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.

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.”

In today's New York Times, metro columnist Jim Dwyer questions the wisdom of the over $1 billion dollars of taxpayer funds and subsidies that New York City has dumped into the new Yankee and Met stadiums. From his column For Sports Teams, Mayors Play Ball at the City’s Expense:

But these are appetizers before the true banquet: The subsidies for the construction of new stadiums and garages that come in hard cash, in the loss of public parkland and in forgone taxes. Earlier this week, The New York Times reported that the state and the city would cover at least $659 million in costs related to new stadiums for the Yankees and the Mets. The teams will receive an additional $480 million in tax breaks of one kind or another.

The premise of these sports stadium investments, public officials say, is that economic development benefits will roll into the city over the decades — $40 million over 40 years in the Bronx, for instance. Perhaps this will happen. Or maybe it is a hallucination that is even flimsier than the assumptions that drove Wall Street to sink trillions into financial instruments that no one actually understood but all the right people agreed were worth tons of money.

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.

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

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.

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.

My colleague Dr. Phineas Baxandall, Ph.D, U.S. PIRG's senior analyst for tax and budget policy, testified today (his written testimony) before the House Transportation and Infrastructure Committee at a Hearing on H.R. 6707, the "Taking Responsible Action for Community Safety Act." Link to full hearing. Excerpt from Baxandall's testimony:

The TRACS Act would address the fact that mergers can also undermine the public interest by affecting how railway companies reroute traffic, maintain existing tracks, or develop new lines. The legislation would appropriately empower the Surface Transportation Board to consider the broader public interest, including the impacts on commuter and intercity rail. This makes sense as we look toward the challenges of the future and the role that transportation must play in meeting those challenges.

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.

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.

The Charlotte Business Journal and its affiliate papers nationwide are reporting that Duke pursuing compromise on Save-A-Watt, its controversial plan with the centerpiece bright idea to reward stockholders for nuclear plants not built by charging ratepayers over $16 each for energy efficient light bulbs worth less than two bucks each retail. Our previous blog has more. NCPIRG and other Save-A-Watt opponents will announce a new energy efficiency plan Monday, and will urge regulators to substitute it for the Duke proposal.

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.

UPDATE: For more, check out M.P. Dunleavey in Saturday's New York Times: The Price Is the Same; It’s the Size That Shrinks.

ORIGINAL POST: Have you noticed the new, improved 8.9 ounces size of the 10-oz. box of Cheerios or the new higher-priced 13.25 oz. "pound" of spaghetti at the store? In a story Food Giants Race to Pass Rising Costs to Shoppers (pd. subs. req'd) the Wall Street Journal reports:

Many food manufacturers are retooling assembly lines to produce smaller versions of everything from cereal boxes and ice-cream cartons to mayonnaise jars, margarine tubs and cheese packages. By giving consumers less for roughly the same price, food executives hope to keep consumers from moving to cheaper brands.

The increases are claimed to be attributed to global competition for U.S. grain (used both to to make bread and cereal and to feed cattle, as well as to make energy, these days):

The U.S. Department of Agriculture sees food prices climbing 4.5% to 5.5% this year and 4% to 5% in 2009. Even under this more conservative forecast, the average family of four would see its annual food costs hit $9,800 in 2009, up about $1,200 since 2006.

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

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.

It should be posted at their site unfaircreditcardfees.com soon, as the merchants have issued a release disputing VISA's claims that its announced new merchant discount (interchange) fee structure is all it's hyped up to be (my previous blog) in terms of reducing the amount that the banks and card networks skim off the top of every plastic transaction. According to the merchants:

"While the devil is always in the details and we haven't seen any details yet, it looks like the new structure for credit cards combines a higher fixed fee with a lower percentage fee," said Hank Armour, President and CEO of the National Association of Convenience Stores. "The net result of this combination may actually be higher fees for those transactions under $60 for those customers using regular Visa credit cards without a rewards program." On debit card transactions, the cap on interchange may only apply to gasoline purchases of more than $97.50. That is a small number of transactions – especially because Visa banks reserve the right not to give gasoline retailers anything more than $75 on a sale.

Today, PIRGs around the country released our new report Squandering the Stimulus: Average American Households Spent Economic Stimulus on Gas. It's part of our campaign to promote mass transit spending increases to reduce the heavy negative impacts of our car and gasoline based transportation system. I joined staff attorney Shana Becker and NCPIRG outreach staff at their release in Raleigh today in front of the Moore Square transit center (photo). From the national release:

Without sufficient alternatives to driving, American families spent their entire economic stimulus check on high-priced gas. According to new analysis from the U.S. Public Interest Research Group, since President Bush signed the tax rebates into law on February 13th, the average household spent over $1500 filling their tanks. Gas costs were higher than average in areas without robust public transportation.

On Thursday, the US House of Representatives will vote on a bill to approve additional funding for public transportation as an alternative to high gas prices. "If Congress wants to do something long-term about high gas prices, it will give people more alternatives to driving," said US PIRG staff attorney John Krieger, "Unless we make it easier to drive less, American families will be stuck in neutral as they spend more and more at the pump."

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?

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.

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.

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.

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.

Chairman Chris Dodd (D-CT) (New London (CT) Day story) of the Senate Banking Committee will introduce a major credit card reform bill today, joined by U.S. PIRG and other major groups (our letter of support) and by Senator Carl Levin (D-MI), whose blockbuster hearings last year in his Permanent Subcommittee on Investigations exposed the seamy underside and dirty little secrets of the credit card industry. The biggest not-so-secret? That all the bank kids on the block -- even the big, white-shoe bank kids on the Wall Street block (named Citi and Chase) were using tawdry practices.

Also, on Friday, the Fed is expected to announce proposed rules banning unfair and deceptive practices by credit card companies. Some in the media are reporting that the rules may be stronger than I'd originally (one story from yesterday) expected, but then again, that may be a calculated attempt to head Congress off from even stronger reforms. Among the proposals the Fed may adopt are these:

The bankers walk around the hill uttering the mantra "risk" but have provided no proof. We'll have to see if the Fed's rules are actually bans, or "guidance" or, worse, messages that "it is only OK to do these otherwise unfair things if you tell the consumer first in a disclosure."

Meanwhile, over at The Politico, there's a detailed story by Lisa Lerer explaining the battle between merchants and the card associations (Visa and Mastercard) over interchange fees. We've generally sided with the merchants, since all consumers pay more at the store and more at the pump, even if they pay cash, due to the high and probably anti-competitive fees charged merchants to accept credit or debit cards. We haven't yet taken an official position on the merchants' proposed remedial legislation itself however.

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.

Update: Rep. Hensarling is claiming that Chair Maloney's bill outlaws certain cards. She of course disagrees with this reading of the bill... Rep. Ellison is exploring the problem of frustrating computerized voicemail jails that make it hard to speak to a person who might help them... Rep. Bachus is hearing from a consumer victim witness about how Cap One deflates your credit score by reporting your credit limit, only your balance, making it appear as if you are maxed out to the not-so-much rocket science as they pretend it is at FICO's credit scoring computer.

Lead witness Senator Carl Levin's (D-MI) testimony has set a powerful tone for the day (a few excerpts): "credit card abuses faced by our middle class families add insult to injury ...charging interest on penalty fees is wrong...contracts are totally incomprehensible...if this problem is going to be resolved it is going to be resolved here in Congress...The fed is looking at disclosures, it's (looking is) endless." On to the consumer panel. (First-ever blog from the "crackberry" thumbtyping PDA.) The hearing link is two blog entries back. You should be able to watch. http://www.house.gov/apps/list/hearing/financialsvcs_dem/hr041708.shtml

UPDATED My testimony here.

We testify Thursday, 17 April before the House Financial Institutions and Consumer Credit Subcommittee. It's a legislative hearing (background and list of witnesses here) on HR 5244, the Credit Cardholders Bill of Rights sponsored by subcommittee chair Carolyn Maloney and 94 others, so far. Many witnesses, including two Senators, 4 consumers, regulators, consumer advocates and bankers and their flacks.

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.

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.

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.

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.

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.

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.

Unfair arbitration clauses and the pain and suffering faced by employees, small farmers, franchisees and consumers are at least getting a day in the sunlight if not yet a day in court. In today's latest arbitration story in the Baltimore Sun column Consuming Interests, Dan Thanh Dang reports that Mandatory arbitration stacks deck against you:

"This is the single most important issue for consumers today," [Paul] Bland [staff attorney for Public Justice] said. "These arbitration clauses are popping up everywhere and the problem is that very, very few people are conscious of the issue. The vast majority of Americans don't read the fine print of contracts. Companies know that, rely on that and take advantage of that by slipping these clauses into the fine print." " ... When you sign a contract with an arbitration clause, you forfeit your right to sue. If more people knew it stripped them of their rights, there would be a lot more angry people."

