rent-to-own company, Rent-A-Center, which will pay California consumers $7 million to resolve allegations of a variety of practices that deceived California consumers in violation of California law: EXCERPT:

The settlement resolves a lawsuit, filed simultaneously with the settlement, that alleged RAC failed to disclose the true cost of its rent-to-own program to California consumers. Additionally, RAC engaged in deceptive advertising in marketing and selling memberships in its "Preferred Customer Club (Club)," according to the complaint.

The settlement requires RAC to make full or partial refunds to thousands of California consumers who bought Club memberships, or who rented or purchased electronic merchandise, appliances, or computer systems from RAC on or after November 1, 2004. Lockyer's office estimated the restitution will total more than $7 million. RAC also will pay $750,000 in civil penalties....

...Lockyer's complaint alleged RAC, in violation of state law, engaged in unfair competition and illegally misrepresented the cash price of certain merchandise.

The complaint also alleged RAC misrepresented the benefits and terms of its Club membership in numerous ways. The misrepresentations included: falsely claiming to provide an extended warranty, insurance, or service contract for rental merchandise; and telling consumers they would receive up to $500 in grocery discounts, without adequately disclosing that to obtain the maximum discounts consumers had to pay RAC more than $100 in additional fees.

There's a lot happening at consumer blogs around the blogosphere: Over at the Consumer Law and Policy mega-blog: Ira Rheingold of NACA comments on Senator Tim Johnson's (D-SD) recent disparaging comments in the trade paper American Banker, where Johnson attempts to scare fellow Senators into backing a bank-friendly, consumer unfriendly "fix" to landmark legislation signed by the President this fall banning predatory lending to our military families. The Senator has also made disappointing comments this year that he was disappointed that the Senate hadn't yet rolled back strong state laws in a few courageous states (New Jersey, Vermont, Minnesota, Wisconsin and North Carolina) that still protect all their consumers from predatory rent to own stores.

"How much do these companies earn by taking aggressive positions with the expectation the consumer will just give up over a small dollar amount? It's only $50 to us, but when the companies take thousands of aggressive positions with thousands of customers, it adds up to real money for them."

consumer scams, credit cards, health insurance, fees, nickeled and dimed, broadband, privacy, bank fees, predatory loans, payday loans, military families, rent-to-own

Along with other PIRG consumer staff, I will be attending the National Consumer Law Center's Consumer Rights Litigation Conference in Miami over the weekend. It's an exciting event for anyone who cares about access to justice. All the consumer top guns on predatory lending, credit bureaus, identity theft, debt collection law and similar topics should be there.

Some of you are anxiously awaiting election results. Some others are probably waiting for your deposited check to clear. Even though Congress two years ago passed a law known as Check 21 that gives banks faster access to the checks we write to others, it failed to shorten the length of time banks are allowed to hold the checks we deposit to our own accounts. Instead it required a study, and the regulators have been conducting it over their typical geological time cycle. Here's a blog entry by Gail Hillebrand of Consumers Union with more details. Here's a letter from CU, US PIRG and others urging the Fed to speed up the study and speed up the checkholds. Otherwise, banks will continue to pile on unfair bounced check fees as they game the system against consumers by imposing bounced check fees on deposited but "unavailable" funds.

In today's Wall Street Journal, Jaime Levy Pessin has a followup story, Concern Over Brokers at Banks, (pd subs. req.) to last week's announcement by NASD that it had fined a bank-owned brokerage $850,000 for a number of alleged violations of the securities laws in its marketing of uninsured investment products (ranging from pitches for 529 college savings plans to investments for senior citizens), although the terms of the settlement, as they often do, required no admission of guilt. From the WSJ:

Do bank customers know the difference between keeping their money under a mattress and taking it on a roller-coaster ride? The National Association of Securities Dealers, the brokerage industry's self-regulatory group, is worried that brokers based in bank branches aren't doing a good enough job of telling customers that their investments, unlike bank deposits, carry risks of loss.

NASD imposed the penalty on CCO Investment Services, a subsidiary of Citizens Bank of Rhode Island. You may never have heard of this bank, nor of CCO, but it is part of the global financial consolidation trend:

"Owned by RBS, The Royal Bank of Scotland Group plc, we now have branches in 13 states, including Connecticut, Delaware, Illinois, Indiana, Massachusetts, Michigan, New Hampshire, New Jersey, New York, Ohio, Pennsylvania, Vermont and Rhode Island. We also have non-branch offices in more than 40 states."

"Like any securities firm, bank-affiliated broker-dealers must have adequate supervisory systems and controls for ensuring compliance with regulatory requirements...This bank-affiliated firm missed the mark with regard to several important requirements, including some that impacted retirees - an especially vulnerable group for whom NASD rules, the federal securities laws, and the telemarketing laws provide valuable protections."

The WSJ story goes on to point that as more bank lobbies become one-stop financial shopping centers, with a teller area for insured deposits but agents for affiliates camped in the lobby hawking stocks, that the lines may be too blurry (and perhaps intentionally) for consumers to understand:

The issue is becoming a bigger concern as the financial-services industry consolidates and firms increasingly try to sell brokerage products to their bank customers...When customers of a bank have safe bank products that mature, "they might be steered in the direction of an affiliate and sold products that may or may not be suitable," says Emily Gordy, the NASD's vice president of enforcement. The group has several open investigations of bank-affiliated broker-dealers, and is also looking into whether brokers who are based in banks are adequately trained and supervised.

The WSJ story suggests this NASD action against one bank-broker may only be the first of many actions. With the demise of traditional pensions and the rapidly growing number of consumer-investors, it's good that NASD is acting as an aggressive cop on the white-collar crime beat.

Unfortunately, it's bad that just a few years after the 1999 Act, banks are already seeing how much they can get away with. One of the scandals that drove passage of the limited consumer protections included in the 1999 act appears eerily similar to some major aspects of what NASD was dealing with here: In 1998, NationsBank (predecessor to Bank of America) was fined $7 million for securities law violations. It shared information about bank customers with its affiliate, NationsSecurities. The affiliate convinced low-risk customers (senior citizens with Certificates of Deposit (CDs), no less) to buy uninsured, very high-risk and complex hedge-fund-like investments. Many senior citizens lost portions of their life savings.