Earl Ross, a 43-year-old graphic artist, found that out the hard way a couple of years ago after a contractor royally mucked up a hot tub installation at his Owings Mills home. Ross paid the installer almost $8,000 up front to do the job, but when it was completed, Ross said he came home to a spa half-full. "It leaked about 400 gallons of water every day into the foundation of my house," Ross said. "I had to hire someone else to redo the job. The second said the first guy didn't install a pipeline correctly. The seeping water damaged my stairwell and cinder blocks, which I paid a waterproofing company $7,200 to repair. "I also had to pay the second company $8,000 to fix the first guy's mistake," Ross said.

Back in the day, the Federal Arbitration Act was applied only to settle disputes between two businesses. Instead of duking it out in expensive court battles, the two Goliaths would let a seemingly neutral third party judge the quarrel. In 1995, though, the U.S. Supreme Court expanded the act's scope to consumer cases. Soon, banks started adopting the clauses into contracts. In 1999, credit card companies followed suit. By 2001, all long-distance and cellular carriers joined the bandwagon, Bland said. What started off as an admirable concept to avoid a proliferation of lawsuits has morphed into a system that stacks the deck against consumers.

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.

Today the Federal Reserve proposed extremely modest high-cost mortgage rules in an attempt to fight the foreclosure crisis. House Financial Services Committee chairman Barney Frank (D-MA), following up on a statement last week, had this to say in response:

The staff of the Financial Services Committee and I have had a chance to review the Federal Reserve's proposed rules regarding abusive subprime loans. We now have confirmation of two facts we have known for some time: one, the Federal Reserve System is not a strong advocate for consumers, and two, there is no Santa Claus. People who are surprised by the one are presumably surprised by the other.

Over at the Consumer Law and Policy blog, professor Jeff Sovern has a detailed post on the rules. Here is the Center for Responsible Lending's statement.

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.

We testified today in support of legislation by Rep. Carolyn Maloney (link to hearing record) that would require the federal bank regulators to create a shared complaint hotline (HR 4332, the Financial Consumer Hotline Act of 2007). We proposed a number of amendments to force the regulators to do a better job handling consumer complaints.

Financier Henry Kaufman makes some valid arguments in a Wall Street Journal op-ed column called Who's Watching the Big Banks? (pd. subs. req'd) that a new regulator is needed for the biggest financial institutions:

Because their reach is so vast and deep, these financial behemoths are deemed too big to fail. In the wake of these profound structural changes in our financial system, who or what can provide oversight and supervision?

What about the big banks' quest to get even bigger? Bank of America, for example, is pushing hard against the "10% of all deposits" national ceiling. It, and other big banks, seem to rely more on extracting wealth from their deposit account and credit card customers, and other consumers using their ATM machines, in the form of punitive fees for every little transaction or transgression. We should be watchdogging the big banks for their anti-consumer practices, as well as their risks. They're not only too big to fail, they're too big to care.

Credit union activists are out on Capitol Hill today promoting their new website: lookoutforthelittleguy.org. USPIRG has long recommended to consumers: bank at a credit union, not at a bank. Credit unions have lower fees and lower minimums to avoid fees, so you'll pay fewer fees. Credit unions also have much better deals on loan interest rates.

Guess what? Everyone benefits from credit unions, even customers of big fee-gouging banks. Credit unions act as a competitive yardstick in the economy; the lure of their obvious lower fees and loan rates tempers the ability of the big banks to make their big fees even bigger.

Except for a very small number of privately insured credit unions (we like these not so much), nearly all credit unions are federally insured by a federal government credit union agency similar to the FDIC called the NCUA that administers the National Credit Union Share Insurance Fund. If you see the NCUSIF logo, you're good.

And, many consumers may wrongly think that they don't qualify to join a credit union because they don't work in the same company. You'd be surprised. Ask. And, once a member, always a member. And, your eligibility makes your family eligible. Still can't find one you qualify to join? In addition, there are many community development credit unions that anyone in the neighborhood can join. Just ask.

Unfortunately, the America Bankers Association and its local affiliates have been running a state and national campaign to demonize member-owned credit unions because they don't pay taxes, as if that is somehow wrong. Of course they don't pay taxes, they're non-profit and return benefits to their members and communities, unlike fee-gouging banks. Lookoutforthelittleguy.org includes helpful information to rebut the banker claims.

Oh, this paragraph is in the interest of keeping my blog fair and balanced: Those privately-insured credit unions we like not so much? They may take on more deposit risk as they move away from traditional credit union values. Not my first choice. But worse, there are a very small number of credit union management types in the thrall of possible individual profits from for-profit conversions. We like these efforts even less so much. But you can count the number of these efforts on your hands, despite banker efforts to encourage them.

Today's Wall Street Journal (pd. subs. req'd) has a long Page One investigative piece explaining how Wal-Mart uses accountants to avoid paying state taxes. It's a big problem for you and me and strapped state legislatures, as the story explains:

Publicly traded companies reduced their federal income taxes by about $12 billion in 2004 through potentially abusive tax transactions, according to Internal Revenue Service data. Some experts say companies save far more than that each year through elaborate tax-cutting maneuvers.

Wal-Mart decided to hire Ernst & Young to help devise complex tax strategies to use in at least four big states. The accounting firm, for example, helped Wal-Mart take tax deductions in California for dividends it never actually paid. And in Texas, Ernst & Young advised, the giant retailer could exploit a wrinkle in the tax law involving limited partners from out-of-state -- a maneuver subsequently shut down by the state's legislature. Big companies hardly ever discuss how outside accountants, lawyers and investment bankers help them cut their tax bills. But Ernst & Young's contributions to Wal-Mart's state-tax minimization project are outlined in a raft of documents filed in recent months in North Carolina state court, where the state's attorney general is challenging a Wal-Mart tax-cutting structure involving real-estate investment trusts.

Last week, Neely Tucker of the Washington Post reported the story of 75-year-old Mona Shaw Taking a Whack Against Comcast. After a several-day long debacle where Comcast apparently left her "Triple Play" installation in disarray then cut off all phone, cable and Internet service, Shaw and husband Don went to Comcast's Manassas (VA) office for a customer service rep to hear her service complaint. Reasonable. There, the reps left her and husband Don sitting outside the office for hours, then all went home. Unreasonable. Not to worry, Mona came back the next day with her hammer. From the Post:

Hammer time: Shaw storms in the company's office. BAM! She whacks the keyboard of the customer service rep. BAM! Down goes the monitor. BAM! She totals the telephone. People scatter, scream, cops show up and what does she do? POW! A parting shot to the phone! "They cuffed me right then," she says. Her take on Comcast: "What a bunch of sub-moronic imbeciles."

Go to the site and read their stories. The growth of these "mycompanysucks.com" Internet sites -- and this isn't the only one (See cybergriping.com) -- shows the power of the Internet to give small speakers an unfiltered voice and an opportunity to organize at low-cost. It also shows, of course, that consumers are getting fed up with the impersonal, arrogant, over-priced and nuisance-fee-laden so-called services of banks, airlines, cable companies, phone companies and other behemoth firms. And while companies use phalanxes of lawyers to try and take down the sites using copyright and other legal arguments (but mostly blustery threats designed to intimidate), Paul Levy of the Public Citizen Litigation Group has been leading efforts to protect the First Amendment free speech rights of consumers to complain.

Under deregulation, market competition, rather than pesky bureaucratic regulators, is supposed to restrain the most unfair tendencies of large, powerful corporations. But it doesn't seem to be working. Many firms use Early Termination Penalty fees and other tactics, including counting on consumers not wanting to pay the high switching costs (lost time in phone calls, getting new account numbers and new email addresses, waiting on new equipment service calls, or whatever) of switching providers, to establish a virtually captive customer base so they don't need to have good service to compete.

But Comcast at least, didn't count on Mona, who took the hammer into her own hands. She's not the first, and she won't be the last, consumer to take direct action. Corporations need to wake up. Consumers who pay good money for service deserve a better deal than the pathetic, impersonal treatment many get. Consumer complaints about bad service are not isolated incidents -- bad service is economy-wide (previous blog).

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.

Over at the Credit Slips blog, Adam Levitin asks: Who's Paying for Your Rewards Points?. It's a good explanation of interchange fees paid by merchants to credit card companies. All consumers pay more at the store and more at the pump due to unfair interchange fees, meaning cash customers pay for the rewards earned by credit card customers. Our previous blog on my recent interchange testimony.

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.

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.

Check out a Marketplace Radio interview with NYPIRG's Russ Haven criticizing the announcement that Major League Baseball is hooking up with online ticket reseller StubHub in an exclusive deal. Click the Listen To This Story link next to the picture of Barry Bonds to listen to the interview. Excerpt:

Steve Henn: The deal gives StubHub the exclusive right to set up shop on Major League Baseball team Websites. So if you go to a team site looking for a seat you'll have more choices. But there's a catch:
Russ Haven: It's going to lead to higher ticket resale prices.
Henn: Russ Haven from the New York Public Interest Research Group's a critic of the big fees charged by StubHub, which takes 25 percent of the ticket price. He thinks this deal will make those fees worse.
Haven: It also means that no competitor can come into the marketplace and say "Hey, we can undercut those fees."

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 7/30--added link to BofA memo). Looks as if Bank of America wants to become the answer to the question-- "Which bank punishes consumers with the highest ATM surcharge?" On July 31st, according to materials which look legit and obtained by this consumer advocate, it plans to raise ATM surcharges to $3 at most locations.

Surcharges are the double-dipping fees imposed on non-customers and will be raised at BofA ATMs attached to their branches and in in-store locations (but not those in malls or airports). In Illinois (but not Chicago, where fees will not increase), New York, Nevada, New Mexico, and Massachusetts, they'll wait a month until August 31st. Chicago must be a new or important market for them, I guess.

Why are ATM fees double-dipping? Because most banks charge their own customers a foreign ATM fee when they use another's ATM--that fee is shared with the ATM owner. The owner collects from your own bank on top of the surcharge. Our successful efforts to ban the ATM surcharge locally were trumped by court decisions; as for Congress, it has never liked to offend the banks.

In their talking points to "market presidents," BofA flacks advise:

Bank of America may be an industry leader in raising the fee to $3 and most likely will draw attention from the press, state legislators, consumer advocates and Congress given the size of our network.

Duh.

And in a set of FAQs, check out this corporate double-speak answer:

Does it cost any more for you to process transactions for non-customers? The bank continues to make significant investments in its ATM network and we continue to grow the network for the convenience of our customers.

What was the question?

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.

Bob Hunter, an actuary, former federal insurance administrator, former Texas insurance commissioner and currently the longtime insurance director for the Consumer Federation of America, has released a CFA report -- The Good Hands Company or a Leader in Anti-Consumer Practices? -- ripping Allstate Insurance. From the news release:

The Allstate Corporation has been at the forefront of the insurance industry in unjustifiably raising home and automobile insurance rates relative to the amount paid out in claims, in using questionable practices to settle claims and in attempting to shift costs to taxpayers..."Allstate is certainly not the only insurer pursuing these anti-consumer practices, but it has been in the vanguard in developing and implementing many of them," said Hunter.

LATER UPDATE: My notes following the hearing are added below the jump:

Chairwoman Carolyn Maloney (D-NY) of the House Subcommittee on Financial Institutions and Consumer Credit is holding a hearing today on unfair bank overdraft fees and their impact on consumers, especially in regard to debit card transactions. A number of consumer advocates will document that so-called over-draft protection "features" in bank accounts should be more strictly regulated as loans, not fees; that the fee income now totaling billions of dollars in bank overdraft revenue is essentially no different than payday loan sharking; and that multiple $35 fees are unfairly heaped on consumers for their supposed $5 overdrafts (which sometimes occur only because the bank manipulated the order of received checks it posts each night or perhaps unfairly held for several days a deposited check it knew was good).

Chairwoman Maloney has introduced HR 946, the Consumer Overdraft Protection Fair Practices Act. The bill would take numerous important steps to rein in unfair overdraft practices, including a prohibition on allowing a consumer to overdraft his or her account in a debit point of sale transaction, unless the merchant's machine were set up to ask consent. As I recently told the Wall Street Journal: "It's much easier to overdraw your (debit) account. A debit card gives you a latte if you have no money. A latte costs $5 but the bank gets a $30 overdraft."

Post-hearing Notes: Well, the formidable consumer team of Eric Halperin of the Center for Responsible Lending, Chi Chi Wu of National Consumer Law Center, Jean Ann Fox of Consumer Federation of America and Sarah Ludwig of Neighborhood Economic Development Advocacy Project, joined by credit union executive Mary Cunningham, President & CEO, USA Federal Credit Union, on behalf of the Credit Union National Association, certainly won the hearing on a knockout over the two bank industry representatives, who were fighting with one hand tied behind their backs -- I mean, how do you defend an unfair and deceptive practice that enriches banks at the expense of the poor and middle class? You cannot.

The hearing featured the results of a new report by Eric's group, CRL. Out of Balance's chief finding: U.S. banks and credit unions are using abusive overdraft loans to generate $17.5 billion in fees each year. I'd encourage you to read all the advocates' powerful testimony. Mary Cunningham, in particular, talked about how her credit union implemented bounce protection and found it to be a horrible product that hurt its members. So, it then revised its overdraft policies to be a "fair deal" for members.

Looks like NJ governor Jon Corzine doesn't have consensus on his plan to privatize the NJ Turnpike. New Jersey PIRG's Abigail Caplovitz Field gets the last word in New Jersey Decides Its Toll Road Plan Still Needs Time in today's New York Times:

"Just saying that it's a public company doesn't mean it's in the public interest," Ms. Field said. "Are the contracts still going to be public? How do we know the state is going to get the best price? Will the state end up having to spend tax dollars to service the debt? There's so many facets of the deal that have to be scrutinized."

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.

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.

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.

I am not a lawyer, but like actor Robert Young often said [he played the old TV show doctor Marcus Welby] as he extended his career by advertising various nostrums: "I do play one on television." So, I often speak at lawyer events, including those of the American Bar Association. I was going to do an entry on a lame, misleading "up to" $50,000 line of credit offer from Bank of America, apparently sent to lucky attendees of recent ABA conferences, but over at the excellent Credit Slips blog, law professor Bob Lawless beat me to it, with How Dum Do They Think I Am?

the deal is very different than the misleading rhetoric in big type on the front page of the letter. Bank of America has not at all promised to lend me $50,000 and not at a rate of 8.99%. The offer is to loan me something between $0 and $50,000 at a rate between 8.99% and 17.99%. Also, what is this 3% "transaction fee" for each advance? Do I get 3% deducted from the initial advance Bank of America will send me, or is that for advances after the initial loan? Either way, the transaction fee would substantially raise the cost of the credit to me. In any event, none of it matters, because Bank of America can change any of the terms of the contract at any time, if we can still call such an arrangement a "contract." The offer is not much of a deal at all.

Senator Carl Levin (D-MI) has followed up his excellent hearing on credit card ripoffs by introducing a strong reform bill today. Here are our joint consumer group release, a Reuters story and Senator Levin's and his co-sponsor Claire McCaskill's (D-MO) release. Here is an excerpt from our release:

National consumer organizations today applauded Senator Carl Levin (D-Michigan) for introducing broad legislation to curb abusive credit card lending practices. The "Stop Unfair Practices in Credit Cards Act" would forbid practices recently exposed by Levin in hearings of the Permanent Subcommittee on Investigations that allow credit card issuers to assess unjustifiable fees and interest rate charges.[...] "Owning a credit card company is often a license to steal, but Senator Levin's legislation makes him the new sheriff in town," said Ed Mierzwinski, U.S. PIRG Consumer Program Director. "His bill bans some of the most unfair credit card company practices that strip money out of consumer pocketbooks and wallets."{...] The bill would prohibit or restrict several credit card lending abuses that have received a great deal of attention in recent months, including:

Retroactive interest charges. The bill would prohibit the widespread practice of charging higher interest rates on balances incurred before a rate increase went into effect.

Outrageous interest rate hikes. It would limit “penalty” interest rate increases to 7 percent above the previous rate if the consumer fails, for instance, to make a payment on time.

Repeat over-limit fees. Over-limit fees could only be charged once, unless additional charges increase balances above the account limit.

Fees for paying a bill. Credit card companies could not charge a fee to allow consumers to pay a bill by telephone, on the internet or by mail.

Interest charges for on-time payment. It would prohibit “double cycle billing” and other practices that result in interest rate charges on balances that have been paid on time.