This SEC decision will give you the grimy details. But here's a tease:

NationsBank failed to implement adequate measures to avoid the potential for customer confusion inherent in the operation of a broker-dealer on the premises of a bank. Some employees of NationsBank and NationsSecurities engaged in marketing and sales practices that blurred the distinction between the bank and the broker-dealer and their respective products. The combination of improper sales practices and practices that blurred the distinction between the bank and the broker dealer and their respective products culminated in unsuitable purchases by investors...On a number of occasions, the Sales Manager held up a picture of the Term Trust 2003 brochure which contained a picture of the U.S. Capitol Building on it, and said that NationsBank stated that "if the Capitol is standing in 10 years, these people [investors] will get their money back." Some of the registered representatives were also told that the Term Trusts were as safe as CDs or were "guaranteed" to return an investor's $10 share price at the end of the ten year term.

Here's another Damian Paletta story running on Dow Jones Newswires: this one's on the banks' unpatriotic attempt to use the coming lame duck Congressional session to roll back the Talent-Nelson amendment, now law, that prohibits predatory lending to the military. Here's my previous entry with more details. And, here's a new blog -- LameDuckHunt.org -- from our colleagues at Public Citizen, keeping track of this and other possible lame duck quackery plays by powerful special interests.

Another electric utility merger based more on the unenlightened self-interest of investment bankers and utility kingpins ("I want to be the next Ken Lay or Jeff Skilling and have my own Enron cash machine and raise rates when I want") than on sound public policy principles has been derailed, this time in Maryland.

While consumers in Maryland are not out of the woods yet, since they still face the temporarily-delayed effects of rate deregulation, the cancellation of the planned FPL (Florida Power and Light) takeover of the Maryland utility Constellation is a major victory for consumers. See the Baltimore Sun as well as the Washington Post and Washington Times. MORE:

From the Post:

Johanna Neumann, a policy advocate at Maryland Public Interest Research Group, said "the blocked merger is a victory for BGE [Baltimore Gas and Electric] ratepayers." She said the merger "would have created an energy giant large and powerful enough to dictate electric rates" and that "the risk of skyrocketing electric bills far exceeded Constellation's paltry pass-on of savings." The collapse of the FPL-Constellation deal highlights the difficulty of merging two utilities, despite the 2005 repeal of the Depression-era Public Utilities Holding Company Act (PUHCA) that many experts had predicted would lead to a major consolidation of the industry. Last month, Exelon Corp. dropped its $17.8 billion bid for Public Service Enterprise Group Inc. after failing to come to an accord with New Jersey regulators.

Here's more from NJPIRG on Exelon. Here's more on the just-launched PIRG New Energy Future campaign, which outlines a longterm, sustainable, clean energy program based on what's good for the public interest and the environment. Here's our 2004 report Toward A Consumer-Oriented Electric System: Assuring Affordability, Reliability, Accountability and Balance After a Decade of Restructuring.

Damian Paletta of Dow Jones Newswires is reporting today that new government data show that the big banks are getting bigger:

A record 11 banks now have branches in at least 15 states with Bank of America Corp. leading the way in 31 states, according to data released Wednesday by federal bank regulators. In 2001, only five banks had branches in 15 or more states. Last year, just nine banks had branches in 15 or more states.

Both PIRG and Federal Reserve Board reports have consistently shown that big banks have bigger fees. PIRG's advice: bank at a credit union, not at a bank.

Tomorrow, the massive oil company Exxon -- which stands alone, even among oil companies, in its entrenched opposition to fighting global warming, is expected to announce its latest, probably obscene, profits. Meanwhile, over at the U.S. Department of Energy, the Bush-appointed Secretary Sam Bodman has decided that Exxon's leader emeritus Lee Raymond should lead an important government energy task force. Exxon's a company that still has not paid all the damages owed for the Exxon Valdez spill, by the way. Take action at the PIRG-backed ExxposeExxon campaign to urge Bodman not to let the oil industry lead us down the wrong energy path, again. The selection of Raymond is another "dumber-than-dirt" idea from the Bush administration.

This month the President signed PIRG-backed legislation banning payday loans and other predatory lending to the military. Could the banks be organizing to weaken the law already (more below)?

One reason that the Pentagon strongly supported the proposal was its growing concern over alarming increases in loss of security clearances and the effect on military preparedness. Now, the Associated Press has confirmed the problem: MORE:

Thousands of U.S. troops are being barred from overseas duty because they are so deep in debt they are considered security risks, according to an Associated Press review of military records. The number of troops held back has climbed dramatically in the past few years. And while they appear to represent a very small percentage of all U.S. military personnel, the increase is occurring at a time when the armed forces are stretched thin by the wars in Iraq and Afghanistan.

Of course, another reason for the Pentagon's concern, and the concern of a broad coalition of military aid societies that worked tirelessly on the amendment to cap interest rates to the military at 36% APR by Senators Jim Talent-R-MO and Bill Nelson-D-FL was the overall financial welfare of its largely young personnel, as detailed in recent Senate testimony by Defense Undersecretary David Chu and retired Admiral Steve Abbot, CEO of the Navy-Marine Corp Relief Society. More in previous blogs here and here.

Eileen Ambrose's Baltimore Sun column today explains this Talent-Nelson amendment. Eileen also explains another new law designed to stop high-pressure sales of low-performing mutual funds and insurance products on bases. The second law is the result of an expose over the past several years by Diane Henriques of the New York Times (PBS interview with Gwen Ifill).

Now along with other advocates, we are watching carefully to ensure that the banks don't sneak into the lame-duck Congressional session with some special-interest amendment to exempt them from the Talent-Nelson amendment's broad coverage against any form of predatory lending, even by banks (yes, predatory lending is so profitable, all the kids are doing it). The banks generally use the Bart Simpson defense whenever their practices are challenged: "I didn't do it, I wasn't there, it's not my fault." Expect them also to present their claim as an argument that only their expert regulators, not the Pentagon as the law provides, should be writing the rules implementing the new law.

Of course, these are the same bank regulators that

With "banks can do no wrong" bank regulators like these, consumers should be thankful that the Pentagon, at least, is leading the way on protecting some consumers from predatory lending. And of course, the powerful bank lobby is also worried that the reinstatement of federal usury ceilings -- even if only for military consumers -- will eventually result in re-establishment of these necessary protections for all consumers. Funny, they think that is a bad thing. We, on the other hand, are excited that possible reform of unfair bank practices, long stymied on Capitol Hill by a never-ending spigot of campaign cash that lulled Congress into ignoring unfair bank practices, has been reinvigorated by the passage of legislation protecting military consumers from unfair lending. It's too bad that it took nothing less than a threat to the nation's security to force Congress to debate the problem of usury, but now, at least, we have a debate.