Due to an "insufficient" PR campaign to taxpayers by the IRS (its fact sheet), billions of dollars in phone tax refunds due to consumers and businesses are still unclaimed, according to a release by the authoritative Center for the Study of Responsive Law:

Standard refunds for individuals may seem small, $30-$60, but taken together Americans are missing out on billions of dollars. It's Not Too Late: While the April 17 deadline is past, claims can still be made over the next three years (until 2010) for the refund by all those eligible who have not already done so.

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.

[UPDATE, same day: Links to AG Cuomo's release, a bizjournals.com story and an AG office brochure for college-bound high school students applying for loans.]

Attorney General Andrew Cuomo of New York is investigating the seamy relationships between student loan lenders and schools. The deals being cut may benefit the schools, and the lenders, at the expense of students. According to Jonathan Glater's story Lenders Pay Universities to Influence Loan Choice in Friday's New York Times:

Dozens of colleges and universities across the country have accepted a variety of financial incentives from student loan companies to steer student business their way, Attorney General Andrew M. Cuomo of New York announced yesterday. [...] Last year, students took out more than $85 billion in federal and private loans to pay for higher education. Mr. Cuomo began looking into incentives because many financial aid offices compile lists of "preferred" lenders, sometimes as few as two, and students rely on those lists rather than comparison shopping. Mr. Cuomo said he was still investigating at least 100 schools.

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.

In his story today New Capital One Card Will Put Cash in Consumers' Wallets (paid subs. req'd) on a new so-called Rewards credit card, Ron Lieber of the Wall Street Journal succinctly points out that rewards are really a come-on to spend more than you can afford to pay back:

As with other card companies with generous reward offerings, it's [Cap One] hoping that enough people pay only a portion of the bill each month to make the product profitable.

David Pettit, PIRG in Michigan (PIRGIM) consumer advocate and Phineas Baxandall, Ph.D., federation of state PIRGs' senior analyst for tax and budget policy, have a column Write a simpler, fairer state business tax in today's Detroit Free Press. Among its recommendations:

Level the playing field. Michigan can best prosper and have confidence in its tax system when businesses compete based on their efficiency and innovation, rather than the ingenuity of their lobbyists and tax lawyers. Taxes should be broad-based enough that businesses that pay them are not "suckers" who subsidize competitors.

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."

Just received an apology email (it was sent to all past customers, as I was not one of the 10,000 trapped on the runway last week) with a link to a video Youtube apology from David Neeleman, Founder and CEO. My previous blog.

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.

John Leland reports in a nice story that I don't think has been done before -- Debtors Search for Discipline via Blogs -- to appear in tomorrow's New York Times, that consumers mired in excessive credit card debt are blogging away about how they are digging out. He includes stories about Tricia's blog bloggingawaydebt.com/ and Leigh Ann Fraley's blog saveleighann.blogspot.com and others.

Like other bloggers interviewed for this article, Tricia said she and her husband had arrived at their debt gradually, not by big financial crises but by regularly spending more money than they made, using credit that was offered freely by credit card companies.

You may hear me this morning on NPR, talking with reporter Chris Arnold about how you can fight back against unfair credit card practices. You can listen here at this link on the NPR.org website. Our PIRG Truthaboutcredit page is here.

Over at the RTOOnline news site of the predatory rent-to-own industry, the headline reads New York Democrat and PIRG Hero Maloney To Chair House Subcommittee on Financial Institutions and Consumer Credit. In fact, Rep. Carolyn Maloney (D-NY) did receive a score of 100 on the PIRG Congressional Scorecard last year, and, as the RTO boys point out, among the "only" 42 others who did were "Senator Ted Kennedy (D-MA), Representative Barney Frank (D-MA) and current Speaker of the House Nancy Pelosi (D-CA)." That's a bad thing? Voting for consumers, the environment and government reform over the special interests? We're looking forward to working with Chairwoman Maloney, a leader against predatory lending, and many others. I'd point out by the way, that we work with people with very low scores as well. Rep. Joe Barton (R-TX) may not always agree with us (7% lifetime score), but has long been one of the leading Congressional privacy champions.

What's rent-to-own, by the way? The industry promises the American dream of ownership, then takes it away with punitive $10-20/week perpetual debt contracts. Think "I owe my soul to the company store."

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.

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.

Over at the Wall Street Journal, in a story How You Can Lower Your Credit-Card Rate (paid subs. may be req.) reporter Ann Carrns has updated the findings of a 2002 PIRG report Deflate Your Rate, describing how many consumers can call their credit card company, complain that their interest rate is too high and receive a reduced APR.

Still, many credit-card companies acknowledge that the cutthroat market is prodding them to consider trimming interest rates on a case-by-case basis. J.P. Morgan "always [welcomes] the opportunity for customers to call us and have a dialogue," a spokesman for the New York bank says. Capital One emphasizes "great rates" in its initial offer, but "cardholders certainly can call us to discuss their account terms," according to a spokeswoman. American Express Co. will "listen to concerns about interest rates," spokeswoman Desiree Fish says, but relents "infrequently." At Bank of America, cardholders who call seeking a lower rate or threatening to bolt are quickly transferred to retention specialists, who are trained in what the bank calls "judgmental lending," empowering them to consider more than credit scores and payment records. For example, a higher interest rate triggered by a forgotten payment -- not financial problems -- might be lowered.

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.

The U.S. Ninth Circuit Court of Appeals yesterday condemned the Federal Energy Regulatory Commission's (FERC) lax oversight of the electric power industry that resulted (in addition to the loss of billions of dollars of investor retirement dollars) in skyrocketing energy prices and rolling blackouts in California during the height of the Enron debacle. The court allowed claims for compensation from what's left of Enron and affiliated banks including Morgan Stanley by California, Washington State, Nevada and local utility ratepayer districts to go forward. From the New York Times:

"The ruling makes it clear that markets need to have a cop on the beat and that the Federal Energy Regulatory Commission failed to step in and do its duty as that cop," said William J. Kayatta Jr., a lawyer who argued the case for California. "If the commission comes back and just says market prices are just and reasonable, they will be slapped down again."

Their company, Enron, was a house of cards that pretended to the world that it was making money with some of the most idiotic ideas ever-- leasing electricity barges off Nigeria and supposedly building trading markets in dark (unused) fiber-optic cable, video downloads and even water. All they were really ever doing was cheating to make these bogus, untested projects appear profitable. They also manipulated the California energy markets to steal from grandma Millie. They created hundreds of fak-o affiliated enterprises named for Star Wars and other movie characters to hide evidence of the thefts. They cooked the books so hot you could fry an egg on them. Throughout, however, they were shamefully aided and abetted by some of the biggest banks in the Wall Street world who all wanted their own piece of the action. Meanwhile their accountants, Arthur Andersen, forgot that the Supreme Court had designated accountants as "the public's watchdog."

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.

Over at his Beat the Press blog at the American Prospect, economist Dean Baker of the Center for Economic and Policy Research has a nice piece critiquing the New York Times' coverage of drug company chicanery. Baker praises the paper for its excellent coverage of the industry's general practices but suggests it fails to cover the economic side of the story it otherwise covers well:

The NYT has done a great job over the last decade uncovering cases where the pharmaceutical and medical supply industries have engaged in unethical behavior to promote use of their products. This usually has meant concealing evidence of potential harm, but they also engage in a wide variety of unethical sales practices that often take the form of kickbacks to doctors for prescribing their products.

What has been largely missing from the NYT coverage is any economic analysis of this issue. As anyone who has ever sat through an intro econ class should recognize, these sorts of abuses are exactly what we would expect when the government gives companies patent monopolies that allow them to charge prices that are far above the cost of production.

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.

"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.

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

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.

We're joining Jeff Chester and the Center for Digital Democracy (CDD) in a complaint to the FTC urging greater scrutiny and possible regulatory action of online advertising and consumer tracking, as reported by the Wall Street Journal, USA Today and San Jose Mercury News today. We'll post more details, including links to the filing and the press release as soon as we file later today. From the Mercury News:

The complaint focuses on the data collection practices that have become routine among giant Internet companies like Google, Yahoo and Microsoft, as well as much smaller Web sites. The Mercury News published a special report on the data collection practices of the largest Internet companies in August that found the companies' privacy policies did not protect personal data from disclosure under certain circumstances.

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."