Most consumer contracts -- for credit cards, health insurance, health clubs and gyms, leases, rentals, and even to take out a payday loan -- now contain one-sided clauses requiring binding mandatory arbitration as a remedy for disputes-- you've probably already given up your day in court but you may not know it. Over at two of my favorite consumer blogs, posts are coming fast and furious about the rigged system of mandatory arbitration that denies access to justice every year to thousands, if not millions, of aggrieved consumers. At the Consumer Law and Policy Blog, Paul Bland has Arbitrators Are Answerable to No One and National Arbitration Forum's Wall of Secrecy is Crumbling. Paul Nelson follows with More on Unaccountable Arbitrators. Meanwhile, at Credit Slips, Bob Lawless comments on former WV Supreme Court Chief Justice Richard Neely's recent article -- Bloodsuckers, Godless, or Both? -- on his one case as an arbitrator. For more, see the PIRG-backed coalition site GiveMeBackMyRights.org.

People often ask me: "Ed, how can I fight the credit bureaus? They've ruined my life." Well, here's one way to learn more. Buy this new book. Denise Richardson is a credit-bureau-victim-turned consumer advocate who has been fighting the good fight against the credit bureaus for years. She's got a new book and I recommend it: Give Me Back My Credit! I owe her a longer book review, but here's the cover blurb I wrote for the book, which gives you an idea of my views:

"Denise Richardson's story has important lessons for all Americans. It's the story of a consumer who faced hardships created by credit bureau errors, mortgage servicing errors, abusive debt collectors and identity thieves. She learned, fought back and won. Now she's a consumer champion with a book that's a first-person story and a consumer handbook in one, with lessons for everyone who wants to win against corporate and financial predators. Buy it and then fight back yourself!"

I wrote this weekend that if Grameen Bank can make microloans in the under-developed world, why can't U.S. banks and credit unions? Here's one: The North Carolina State Employees Credit Union (SECU) has developed a low-cost salary advance product: contrast its 12% APR (16/cents a day) interest to borrow $500 with the $75 bucks that the payday lender takes from your wallet for a $500 payday loan.

[update 13 Dec 06-fixed bad urls] Following a letter from commissioners and consumer champions Jonathan Adelstein and Michael Copps to FCC Chairman Kevin Martin (his reply), the chairman has been forced to delay a rubber-stamp vote on FCC approval of the AT&T/Bellsouth merger recently rubber-stamped by the supposed antitrust authorities over at the Department of Justice. Along with the Consumer Federation of America, Free Press and Consumers Union, (our petition to deny and declaration of our experts and reply comments are available at the FCC AT&T/Bellsouth merger page), we've steadfastly opposed this merger, which is anti-competitive, fails to preserve net neutrality and practically completes the anti-consumer, pro-monopoly process of putting AT&T back together again. See also our previous blogs on the AT&T/SBC and Verizon/MCI mergers and our letter urging a court review of those rubber-stamped decisions. Here's a recent news story (13 Oct) on the ongoing review by U.S. Judge Emmett G. Sullivan.

Just a thought: Now that Bangladeshi economist Muhammad Yunus and his Grameen Bank have been deservedly awarded the Nobel Peace Prize "for their efforts to create economic and social development from below," will U.S. banks and credit unions wake up and do a better job of offering fairly priced loans and overdraft protection to American consumers being ripped off by both their own shoddy "bounce protection" products as well as by the payday lenders and other loan sharks out there? From the Nobel Committee: MORE:

Loans to poor people without any financial security had appeared to be an impossible idea. From modest beginnings three decades ago, Yunus has, first and foremost through Grameen Bank, developed micro-credit into an ever more important instrument in the struggle against poverty. Grameen Bank has been a source of ideas and models for the many institutions in the field of micro-credit that have sprung up around the world.

Every single individual on earth has both the potential and the right to live a decent life. Across cultures and civilizations, Yunus and Grameen Bank have shown that even the poorest of the poor can work to bring about their own development.

[1 Dec update-corrected internal URL] A GAO study Credit Cards: Increased Complexity In Rates and Fees Heightens Need for More Effective Disclosure to Consumers (GAO 06-929), requested by Senator Carl Levin (D-MI), has been released. Here's an excerpt from our joint release with other consumer groups:

The report points out the need for simplified pricing that consumers can better understand, and the importance of prohibiting abusive credit card pricing practices (such as two cycle billing, residual or "trailing interest" and "universal default.") The report finds that there are many new types of credit card fees, and that they have risen much faster than inflation. It also finds that current fee disclosures are difficult to understand, bury important information, and often fail to convey to cardholders when late fees would be charged and what actions could result in penalty interest rates.

Unfair or confusing credit card practices take advantage of working families. This report shines a needed spotlight on excessive credit card fees, unfair interest rates, and inadequate disclosure practices that ought to be stopped.

The New York Times has written today on last week's report (our Friday release) from the Inspector General of the Education Department that private lender Nelnet abused a student loan loophole to generate as much as $1.2 billion (it has already received $278 million) in illegitimate government payments. From the story Education Dept. Urged to Recoup $278 Million in Loan Subsidies by Jonathan Glater:

The payments were made under a program that guarantees a 9.5 percent interest rate on some loans regardless of prevailing market rates..."This is a typical story of a complicated program hidden from the scrutiny of taxpayers who are getting ripped off," said Luke Swarthout, higher education advocate at U.S. Public Interest Research Group in Washington. "To really solve this problem requires the Department of Education to stop payment on these illicit 9.5 percent loans and to demand repayment for subsidies that were wrongly charged."

We expect that PIRG-backed legislation to ban predatory lending to military personnel and their families by placing a hard 36% APR interest rate and fees cap on loans to them will pass the House and Senate today or tomorrow. A strong version of the amendment by Senators Jim Talent (R-MO)and Bill Nelson (D-FL) and Rep. Sam Graves (R-MO) is part of the 2007 Defense Authorization bill, H.R. 5122, and all other squabbling over other parts of the bill is apparently over. Highlights from colleagues at Consumer Federation of America: MORE:

The significance of this bi-partisan victory cannot be over-stated.

The Citizens' Health Care Working Group, a government commission, has released a major report promoting universal health care reforms, Health Care That Works for All Americans. Excerpt from the Recommendations: MORE:

1. Establish Public Policy that All Americans Have Affordable Health Care.

One of the most important bi-partisan and broadly-backed efforts before the Congress is a proposal (the Talent(R-MO)- Bill Nelson(D-FL) amendment) to restrict predatory lending to the military. The Pentagon and military family aid associations have joined forces with consumer groups because predatory lending injures our military preparedness. Instead of working together with the rest of us, however to get the effort finished to limit loan interest imposed on military personnel to 36% APR, it's business as usual for the banks (and, embarassingly, member-owned credit unions, too). As Professor Elizabeth Warren points out in this blog entry, banks are sneaking furtively around the Congress seeking traction for their efforts to exempt themselves from this proposal. The good news: Our hill sources tell us the banks are losing, for once. Don't let the door hit you on the way out, guys. If we can keep the amendment strong, the next step is to make sure that the Defense Authorization bill it is attached to doesn't get further bogged down in election year shenanigans.

Papers are reporting today a major victory for utility consumers. In the face of continuing opposition from the state of New Jersey and a coalition led by NJPIRG (campaign materials and legal filings here), a deal to create the nation's largest utility company has failed. From the story New Jersey Opposition Leads to Utility Merger's Collapse in the New York Times:

The Public Service Enterprise Group of Newark -- the parent company of Public Service Electric and Gas, New Jersey's largest utility -- and the Chicago-based Exelon Corporation said their differences with the state over the $17 billion deal were "insurmountable."...The deal had been approved by regulators in New York, Connecticut and Pennsylvania, as well as by the Federal Energy Regulatory Commission. And New Jersey had not turned down a merger in 20 years... "Time after time, New Jersey and other states have approved utility mergers that are not in the best interests of the public," said Suzanne Leta of the New Jersey Public Interest Research Group. "This time New Jersey regulators wouldn't accept the federal rubber stamp."

Deregulation of the electricity market has failed. Energy companies promised us more competition and lower rates, but the exact opposite has happened. Rubber-stamping of mergers has been a large part of the problem, so kudos to New Jersey for hanging firm.

Here is a background and summary of NJPIRG's arguments against the merger:

On February 4, 2005, Chicago-based Exelon Corporation requested formal permission from New Jersey regulators to acquire Public Service Enterprise Group (PSEG), the last remaining New Jersey-based energy company that hasn’t been taken over by a large out-of-state corporation.

As the voice of New Jersey’s electricity consumers, the state Board of Public Utilities should reject Exelon’s proposal. The takeover would increase the monopolistic tendencies of the electricity market, threaten the reliability of electric service, increase risks to public safety, and reduce the ability of state regulators to defend the interests of electricity customers in New Jersey, leading to higher costs and poorer service.

If approved, the takeover would create the largest electric utility company in the country, with $79 billion in assets, 9 million customer accounts and business operations in electricity generation, distribution and marketing, plus natural gas supply and delivery.

Because of its large size and wide scope, the decisions of the company would be extremely influential in determining the nature, quality, and price of electric service for customers across New Jersey, the Mid-Atlantic and the Midwest.

State regulators would lose the authority to protect consumers from risky non-utility business ventures. These ventures can put pressure on a company’s credit rating and lead to higher interest rates—which are then passed on to New Jersey families and businesses.

After a potential takeover, PSEG would become part of a federally regulated holding company, subject to federal jurisdiction over its financial practices. New Jersey regulators would lose any significant power to regulate risk in PSEG’s investment decisions. To make matters worse, Congress recently repealed the Public Utility Holding Company Act. As a result, the federal government has far less ability to protect consumers from any risky investment decisions Exelon chooses to make.

In addition, Exelon has not formally proposed sharing any of the economic efficiencies it expects to create with ratepayers. Even if Exelon did share the savings, they would amount to only a token decrease in electricity costs for the average residential or commercial electricity consumer—on the order of 21 cents a month per household for the next four years.

Today, the Senate Banking Committee held a hearing on the recent Department of Defense report on predatory lending to the military and its impact on both military families and military readiness. Defense Undersecretary David Chu, along with the three pro-consumer, pro-military family witnesses, Admiral Steve Abbot (ret), law professor Chris Peterson and legal aid lawyer Lynn Drysdale, built a strong case for Congress to pass the Talent (MO)-Bill Nelson (FL) amendment to protect the military from predatory lending. A number of Senators, led by Elizabeth Dole (NC), Jack Reed (RI) and Mel Martinez (FL) and others had harsh words for predatory lenders preying on military families. The Talent-Nelson amendment is pending in a conference committee right now and is under attack from the payday lending lobby. Yes, sadly, in Washington, everyone has a lobby, even predatory payday lenders. Read more in Conferees wrestle with high-interest payday loans in today's issue of The Hill newspaper.

[Update, Nov 2006, corrected internal links.] Along with a dozen groups and 17 law professors, we've joined a Supreme Court amicus (friend of the court) brief prepared by the Center for Responsible Lending in a very important case, Wachovia v. Watters, which the Court will hear in the October term. Wachovia Mortgage is a non-bank, state-licensed operating subsidiary of the national bank Wachovia; Linda Watters is Michigan's chief financial regulator. The issue: whether the lower courts have erred in deferring to the opinions of the Treasury's Office of the Comptroller of the Currency (OCC) in its rules broadly preempting state consumer and anti-predatory lending laws and their enforcement over nationally-chartered banks. In this case, in particular, the question is raised whether the OCC can extend its claimed authority not only to a national bank, but also to its non-bank, state-licensed, separately incorporated operating subsidiaries merely owned by the national bank. MORE:

While this case is critically important as a matter of state predatory lending enforcement, the decision will likely also address the issue of agency deference more broadly. Many observers believe the lower courts have so routinely, and so wrongly, interpreted the law in granting agencies what is called Chevron deference, that an increasing number of agencies are now asserting powers broader than Congress gave them, especially in their assertions that federal law trumps stronger state laws, confident that the courts will rubber-stamp their assertions. This not only erodes Congressional authority, it diminishes the longstanding right of the several states to protect their citizens from unfair financial schemes, unsafe products or unhealthy environmental practices.