STATE PIRGs' HIGHER EDUCATION PROJECT

FOR IMMEDIATE RELEASE: September 29, 2006
FOR MORE INFORMATION: Luke Swarthout (202)546-9707
Department of Education: Private Lender Bilking Taxpayers for Billions

Statement of Luke Swarthout, State PIRGs' Higher Education Advocate

"According to a new OIG report released late Friday by the Inspector General (IG) of the Department of Education, private lender Nelnet Inc. abused a student loan loophole to generate $1.2 billion in illegitimate government payments. Through the "9.5% loophole" the company has already been paid $278 million in excess subsidies and stands to receive $882 million more unless the Department steps in. The IG report calls on the Department to stop the payments and repay the outstanding $278 million.

The Department of Education must stop this abuse of taxpayers at the hands of private student lenders. Citizens pay taxes to help students go to college, not to pad the profits of private lenders."
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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-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."

I wrote an unpublished draft of this blog during Congressional hearings this spring, but now that a Washington Post story has made it more timely, here it is:

Tired of the tough competition that credit unions offer, bank trade associations have long run state and federal campaigns to try and force credit unions to pay taxes, or to limit their ability to recruit new members. Lately, though, they've also been running campaigns to convince credit union members into agreeing to convert their charters to a mutual savings bank ownership structure, and to try to pass a bill in Congress that would make deceptive conversions easier. On the banks' side? A few credit union leaders who want to take the money and run.

In a recent Washington Post story, Kathleen Day reports that directors of a local DC-area credit union, Lafayette Federal, are trying to sell members on a conversion "that could give the directors and other top executives a multimillion-dollar windfall." MORE:

The story goes on to point out the following:

In a study of five conversions, the Credit Union National Association, the industry's trade group, says 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. The Lafayette board's lawyer, [Richard S.] Garabedian, was a lead lawyer on many of the conversions.

I was pleased to see that the Credit Union National Association (CUNA) has come out hard on the side of credit union members. (Sometimes, such as in our ultimately unsuccessful 8-year campaign against the bankruptcy law, they are inexplicably on the wrong side.)

In recent Congressional testimony, CUNA opposed legislation that would make it easier for conversions to be completed by undercutting credit union regulator efforts to require a clear disclosure and decisionmaking process before conversions take place.

Unjust enrichment: The CUNA testimony pointed out that some credit union leaders and insiders are suggesting conversions so that they can cash out, or take the money and run, in the form of stock options.

Mr. Chairman, let me make a personal appeal to the Subcommittee to give careful consideration to the issue raised by my last recommendation: the potential for insider enrichment as a motive for credit union conversions. Of the 18 credit unions that converted to mutual savings banks between 1995 and 2004, 16 (89 percent) have undergone subsequent conversion to stock banks or partial stock mutual holding companies. One of two Texas credit unions that converted to mutual charters less than five months ago has already filed notice with the Securities and Exchange Commission of its intent to convert to a stock thrift, with 8 directors dividing at least $1.7 million in stock in the initial stock offering. Credit Union National Association, Inc.

PIRG reports on bank fees have consistently recommended: "bank at a credit union, not at a bank."

Non-profit, member-owned credit unions are an important part of the financial landscape. In addition to the significant benefits they provide their own members in the form of lower loan rates, higher savings rates and lower account fees, their very presence functions as a form of competitive yardstick that prevents banks from raising the fees and charges that they impose on their own customers. Believe me, banks would like to charge more. They would look bad (worse), however, if their loan rates and fees were magnitudes higher than those of the credit unions, though.

Let's hope no more credit union leaders try and deceive their members into letting them take the money and run. If you want to become bankers, then quit, and apply for jobs, but don't destroy your whole credit union. It hurts everyone, bank customers, too, when credit unions become banks. And attempts to weaken credit union governance to make it easier to take the money and run should also be stopped.

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 her Washington Post Consumer Checkout blog, Caroline Mayer talks about her most recent hassle with an airline (Northwest) that charged her an unfair fee (and misled her about it) and how such practices to make "bad profits" may turn around and kick the companies using them in the head, according to a recent book by marketing guru Fred Reichheld. From Mayer:

MORE:

Instead of trying to seek out that extra penny (or $10 per ticket in my case) companies should be trying to earn money by offering better service. Reichheld figures that a 5 percent increase in customer retention could yield a 25 to 100 percent improvement in profits. To achieve customer loyalty, and what Reichheld calls "good profits," companies need to ask their customers only this: "The Ultimate Question...How likely is it that you would recommend this company to a friend or a colleague?" In other words, companies and their employees need to treat their customers as they would like to be treated.

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.

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."

In a powerful straight-talking speech on a variety of issues that are important to him -- from better veterans' preferences in education to the need for the media and the public to not merely criticize the problems but to also recognize our successes and progress in Iraq -- it was significant that Major General Mike Lehnert, commander of Marine Corps Bases (West), spent some time condemning predatory lenders because of their impact on both military families and military readiness. Here's a brief excerpt: MORE:

With our Navy partners we are going after Pay Day Lenders. Pay Day Lenders are the parasites found outside of our military bases in Southern California who prey on young Marines and Sailors because the lenders know they are uninformed consumers.

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.

Check out Jonathan Rowe's new blog entry Agents of Distrust over at On The Commons. He describes how buzz marketing (hiring "cool" people to drive certain cars, wear certain clothes, order certain drinks in bars, or even to read certain books on the subway) poses a real threat:

And when selling spills out of the traditional channels of commerce, and into our personal relationships, then the capacity to have those diminishes as well. All that's left is me. It is the ultimate triumph of the commercial values of the corporate state, because there is no refuge from them.

The New York Times reports that a federal judge is reviewing whether or not the Bush Administration merely rubber-stamped the two massive mergers -- SBC/AT&T and Verizon/MCI that have from a practical standpoint, nearly succeeded in putting Ma Bell back together again. The judge could impose conditions to better guarantee competition. Along with other consumer groups, we opposed the mergers.

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 European Commission's antitrust cops are putting heat on the Mastercard Association over possible anti-competitive practices concerning interchange fees imposed on merchants in its credit and debit card payment networks according to stories in today's New York Times and Wall Street Journal. From the Times:

The commission says that interchange fees on cross-border transactions amount to restrictive business practices because they prevent the banks from competing to offer lower fees to retailers, and indirectly to consumers. "The system could work without these fees," [an official] said.

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.

Although it was not reported widely, on Tuesday, Senate Banking Committee Chairman Richard Shelby asked Fed Chairman Ben Bernanke whether we needed better laws to tell consumers how much credit card debt they are ratcheting up and how long it will take (in months and years, and for some, in eras and eons) to pay it off when they only make the minimum payment. Kudos to Chairman Shelby. From CFO Magazine:

Bernanke, who told senators that the Fed is reexamining the Federal Deposit Insurance Corp.'s consumer-protection rule, Regulation Z, to see that lending fees and terms are fairly represented, was pressed on this point by committee chairman Richard Shelby (R-Ala.). Shelby asked whether the Fed could compel credit-card issuers to include a warning on statements about how long debt would linger if only the minimum payment were made, "Or is legislation necessary?"

After that Senate hearing, a TV news talk show scheduled me to debate a banker on the issue. They called back the next day to cancel. Reason: Even though Washington is awash in financial industry lobbyists and their sundry PR flacks, no banker wanted to talk about excessive credit card debt or deceptive credit card practices. Imagine that.

UPDATE: corrected bad urls 15 Jan 07] (I'll get to credit bureaus and the phone company in a minute, and even access to knowledge and culture and your fair use rights, as a sidebar.) But first you need to know about Johnny Fever and the Phone Police. I've seen a few comments on the big blogs this week referring to the classic "Run, it's the phone police!" episode of the hilarious late 70's-early 80's show WKRP in Cincinnati. The 2006 blog comments are of course in reference to the recent news (see e.g., Does Anyone Have Privacy Left? in the Baltimore Sun) about the phone companies assisting NSA in spying on us. On WKRP, I recall that the phone police were chasing manic deejay Dr. Johnny Fever (played by Howard Hesseman) because he hadn't paid his phone bill. MORE:

The phone police from the show are probably phone company in-house debt collectors. The phone companies always chase down the bills. Of course, the firms have always had a powerful cudgel hanging over their customers' heads, whether or not they ever employ phone police: "Can't pay us? No problem, we'll shut off your phone. Have a nice day."

Now, the phone companies may actually be turning their efficient payment apparatus into a force for the public good. Verizon is beginning to report your regular payment history -- late is bad or on-time is good -- to the credit bureaus, as Gary Haber recently reported in a comprehensive story about Verizon and credit bureaus in the Delaware News Journal. Previously, they only reported extremely negative payment behaviors -- phone shut-offs, sent to collection, etc.