Ideally, the Supreme Court's ruling will narrow the circumstances as to when a federal court should defer to an agency's expertise, and ideally rein in the far-flung ideas of a number of agencies as to their purported powers.

Wachovia v. Watters concerns 2001 and 2004 preemption determinations by the OCC. In 2001, OCC ruled that state-licensed, separately incorporated, non-bank operating subsidiaries of national banks, such as Wachovia Mortgage, were exclusively under its purview. Then, in 2004, in response to passage by several states of strong anti-predatory lending laws, it issued two even broader preemption rules. One rule broadly preempted state consumer laws as they applied to national banks (and their subsidiaries), even when no federal law protected consumers; the other, known as the visitorial rule, said that even when a national bank (or its subsidiary) must still comply with a state law (a few are left that OCC says banks must comply with), that state enforcers, such as Michigan's Watters, cannot enforce the state law, only OCC can.

We argue in our joint brief that this is wrong on policy and wrong on the law:

Section 7.4006 [the 2001 change as modified by the effect of the 2004 rules] would also prevent the fifty states from utilizing their extensive experience and resources to enforce those laws that do apply -- leaving all enforcement in the hands of a single federal agency that has shown little interest in ensuring fairness to consumers. No deference is due to an interpretation by a self-interested agency that would undermine consumers' interests and state sovereignty in such a significant way. Deference to the OCC in this case is also inappropriate because the preemption determination involves pure issues of law properly resolved by the judiciary. The OCC's rules are premised on a number of legal errors, including its failure to follow decisions of this Court that it purported to distill.

The second question--whether displacement of state law is required--entails a judgment about the degree of tension between federal and state law, and whether this tension requires displacing state law with a regime of exclusive federal regulation. In answering this question, agencies should not be given the strong deference associated with Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). The question is constitutional in nature, grounded in the Supremacy Clause; it is governed by judicially-created doctrine as to which agencies can claim no particular insight; it has systemic implications for the balance of authority between the federal government and the States, as to which agencies can claim no disinterested expertise; and it involves policing the boundaries of agency authority, a function that Congress has generally assigned to courts rather than to agencies themselves.

On behalf of a variety of associations of state and local officials, including governors, legislatures and financial regulators, one of the nation's preeminent authorities on banking law, Professor Arthur Wilmarth of George Washington University Law School, has also filed an important brief:

The Sixth Circuit Court of Appeals erred when it refused to apply a presumption against preemption of Michigan's laws governing state-chartered, non-bank mortgage lenders. The court also erred in holding that the OCC's preemptive regulations were entitled to deference under Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). ... Given the States' historic role in protecting their citizens from abusive financial practices, the OCC could not lawfully adopt rules preempting the States' authority to regulate operating subsidiaries without a clear and manifest delegation of authority from Congress. See Gregory v. Ashcroft, 501 U.S. at 461, 464. Congress has never expressed an intention to delegate such power to the OCC, and the OCC's rules are therefore invalid.

So, when an agency believes that the courts will routinely grant it deference, it pushes the line even further in its proposed rules, confident that the courts would later defer. It may claim powers Congress never gave it; it may preempt when it does not have the authority; it may do these things to grow its own own self-esteem or to please its regulated entities. The OCC is certainly the poster child for this view, with its 2001 and 2004 power grabs (our special site OCCWatch), but recently a number of other agencies -- with aid and advice from industry lawyers -- have sought to limit state authority and state legal rights (previous blogs on NHTSA here and the CPSC here). So while this case may not have the star power of a recent Supreme Court case involving Anna Nicole Smith, it is a lot more important.

Probably half the work we do in Washington isn't pitching new policy ideas; it's preventing Congress or unelected Washington regulators from scuttling the longstanding right of the states to come up with their own new policy ideas to protect consumer pocketbooks, health and safety. We need many laboratories of public policy, not just one. Our e-newsletter Preemption Alert keeps an eye out.

When Washington issues leak out into popular culture, it's a sign that the problem is serious. I noted recently that I knew that predatory payday lenders were really in trouble when the military drama The Unit included a plot line attacking them. Last December, the hit show Boston Legal did a story on how the OCC had aided and abetted loan-sharking by credit card companies. Here's an excerpt from the script:

Jerry Espenson: Used to be. Used to have usury laws but the States wanted the credit card business, so poof! Gone! Bingo! Ever inquire about a car loan?
Melissa Hughes: Actually, yes. Once.
Melissa Hughes: Bingo!
Melissa Hughes: But I didn't buy the car.
Jerry Espenson: Doesn't matter. It's called 'Universal Default'. Credit bureaus share your
information. All of it. Your credit card company just heard about your asking for a car loan.
Bingo! They raise your rates. Why? Because they can.
Melissa Hughes: Under her breath to Alan. Why doesn't he move his hands?
Jerry Espenson: The OCC is supposed to police. They don't. Bought off by the credit card lobbyists.
He walks out.
Melissa Hughes: Is he coming back?
Alan Shore: I have no idea.

Last night the California legislature sent Governor Schwarzenegger AB 2911, sponsored by Assembly Member and Speaker Fabian Nunez. The bill is a priority proposal for CALPIRG that will establish the California Discount Prescription Drug Program to lower prescription drug costs for the uninsured by creating the largest prescription drug discount program on the nation. It's supported by a broad coalition, including AARP-California, the Mexican American Legal Defense and Education Fund, Consumers Union and SEIU. Here's CALPIRG advocate Emily Clayton's blog entry, including their news release.

[UPDATE-fixed broken links. Feb 07] A front page USA Today story today reports on the new Pentagon study on how predatory lenders threaten military preparedness by gouging our troops and their families with their triple-digit, short-term loans (my previous blog).

A few years ago, the payday lenders started putting some of their excess profits from loan-sharking into a front group with the feel-good name of the Community Financial Services Association. In the interests of a balanced story, USA Today had to ask CFSA's Darrin Andersen for a comment:

The Pentagon, he says, "is in over its heads when it comes to ... complex personal finance and lending issues."

As a followup to its 28 July announcement (previous blog) of a 6-month moratorium on approving applications for deposit insurance from commercial or industrial firms such as Wal-Mart seeking to establish a type of bank called an industrial loan company (ILC), the FDIC has announced a 45 day comment period on the issue. MORE:

The notice poses a series of 12 questions, such as Question 2:

2. Do the risks posed by ILCs to safety and soundness or to the Deposit Insurance Fund differ based upon whether the owner is a financial entity or a commercial entity? If so, how and why? Should the FDIC apply its supervisory or regulatory authority differently based upon whether the owner is a financial entity or a commercial entity? If so, how should the FDIC determine when an entity is "financial" and in what way should it apply its authority differently?

The Department of Defense report condemning predatory lenders for ruining the lives of military families and jeopardizing our military preparedness is available here. And you can watch a news video (scroll down Recent Videos in the right column) on the report from Fox 6-San Diego. The piece includes a news story, followed by a studio interview with Navy Captain Mark Patton.

I've often said owning a credit card company is a license to steal. You can change the rules at any time for any reason, including no reason. One of their most unfair tactics is so-called universal default, where a customer in perfect standing has his or her interest raised to a penalty interest rate of 25-30% APR or more (including on past balances) due to one instance of an alleged failure to pay a different creditor on time, or due to a decline in the customer's credit score. Yesterday New York Governor George Pataki vetoed a PIRG-backed bill which would have banned universal default. We are disappointed in his failure to protect New York consumers from an unfair, deceptive and punitive practice that is based more on a credit card company desire to ratchet up profits than on any sort of risk-based pricing. See truthaboutcredit.org for more information on credit card companies.

One of the staunchest allies we have had in the fight against predatory lending has been the military. The Department of Defense has pre-released to Congress a Congressionally-mandated Report On Predatory Lending Practices Directed at Members of the Armed Forces and Their Dependents. It'll be available to the public next week. I've seen it, and it calls for strong laws (not just "education" or "choices") to rein in payday, rent-to-own, auto title pawn, refund anticipation loan and other predatory lenders because they hurt our military preparedness. MORE:

The Center for Responsible Lending has posted a summary. The report will help build momentum for passage of the PIRG-backed Talent (R-MO)-Bill Nelson (D-FL) Senate amendment to cap predatory lender interest on loans to the military. Here's an excerpt from the report:

"Many of our youngsters must attain and maintain security clearances that demand complete and unquestionable integrity. A service member saddled with debt, fear, and considerable stress could suddenly find his integrity compromised. His job performance will probably suffer, and he most likely will lose his security clearance and be temporarily removed from his assignment. Between 2000 and 2005, revoked or denied security clearances for Sailors and Marines due to financial problems have increased 1600 percent."
(Appendix of DoD report -- statement by Capt. Mark D. Patton, USN
Commanding Officer, Naval Base Point Loma, CA)

Deanne Loonin of the National Consumer Law Center has released (27 July) a new report on credit card debt ensnaring the elderly. The Life and Debt Cycle (pdf) finds:

Older consumers generally hold less credit card debt than younger consumers. What is new is that elders are catching up. The average credit card debt for Americans between 65 and 69 years old rose a staggering 217% between 1992 and 2001, to $5,844. Not surprisingly, given these and other trends, elders are filing bankruptcy in record numbers.

Over at the new blog Credit Slips, on credit and debt, Bob Lawless points out a new 4 part series on the debt collection industry in the Boston Globe. I thought I'd blogged on this last month, but better late than never: In June, the Buffalo News did an excellent series The High Cost of Being Poor which it recently followed up with yet another excellent series The Merchants of Debt on debt collectors. Reporters-- keep on investigating!

The powerful prescription drug industry, which has long viewed itself as above the law, continues to make massive profits, but it is finally starting to feel heat from intensified scrutiny by policymakers and the press. Here's a roundup of recent issues, from senior citizens reaching the Medicare doughnut hole, to free lunches for doctors to ways drug companies pay off competitors to forget about competing. More:

Medicare Rx and its Doughnut Hole: Robert Pear over at the New York Times in a story today Medicare Beneficiaries Confused and Angry Over Gap in Drug Coverage, explains the problems faced by many senior citizens with moderate to severe health problems whose federal prescription drug benefits have hit the benefit gap known as the doughnut hole, where they must pay full price for their drugs, and pay the insurance premium for benefits, too (after your first $250-$2250 in drug purchases in a year has been subsidized, you must pay full price up to $3,600 (the hole) before benefits resume.) To be fair, this particular fiasco is more the result of the Bush Administration wanting to make sure it had enough money in the budget to lower taxes on the rich than the prescription drug firms' shenanigans, but their high prices were the reason it was even politically necessary.

Rx Influence Peddling: Over at the White Plains Journal-News (NY), there's a fine editorial today Truth In Medicine--Or Not? covering a range of distasteful drug industry practices and expressing disappointment with the once-mighty federal Food and Drug and Administration (FDA) and with supposedly independent medical journals that fail to disclose conflicts of interest by the authors of their articles. From the Journal-News:

Less obvious, but perhaps most corrosive, are the unholy alliances that titan pharmaceutical companies forge with doctors, hospital administrators, researchers and what is supposed to be the independent regulator protecting consumers' lives, the federal Food & Drug Administration. Meanwhile, the influence that drugmakers and their lobbyists exert on Albany and Washington lawmakers, and political parities, is so great, so pervasive that to question it is seen in such corners as the utmost in naivete.

State attorneys general rejected a deal struck by Bristol-Myers Squibb Co. and Sanofi-Aventis SA to delay generic competition of their best-selling drug, signaling an increasing regulatory crackdown against such agreements. The decision is more bad news for the two drug makers, coming on the heels of news that the antitrust division of the Justice Department has launched a criminal investigation into their conduct in connection with the agreement...Deals between branded-drug companies and generic manufacturers intended to delay introduction of lower-cost generic pills have proliferated in the past few years, causing rising concern among U.S. regulators.

CALPIRG, despite a recent committee defeat, continues to push legislation requiring disclosure of all drug company health studies (clinical trials), good and bad. It was introduced in response to the VIOXX tragedy, which was worsened by drug giant Merck's cover-up of its own negative health studies, and other drug safety tragedies like it. NYPIRG seeks passage of legislation requirng a low-cost prescription drug buying pool and also disclosure of drug company gifts to doctors. NJPIRG has a legislative Campaign For Safe Drugs. We have published a number of other reports describing ways to lower the costs of drugs, such as Paying the Price (July 2006) and, on drug safety and marketing, Turning Medicine Into Snake Oil (May 2006).