However, it is a complex issue. I hope that the phone company reporting to bureaus will help consumers with thin credit histories. As the Delaware News-Journal reports:

Mierzwinski, a supporter of expanding the information collected on credit reports, said the variable is whether timely phone-bill payments improve credit scores enough to outweigh the risk that late payments will hurt credit scores.

[NCRA does not include the so-called Big Three repository credit bureaus Equifax, Trans Union or Experian as members. Instead, its members include a variety of specialized credit bureaus, including many whose business model actually includes manual labor: such as making actual phone calls to verify files to assist consumers in getting the best mortgage rates. Ask one of the Big Three to make a phone call to check out your dispute. Of course, first you'd need to get someone on the phone, but that's another blog for later!]

Consumer groups, including U.S. PIRG, support broadening the information on credit reports in principle. We supported a successful 2003 effort by U.S. Senator Debbie Stabenow (D-MI) to require a study of common unreported transactions in credit reports. In PIRG-endorsed 2005 Congressional testimony on new credit reporting systems by Margot Saunders of the National Consumer Law Center, NCLC, PIRG and other consumer groups testified that while rental payments were an excellent indicator of creditworthiness and that phone payments probably were, most energy-related utility payment patterns were not, and payments for over-priced predatory loans certainly were not:

Many of the programs devised to protect low income households from shut off of essential utility service do not punish for late payments. Indeed, in some of these programs, additional benefits are triggered only after payment delinquencies. As a result, the utility payment histories for low income households will quite often have little relevance to the issue of whether the consumer would make timely payments if they were able.

We summarized the issues this way in Margot's testimony:

if the new data and scoring systems are built and used appropriately, the potential benefits to consumers are significant. However, because of the way that credit data and scores are being used in the marketplace, if these systems are built incorrectly, or used inappropriately, the danger to these consumers could be devastating.

As a coda to my reference to WKRP, it turns out that talking about WKRP also gives me a chance to talk about copyright and access to knowledge and culture. In my web research of the show, I noticed numerous on-line ads for DVDs of the show's episodes. I'd be wary. Why? I also noted numerous stories, such as this one from Wired News, that said that the cost of "clearing rights" to all the music heard in the show was prohibitive. I don't know if that problem has been solved, or if the music has been replaced on the DVDs-- the Wired story notes that several other old shows that have put on DVD were first modified with new canned background music replacing the original soundtracks. Jaime J. Weinman's blog excerpts a very recent TV Guide interview with WKRP star Loni Anderson that indicates the problem hasn't been solved, so I am not about to buy one of these possibly altered DVDs. In his book, Free Culture, (see page 107 of the pdf online edition) Professor Larry Lessig explains the problem. He describes how John Else delayed release of his documentary movie about the making of Wagner's Ring Cycle due to rights problems. As a review of the book summmarizes:

Lessig provides an example of this with a young filmmaker and teacher, John Else, who was making a documentary about Wagner's Ring Cycle. During one scene the filmmaker was shooting some stagehands playing a board game, and in one corner of the room where filming was happening there was a television set playing an episode of "The Simpsons." When the filmmaker finished the film he attempted to clear the rights for 4.5 seconds of "The Simpsons" and was told by Fox that it would cost him $10,000. As the filmmaker feared being sued by Fox if he claimed "fair use" and couldn't afford to pay for the rights, he ultimately re-edited the film using different footage.

This week New York Attorney General Eliot Spitzer amended his H&R Block lawsuit after announcing he has new evidence that senior management had "steam-rolled conscientious employees who objected to the fact that clients were losing money" on the firm's Express IRAs marketed as an add-on to tax preparation. Also this week, in a speech to the American Bar Association Tax Section, IRS Taxpayer Advocate Nina Olsen generally backed the view of PIRG and other consumer groups that current tax privacy protections are weak, and should be strengthened more than a proposed rule would accomplish. More:

In response to the current interpretation that if a consumer consents, he or she can be sold an over-priced triple-digit APR Refund Anticipation Loan or an under-performing IRA, Olson says:

It is my personal opinion that taxpayer consent to use or disclosure of tax preparation information should be limited to only those instances where it is necessary for tax-related purposes. I believe the regulations should define what purposes are "tax-related." I do not believe that releasing tax return information for purposes of obtaining a Refund Anticipation Loan -- or RAL - is "tax-related." I do not believe that releasing tax return information to a bank --whether affiliated or unaffiliated with the preparer -- in order to obtain an IRA or other retirement account is "tax-related."

Very nice editorial Sunday criticizing payday lenders in the Virginian-Pilot. The newspaper serves a large military population, including Navy bases near Hampton Roads:

Shame for an industry that preys on Virginia's poor and its sailors and soldiers...Shame for legislators who sold out their constituents for a few bucks. Payday companies --concentrated around military installations and in black neighborhoods -- can perfectly legally charge as much as $15 for every $100 borrowed, which amounts to an annual interest rate of 390 percent on a two-week loan...In North Carolina and Georgia, payday lenders were expelled. That's a good start.

Larry Lessig's column Crushing Competition in the May Wired Magazine explains that after California began a successful experiment to allow taxpayers to file their taxes online to the state directly, "lobbyists from the tax-preparation industry began to pressure California lawmakers to abandon the innovation." It's the same battle we're fighting with the Congress, where many members want to ban the IRS from allowing direct filing and instead, want to force consumers to pay tax preparers for the privilege of paying taxes. Our previous blog with our letter to Congress.

Here's our consumer group letter urging the U.S. Senate Banking Committee to reject any extremely anti-consumer amendments to the so-called regulatory relief package expected to be approved in committee today. We remain disappointed that the Congress thinks it is OK to enact massive grab-bag bills sought by the banks and credit unions, without including any pro-consumer provisions. Like Neo stops these bullets from the multiple Mr. Smiths, we hope we can stop all of the worst possible amendments outlined in our letter, especially the proposal by the predatory rent to own boys to override strong consumer laws in the states that protect their consumers best. It will be hardest to stop an expansion of a tawdry relationship that allows debt collectors to send official-sounding letters to consumers who bounce checks for as little as $15 that threaten them with criminal charges. The catch? The threatening letters from the debt collectors are on District Attorney letterhead.

The regulatory relief bill is derived from an original 187-item pick list known as The Matrix. Whatever passes the Senate will be conferenced with the extremely anti-consumer HR 3505, which has already passed the House (previous blog). Free your mind, Congress. Pass pro-consumer bills, not knee-jerk industry relief bills.

Our colleague Jean Ann Fox at the Consumer Federation of America has launched a new website Paydayloaninfo.org with excellent resources for activists seeking to rein in predatory triple-digit APR payday lenders.

The site compares state laws -- the good, the bad, and the ugly -- and includes links to all major fact sheets and reports by a variety of orgaizations. By the way, we recently blogged on how payday lenders prey on military families. Last night's episode of the new military action-drama The Unit on CBS also pilloried payday lenders for their abusive loan-sharking to military families. The message is getting through.

Lynn Sweet of the Chicago Sun-Times has a followup Lame Ethics Bill At Least Exposes Pet Charities to her previous story on the links between U.S. Rep. Bobby Rush (D-IL) and the Baby Bell telephone company SBC/(now AT&T). The PIRG-opposed Joe Barton (R-TX)-Rush bill known as the COPE Act allowing the phone companies to compete with cable contains inadequate protections against price-gouging some consumers and redlining others, will not guarantee adequate PEG and other services to local communities and, most importantly, will allow the cable and phone monopolists to erect tollbooths on the Internet. It could be on the House floor as early as Thursday. See the PIRG-backed coalition site Savetheinternet.com for more info.

And it should. Washington Post reporter Caroline Mayer writes in her blog The Checkout how her husband Gary "won" a so-called coupon settlement, good for $14 off his next two stays at a Starwood resort. What good is a penalty that is virtually worthless to the victim unless you further enrich the alleged lawbreaker? We've written extensively on other bogus coupon settlements negotiated by lazy "consumer" lawyers (previous blog). Class action lawsuits should result in court decisions or settlements that end the illegal conduct and act as a deterrent against others doing the same, should punish the violators and should compensate the victim class, not merely the lawyers. When class action lawsuits fail to achieve these goals, then they merely provide ammunition for the vast class of well-heeled corporate lobbyists seeking to diminish consumer access to justice.