U.S. PIRG and Florida PIRG have joined over 70 consumer and veterans groups calling on Congress to enact an amendment by Sen. Jim Talent (R-Missouri) and Sen. Bill Nelson (D-Florida) to protect military families from payday lenders, who trap borrowers in a vicious cycle of debt at interest rates of more than 400 percent a year. Here are copies of the consumer and civil rights groups and the veterans aid societies letters. This news release from Center for Responsible Lending and Consumer Federation of America has more information about how the amendment will rein in the usurious practices of payday, title pawn and other lenders that cripple our military readiness and hurt our military families. My previous blog with more info.

Professor Elizabeth Warren of Harvard Law School is one of the nation's leading scholars on bankruptcy law (and with her daughter Amelia Warren Tyagi, author of the best-selling book The Two-Income Trap, on the debt problems American families face). Professor Warren's research provided DC lobbyists with rigorous statistical data that helped us stall the draconian new bankruptcy law for eight years before it finally passed in 2005. Along with six colleagues from schools around the country, Professor Warren has a new blog Credit Slips on credit and debt issues. I look forward to reading it.

[Update Dec 06--corrected old URLS] Everyone, whether they pay with cash, credit or debit cards, pays more at the store and more at the pump due to merchants seeking to recover the cost of the high bank fees that they pay (the banks gouge everyone). Here's a news release accompanying a letter that PIRG, CFA and other leading groups sent Chairman Arlen Specter (R-PA) and Senator Pat Leahy (D-VT) of the Senate Judiciary Committee supporting their hearing investigating whether interchange fees (averaging 1.6% or more of the cost of products you buy) imposed on merchants accepting Visa and Mastercard credit and debit cards are anti-competitive (and therefore violative of the antitrust laws). MORE.

We testified in February before the House Energy and Commerce Committee on the same issue, and the European competition cops are investigating the same problem across the pond. Spin doctors at the two card associations, and their hired gun, former FTC Chair Tim Muris, have attempted to characterize the dispute as a fee war solely between merchants and banks that has no impact on consumers. Idiotic that anyone could believe that, especially since several other card association practices have resulted in a long-running Department of Justice investigation of card association governance (do they actually compete with each other or only against others?) and a multi-billion dollar settlement in favor of the merchants (should debit card interchange fees be lower than riskier credit card interchange fees?). (By the way, Justice also is representing government merchants to make sure they get compensated in the merchant case).

I've spoken recently with a candy store owner who complained about high interchange fees and also with a doctor with a solo practice (another small business person) who told me that the interchange fees in general were too high but even worse, that she paid more in interchange fees when she accepted a Rewards card than a "plain" debit or credit card even though the cards look the same and she couldn't tell the difference, until she received her bill.

So, when you pay cash, you're subsidizing someone else's miles or other rewards, because the merchant's prices must be set high enough to cover these high bank fees. Worse, since the fees are set by powerful associations that may have "market power," (again, an illegal ability to abuse the competition laws), the merchants cannot negotiate.

About 40 years ago the sociologist David Caplovitz documented the structural relationship, or ecology, of poverty merchants and their customers in a Harlem neighborhood in New York City in the classic survey research project that became the book The Poor Pay More. Caplovitz documented the rise of the poverty merchants' use of tools including weekly payment systems -- which provided enormous collection benefits to those merchants, the misrepresentation of used goods as new or shoddy goods as equivalent, and the ability to impose overly high interest rates on captive customers who were treated as if they had no other choice. In his tradition, Brookings has a new report.More.

Our own research and that of the Consumer Federation of America and others has long documented the institutionalization of the poverty industry identified by Caplovitz. The small neighborhood "ma-and-pa" rent-to-own and check cashing stores Caplovitz found in Harlem are now nationwide chains that trade on the exchanges and hire Gucci-clad lobbyists to maintain a legal system that allows their unfair practices. Indeed, the supposedly less tawdry elements of the financial system -- blue chip banks and insurance companies -- maintain "subprime" subsidiaries and affiliates with the sole goal of gouging the poor while even their mainstream affiliates sell rip-off products such as obscene overdraft "loans" on checking accounts ("you don't even need to apply--it's a feature of your account") and credit life insurance piggybacked onto home mortgage loans or credit cards. Other institutions provide the capital for and/or rent their federal or state bank charters to what might otherwise be illegal storefront payday lenders, auto title pawn shops and tax refund anticipation loan companies.

So, in the 21st Century, the poor still more and the business of poverty has been institutionalized. It's a poverty machine designed to skim billions of dollars -- not only from the "poor" but from working and middle class consumers as well.

Now comes the august Brookings Institution, with an important new report, From Poverty, Opportunity, documenting that the problems identified by Caplovitz have not gone away.

I'll have more after I read the full study, but you should check it out and also see the New York Times, which has a good article Study Documents 'Ghetto Tax' Being Paid by the Urban Poor . The Times also talks about some of the solutions being sought by thoughtful policymakers, including Washington State's restrictions on the use of credit scores for insurance ratemaking (the scores can be a proxy for discrimination and we recommend a ban in our model privacy law).

From Brookings:

For instance, 4.2 million lower income homeowners that earn less than $30,000 a year pay higher than average prices for their mortgages. About 4.5 million lower income households pay higher than average prices for auto loans. At least 1.6 million lower income adults pay excessive fees for furniture, appliances, and electronics.

We're fighting a game of whack-a-mole to rein in these unfair practices, which strip cash from people. But we're beginning to win some victories. The rent-to-own industry, has, so far, been unsuccessful in reducing consumer protections despite major efforts in Wisconsin and New Jersey. Importantly, active-duty generals and admirals are engaged against payday and auto title lending scams that hurt military families. Payday lenders have found fewer and fewer legal crannies to peddle their wares from (but still have a major foothold across the nation). And while states and consumer attorneys have slowed the worst predatory mortgage practices, the industry has successfully gained preemptive legal protection from pliant federal regulators such as the OCC and seeks even broader Congressional protection. The Brookings study will help us make the case to policymakers that making financial institutions treat all consumers fairly is good for America, and that it is the right and just thing to do. This blog, by the way, archives its commentary on poverty in the section The Poor Still Pay More.

There's a lot more encouraging work going on this area. In fact, today I am attending a conference called Debt Matters, at the Center for American Progress.