[Update 2/07-fixed old urls] In a story in today's New York Times, G.M. Entangled in Pay-for-Publicity Dispute, Phillip Shenon reports that "A public relations firm has apologized to General Motors after acknowledging that it may have offered money to former Labor Secretary Robert B. Reich in exchange for public comments supporting the automaker's employee buyout program." Before I answer "What's this about payday lenders?" -- here's a few more tricks PR flacks teach: MORE:

TRICKS FROM PR FLACK SCHOOL
1. Change Your Name: When your members make toxic chemicals by the barrel and
don't always use responsible care
, doesn't American Chemistry Council sound a whole lot better than Chemical Manufacturers Association?
2. Get An Astroturf (no grassroots) Front Group: Put "Citizens" and/or "Consumers" in the name, even if there aren't any consumers marching in the streets backing your views. (Common Cause report Wolves In Sheeps Clothing outs the phone companies for this trick.)
3. Create Your Own "Think Tank:" That's what the predatory payday lenders did, after the Pentagon called them loan-sharks and deployed its active-duty generals and admirals, and JAG lawyers, too, against them. When the Pentagon not only aligns in support of an insurgent rebel band of consumer advocates and clergy who've been fighting for years to protect the poor and working class from your unfair, deceptive and usurious practices but also says that your practices have reduced our military preparedness, you've got a PR mess. But you've got enough money saved up from loan-sharking to try to confuse the facts and issues, so you take your PR flack's advice: create a "think tank."

This week that payday-lender backed so-called "think-tank," the Consumer Credit Research Foundation, an "outfit" with "neither offices nor employees," and run by a PR flack for the payday lenders, released a lightweight report by a couple of professors purporting to find (1) that our military personnel are paid pretty damn well and (2) that "There is no principled reason for limiting the access of military enlisted personnel to short-term credit."

Even though there's nothing on the "foundation" site explaining that the foundation is a project created by the payday lenders and maintained by a PR person, it is. At least two of the three board members, investment banker John F. McGlinn II and attorney Hilary B. Miller, have links to the industry. It is run by PR flack Robert Hoopes. Business Week reported recently in its story This Opinion Brought To You By... on how Hoopes took a previous report from the "foundation" and repackaged it into an op-ed, which then appeared in a Capitol Hill newspaper, seemingingly spontaneously, and simply attributed to a professor Tom Lehman:

Sometimes stealth sponsorship of media opinions is more convoluted. Such was the case with economist Lehman's friendly column about payday loans published last June in The Hill, the thrice-weekly paper aimed at lawmakers and their staffs. ... He was identified only as a professor at Indiana Wesleyan in Marion, Ind. But the article's origins weren't so simple. Lehman says he had been paid $1,000 to $2,000 by an outfit called the Consumer Credit Research Foundation to analyze payday loans. The foundation has neither offices nor employees. A phone number on its Web site leads to Washington PR man Robert Hoopes, who says the group is funded by the payday-loan industry. ... "We are funded by the payday-loan industry, and we have always been very up front about that," he says. "Tom's work for the foundation is extremely well known, including in press releases and among his peers."

As for the report's claim that when you add up all the perks, including base housing and that excellent food, our military are paid well, they're not. That's why they take out payday and auto title pawn loans and shop at rent-to-own stores. According to the non-profit Center for Responsible Lending:

In many ways, soldiers are ideal targets for these abusive payday loans. They have a steady income from the government, often with little to spare, at an average of $1,200 per month for new recruits. At deployment time, when military families are faced with extra expenses at home and abroad, they may be more vulnerable to the promise of quick cash from payday lenders.

Anyway, this blog is getting long. Here's a link to a previous blog on predatory lending and the military. Here's another previous blog on how one of the Baby Bell Verizon's main PR firms, Issue Dynamics, for example, established its own in-house fak-o think tank, the New Millenium Research Council. For a link to the definitive academic article on what I call "professors for hire," see The Market for Data: The Changing Role of Social Sciences in Shaping the Law, by Harvard Law Professor Elizabeth Warren in the Wisconsin Law Review.

We don't like it when predatory lenders prey on anyone, but when they cut into the nation's military preparedness by preying on military families, something needs to be done. Congress has a chance to step up here. We'll report in the future on how well they do on Capitol Hill.

[Update: fixed url, 2/07] The Wall Street Journal reports today in Costly Textbooks Draw Scrutiny of Lawmakers (pd. reg. req.) that state and federal lawmakers are taking notice of the Student PIRG Maketextbooksaffordable.com campaign to lower skyrocketing textbook prices, which have risen at twice the rate of inflation, according to the GAO. From the WSJ:

Virginia and Washington have enacted laws designed to make textbooks more affordable, and lawmakers have introduced similar bills in 10 other states.

In yet another story on how the airlines want to squeeze every dollar out of every flight, the New York Times reports that One Day, That Economy Ticket May Buy You a Place to Stand. According to the story, Airbus

"has been quietly pitching the standing-room-only option to Asian carriers, though none have agreed to it yet. Passengers in the standing section would be propped against a padded backboard, held in place with a harness, according to experts who have seen a proposal."

A new survey (report in pdf) by our colleagues at Center for Responsible Lending finds that $7.3 billion of over $10 billion in bounced check fee income comes from repeat borrowers-- just 16% of all people who bounced a check accounted for nearly 3/4 of the revenue.

-- Repeat users are more often low-income, single, non-white renters.
-- Repeat users are in effect using the overdraft loans as an expensive substitute for a line-of-credit, and are paying fees that can be as costly as payday loans.

For years, we have urged Congress to force credit card companies to tell us the truth -- right on our monthly bill -- about how long it will take us to pay off our credit cards, if we only make the requested minimum payment. A study for Senator Daniel Akaka (D-HI) by the Government Accountability Office (GAO) released today finds that over half (57%) of consumers who carry credit card debt (revolvers) want customized disclosures; two-thirds of revolvers (68%) would find these disclosures "very useful." A customized disclosure would change each time a consumer made a payment. Unfortunately, the new bankruptcy law only requires a generic, industry-approved disclosure. We have more information about years to pay here at our truthaboutcredit.org site.

In the New York Times, a recent story The Bank of Mom and Dad by Anna Bahney (free reg. req.) reports on 23-year-old Jason McGuinness and other young recent grads burdened by college loan debts and "flatlined paychecks:"

And like many of his peers -- educated, employed, urban-dwelling young adults -- he [Jason] receives monthly assistance from his parents, in the form of a $300 check and the payment of his cellphone bill.

The Washington Post (free reg. req.) has a column today, The Travel Tab, by Keith Alexander, with accompanying airline comparision charts on the growth of new and higher airline fees for everything, including unaccompanied minors, aisle or exit row seats and even, on Air Canada, for those pathetic pillows.

The highest fees are for extra or overweight bags and for any sort of non-Internet customer service purchase or ticket change, which of course hurts lower-income Americans stuck on the wrong side of the digital divide. Without access to the Internet they are forced to pay more.

The column points out what everyone knows-- that nearly all airlines now charge cattle-class customers for the mysterious cardboard boxes of "food." The column predicts new fees for checking bags, growth in airlines charging fees for aisle seats and a return to a so-far failed experiment in charging for soda.

It's true that the airlines have adopted their "a la carte" pricing scheme for "extras" from the banks (the banks charge for everything except breathing their air) and telephone companies (look at your bill, you have a pay phone in your home).

But the airlines are the longtime pioneers of discriminatory pricing for their basic product-- seats. Where else can you find a product where everyone pays a different price for the same service--getting from here to there? (I am not talking the obvious first class vs. cattle class. Ask the people squashed next to you in cattle class what they paid for their tickets.)

In the general case, charging less for advance tickets fills planes and may benefit everyone, even including last-minute travelers who pay more, because besides filling seats to aid profitability it probably helps put more planes in the air, meaning more seats. And the two products-- a 3-week excursion ticket vs. a last-minute business ticket, can be considered differentiated. But the airlines are pushing the envelope with their grab-bag of new nuisance fees, especially when collecting money here and there slows service and lowers the "quality" of the "in-flight experience," especially when you're experiencing a seatback in your face. (Riding economy is kind of like a comedy bit I saw a few years on TV about riding in an old VW bug, except in an old VW bug, you could at least see through the windshield squashed up against your face.)

Watch closely as price discrimination spreads to other sectors. Is it fair to charge me a different price for the exact same product? Watch out: other retailers, especially on-line retailers, are salivating at the opportunity to charge you more for the same book I buy for less on the same day (not 3 weeks in advance) from the same website, simply because they know more about you (University of Pennslvania's Annenberg Center 2005 report Open To Exploitation). This is possible largely because of information they've collected about you, mostly from invading your privacy, as EPIC points out. Is a transaction where the seller has so much more information than the buyer truly competitive or fair? I don't think so.