The Albuquerque Tribune's Ollie Reed has a very detailed analysis (as part of an excellent series) explaining how predatory auto title pawn and payday lenders have used political power from massive campaign contributions to block meaningful reforms sought by NMPIRG, Attorney General Patsy Madrid and a broad coalition in one of the nation's poorest states. A few years ago, I toured some of New Mexico's most impoverished areas with NMPIRG advocates. MORE:

We visited Gallup, the gateway city to the massive Four Corners area Navajo reservation that covers large parts of New Mexico and Arizona. A Legal Aid attorney reminded us of what General William Tecumseh Sherman had said in the 1870s: "A reservation is a parcel of land inhabited by Indians and surrounded by thieves." From the Tribune:

Most of the 700 payday and car-title stores in New Mexico are concentrated in areas populated by low-income communities. According to the Attorney General's Office, the biggest concentration per capita - about one lender to every 500 residents - is in Gallup, where many of New Mexico's American Indians live. By comparison, the ratio is about one to 2,500 in Albuquerque and one to 7,000 statewide.

Levon Henry, executive director for DNA People's Legal Services told the Advisory Committee that DNA has been in operation nearly 40 years and continues to see these problems and they do not seem to be getting any better: "Many people in the Four Corners region have been devastated by the unscrupulous business practices of car dealers, mobile home dealers, pawn shops, and the new payday loan and title loan operations. Many of the unscrupulous dealers and business operators are willing to take full advantage of the elderly who they know full well don't understand the terms and conditions of the legal documents they are signing. While some community members may say that the blatant discrimination of Native Americans and low income persons is tempered by the passing years, it remains alive and well in another forum shown through the well-documented business practices of these unscrupulous car dealers, unscrupulous mobile home dealers, and unscrupulous pawn dealers.
This is not to say that this is a reflection of this community."

Here's a blog entry from NYPIRG's Blair Horner explaining how the New York legislature nearly passed legislation last month establishing a buying pool cooperative to lower prescription drug prices, but was blocked by the drug lobby. The good news-- the bill could come up again before the elections. You can follow Blair's weekly posts from Albany here.

Kudos to Illinois Governor Rod Blagojevich's Administration and Illinois Attorney General Lisa Madigan for filing simultaneous enforcement actions against the predatory payday lender Americash today, announcing a fine of $190,000 and filing a lawsuit seeking a permanent injunction barring continued unfair and illegal practices by Americash. From their release:

"Too many people who apply for short-term financial help find themselves in a devastating spiral of debt. We fought hard to pass strong payday loan restrictions in order to help consumers avoid that cycle. Any lender that does what Americash has done by sidestepping consumer protections is going to have to face severe consequences," said Governor Rod R. Blagojevich.

"My office is filing this lawsuit today because Americash's actions are a blatant violation of a new law meant to protect consumers from a cycle of debt," Madigan said. "The new law has many consumer protections which we will enforce vigorously."

Senior attorney Norma Garcia of Consumers Union has written an excellent new report Score Wars Consumers Caught in the Crossfire, The Case for Banning the Use of Credit Information in Insurance (pdf report). We and other advocates contend that insurers may be using scoring as a proxy for otherwise illegal rating factors, such as race. More:

Here's an html release. Consumers Union, the publishers of Consumer Reports magazine, is our partner in efforts to pass strong state laws protecting privacy and preventing identity theft. From the report:

This 35-page report examines the use of credit information in the underwriting and pricing of insurance and its negative impact on consumers. It discusses why using credit information is both unfair to consumers and unnecessary, examines trends in state laws over the last four years, discusses the flaws in the model law touted by the industry, offers a model state law to protect consumers, and provides additional suggestions for protecting consumers from the unfair use of credit information in insurance decisions.

There are concerns that credit scoring may simply be a double counting of other risk factors that already are taken into consideration when setting insurance rates. Scores also may be a proxy for rating factors that insurers are prohibited from using, such as race. This model law prohibits insurers from using information regarding a consumer's creditworthiness, credit standing, or credit capacity for the purpose of determining rates for insurance or eligibility for coverage.

The triple-digit predatory payday lender Advance America is attempting to circumvent a tough new Pennsylvania usury law that had forced it to exit the state. According to a Pittsburgh Post-Gazette story by Patty Sabatini that's been picked up nationally by the AP, the company is hiding its punitive interest and finance charges inside a "participation fee." MORE:

From the Post-Gazette:

The new product, called the "Choice" line of credit, allows customers to borrow up to $500 for a monthly "participation fee" of $150. At the end of the month, the customer also owes finance charges equal to an annual percentage rate of 5.98 percent plus a minimum $20 principal payment.

"Pennsylvania law clearly prevents companies from charging that much to make small loans, whatever they decide to call the charges," said Jim Swoyer, a Public Interest Advocate. "This is just another cynical attempt to circumvent the Pennsylvania small loan and usury caps which prevent companies like Advance America from fleecing vulnerable consumers."

Over at her Washington Post Checkout blog, reporter Caroline Mayer and several commenters have blogged on deceptive add-on fees for supposedly free e-mail trial offers. Often the fees are added on your phone bill. Never click on a "free offer" balloon on a website either, as we noted last year in a blog about complaints from online Ticketmaster shoppers over websites sharing credit card numbers with third parties.

I've often said that owning a credit card company is a license to steal. Somnolent federal regulators and a disinterested Congress let you gouge consumers nationwide with usurious interest rates and fees while you hide out in a state like Delaware or South Dakota with no consumer protection laws worth writing home about. MORE:

For example, you can also change the rules at any time for any reason, including no reason. Credit card banking is (according to the Fed) the most profitable form of banking.

But it now looks like the bankers actually need to work -- at least just a little -- for their money, which usually means new tricks will be coming soon to take more money from customers and merchants. A Page One story in the Wall Street Journal on May 25th by Robin Sidel, Credit-Card Issuers' Problem: People Are Paying Their Bills (paid subs. req.), reports:

Although consumers are using plastic for more of their daily purchases, they are giving card issuers fits by juggling their debts more shrewdly. When cardholders are hit with high interest rates on one card, they routinely transfer balances to new cards at lower rates. And in recent years, as real-estate values soared and mortgage rates fell sharply, more consumers wiped out credit-card debts altogether by borrowing against their homes.