Add Los Angeles Times syndicated financial columnist Kathy Kristof to the list of experts exposing the warts on the IRS Free File program. Here's her column filing service riddled with fees as it appeared in the Detroit News (since the LA Times requires free registration). Kathy's lead:

Maybe they should call it "Fee File." The Internal Revenue Service's much ballyhooed online tax filing service -- dubbed "Free File" by its creators -- isn't always free, according to a congressional report issued Friday.

U.S. Senators Chuck Grassley (R-IA) and Max Baucus (D-MT), Chairman and ranking Democrat of the powerful Senate Finance Committee, have begun asking important questions about why many taxpayers cannot file their taxes online for free. More.

The Senators have begun to open the doors on a massive corporate welfare program known as "Free-File," which is only free for lower-income taxpayers (but exposes them to sleazy, expensive add-on product pitches) and forces others to ante up to comply with one of government's most forceful requests: paying taxes. In Mary Dalrymple's Associated Press story:

"All the forms and instructions are free, so why do we force taxpayers to pay a preparer or buy software to file electronically?" Baucus asked. "Taxpayers don't have to go to a bookstore and buy forms to file a paper return."

Taxpayers who use the "Free File" online tax return preparation services offered by private vendors in partnership with the Internal Revenue Service often are confronted by surprise fees, expensive add-ons, loan solicitations and other marketing pitches, an analysis by the Senate Finance Committee has found.

Mr. Everson's boss, Treasury Secretary John Snow, also strongly opposes IRS involvement in tax preparation, which he says would be a conflict of interest. "We aren't tax-preparation people," he told Congress earlier this month. "We're not software-development people. There is a private market out there that does that and does it well."

"The conduct described in today's complaint is particularly appalling because many of those hardest hit were working families who struggle to save," Spitzer said. "Instead of providing these families with accurate information that would have allowed them to make informed choices, H&R Block steered them into retirement accounts that actually shrank over time."

Of course, there are numerous other examples of private companies feeding at the government trough. Look at the Bush Administration's new prescription drug benefit for our seniors-- the federal government is prohibited from negotiating with the prescription drug industry for better deals, while the new drug benefit health insurance sector established by the legislation virtually guarantees profits for the companies that are supposedly competing in the marketplace. And how about self-serving legislative efforts by the phone and cable companies to restrict municipal governments from competing for wifi? The list goes on. And this blog is getting long, but we'll have future posts about several proposed bills that appear to be written by and for the tax preparers.

The April issue of PIRG's new newsletter, Preemption Alert, is available. Excerpts from the highlights: Protecting America's Food Supply: On March 2, over the objections of 39 Attorneys General, the House passed the National Uniformity for Food Act, which preempts at least 200 state food safety laws. Securing Chemical Plants: In a March 21 speech to the American Chemistry Council, Homeland Security Secretary Michael Chertoff signaled his support for weak federal safety standards for chemical plants and federal preemption of stronger state standards. Protecting Americans' Privacy: On March 30, the Senate Commerce Committee marked up a weak bill to protect consumers from those who seek to fraudulently access their phone records. This bill broadly preempts stronger state privacy laws or regulations as well as any laws imposing liability on companies for failing to protect consumer privacy. Providing Quality and Affordable Health Care: On March 15, the Senate Health, Education, Labor and Pensions Committee passed a bill allowing insurance companies or HMOs to circumvent state patient rights laws.

Internet and broadband visionary Jeff Chester of the Center for Digital Democracy has a new blog. He's got a nice piece on AT&T setting up a front group to kill Congressional efforts to keep the Internet free and its hiring of former Bill Clinton frontman Mike McCurry to front for them. Jeff forcefully makes the point that McCurry's work for AT&T is against the interests of many of the current or past grassroots clients of his other enterprises, including the ACLU, Sierra Club, Campaign for Tobacco-Free Kids, and MoveOn. More:

AT&T/SBC has made no secret that it wants to hijack the Internet, set up tollbooths and eliminate all pretense of its Net Neutrality principle that has helped stimulate both technological innovation and small-d democratic communication by citizen groups. As Jeff Chester points out:

Ironically, McCurry's work on behalf of AT&T will ultimately harm many of the non-profit and public interest clients who work with Grassroots Enterprise and the Public Strategies Group. Among the clients listed at McCurry's various firms include the ACLU, the Campaign for Tobacco Free Kids, Sierra Club (MoveOn.org is listed on Grassroots Enterprise website claiming that the firm's leadership team played a key role with the group).

If McCurry's "coalition" has its way, there will be a threat to civil liberties as a few control the Internet (hello, ACLU); more targeted ads promoting unhealthy lifestyles targeted to kids (please take note, Tobacco-Free Kids); an explosion of commercialism and consumption that will further wreck the environment (the Sierra Club and other such groups should be outraged); and an Internet where only big bucks will ensure you can sway voters (which should alarm MoveOn and all other groups concerned about the future of the Internet in politics).

Set your VCRs or get up early. I'll be appearing on Squawkbox on CNBC tomorrow (Monday morning) at a few minutes after 6 AM Eastern time to discuss our opposition to Wal-Mart's application to the FDIC to open a bank. I'm testifying Tuesday morning before FDIC. More.

Wal-Mart apparently has the backing of the Salvation Army and of the American Financial Services Association, comprised mostly of sub-prime lenders. We are joined in opposition by unions, retailers, other consumer and community groups and most bank trade associations. Oh, and the Federal Reserve. Wal-Mart's application violates long-standing principles of banking law that commerce and banking should not mix. Recent corporate scandals show the serious risks involved in allowing any commercial entity to own a bank without significant regulatory scrutiny at the holding company level. Wal-Mart will argue that other commercial firms have used the loophole it plans to exploit, so what's the problem? The problem is simple: Wal-Mart makes the threats to the financial system posed by those loophole exploiters worse, not better. Wal-Mart's not a category-killer, it's a category onto itself. I will post our testimony with more details tomorrow night. More background here.

{Update-corrected internal URL, Nov 2006] Professor Arthur Wilmarth of George Washington University School of Law, one of the nation's leading scholars on banking law and the relationship between state and national bank regulation, has a new scholarly article OCC v. Spitzer: An Erroneous Application of Chevron That Should Be Reversed in BNA's Banking Report. If Professor Wilmarth's view, which we share, is upheld on appeal, one of the chief building blocks behind the Office of the Comptroller of the Currency's massive power grab in 2004, when it issued wide-ranging rules eliminating state consumer protection enforcement authority over national banks and even their state-licensed operating subsidiaries, will begin to crumble. Professor Wilmarth argues that the reasoning of the District Court will wrongly allow the OCC "to expand its jurisdiction, and to alter the balance of federal-state authority, without any clear expression of supporting congressional intent." His article also discusses three similar wrongly-decided OCC cases. He has graciously granted permission for us to post the piece on our website. More:

In OCC v, Spitzer, the Office of the Comptroller of the Currency, an obscure but powerful federal bank regulator, as we note on a special website, OCCWatch, that tracks its activities, successfully challenged New York Attorney General Eliot Spitzer's authority to even investigate possible discriminatory practices by national banks. OCC, as it often does, acted in concert with a group of large financial institutions. In this case, OCC had the back of its patrons at the Clearinghouse, which had filed a parallel case.

The article's title reference to Chevron refers to an important Supreme Court standard from the 1984 case Chevron v. Natural Resources Defense Council describing when a court should rely on, and show deference to, an administrative agency's interpretation of the law. In the article, Professor Wilmarth raises significant Constitutional questions about the ruling. He argues that agencies aren't supposed to get deference for their purely political decisions, nor on matters of preemption, nor, more broadly, should they get deference when Congress has not clearly granted them authority:

The reasoning of the District Court--and of three other federal courts that recently upheld another OCC preemptive rule--suggests that the OCC can rely on Chevron deference as a sufficient basis to expand its jurisdiction, and to alter the balance of federal-state authority, without any clear expression of supporting congressional intent. The Supreme Court's recent decision in Gonzales v. Oregon, which rejected a similar, open-ended claim for deference by the United States Attorney General, makes clear that all four decisions are based on an erroneous understanding of Chevron.

the OCC's regulation should be rejected for the same reason that the Supreme Court struck down the United States Attorney General's interpretive rule in Gonzales v. Oregon--namely, that the regulation conflicts with the "ordinary meaning" and "commonsense" application of the governing statute.