Tag Archives: Consumer Financial Protection Bureau

You Aren’t Seeing Double, House GOP tries again to block DoD predatory lending rules

Pay Day Lending Shark We don’t really pay members of our Armed Forces all that much.  A quick visit to the Defense Department’s finance section shows that a recent enlisted person (2 years or less) gets $1,546.83 in basic pay. A person at E5 status can expect $2,202.90 per month.  Twenty years of service topping out at the E9 category yields $5,730.41 in basic pay.  Those rare souls who last 40 years are looking at $7584.60. There are some added bonuses – not exactly extraordinary – for clothing allowances,  there are also allowances for hardship duty pay, assignment incentive pay, and hazardous duty incentive pay (as if the whole idea of being in the military weren’t intrinsically hazardous).  There are retention bonuses for medical, dental, and veterinary personnel.  Proficiency in foreign languages will also merit some extra pay.  But, no matter how many times the figures are totaled the pay still doesn’t place any member of the services in the lap of luxury; not anywhere close.

This is why the following bit of news is especially disturbing:

“The military has been grappling with the financial impact of predatory lending on service members for years. In 2006, Congress passed legislation cracking down on some forms of high-interest credit, particularly payday lending. Lenders responded by exploiting loopholes in the law, and late last year, the Department of Defense proposed a new set of regulations designed to curb these creative workarounds that target troops.”  [HuffPo]

Worse still, this is the second time the House Republicans have tried to block the Department of Defense efforts to control predatory lending to military members and their immediate families.

“Republicans have been working to kill those regulations before they can take effect. This week, Rep. Steve Stivers (R-Ohio) will offer legislation that would block DOD from finalizing its rules until a host of unrealistic technical certifications could be made for a database of active-duty military members. The House will vote on Stivers’ plan as an amendment to the National Defense Authorization Act, a major bill that establishes military funding.” [HuffPo]

Why all this effort to block Defense Department rules meant to contain the scourge of predatory lending to members of our Armed Forces?  And, why all the GOP fussing about the Consumer Finance Protection Bureau?  One example unearthed by the CFPB in its report on predatory loans to military personnel may serve to illustrate the issue:

“A lender licensed under the Illinois Consumer Installment Loan Act extended an auto title loan to the spouse of a servicemember at an APR of 300 percent. For the 12-month contract term, the $2,575 loan, including a $95 lien fee, carried a finance charge of $5,720.24. The loan agreement provided the lender with a security interest in the borrower’s vehicle and contained a binding arbitration agreement. Although the Military Lending Act prohibits lenders from taking a non-purchase money security interest in the vehicle of a borrower covered by the law, charging a rate of interest in excess of 36 percent, and requiring covered borrowers to submit to arbitration, the auto title loan in Illinois was not subject to the protections of the Military Lending Act because it had a duration longer than 181 days.” [CFPB pdf]

And there’s another loop hole for the predatory lenders demonstrated by this example:

“An internet-based lender located offshore that targets military borrowers through their marketing extended to a servicemember a line of credit with an APR of 584 percent. In addition to the stated finance charge, the lender charged a “credit access fee” and a “transfer fee” for each draw on the $1,447 credit line. The contract provided the lender with authorization to debit the borrower’s bank account for the minimum payment due each payment period. This loan made to a borrower in Delaware was not subject to the protections of the Military Lending Act because it was structured as an open-end line of credit.”  [CFPB pdf]

There were more, equally egregious, examples provided by the Consumer Financial Protection Bureau report.

Representative Stivers has been the beneficiary of $42,500 in campaign contributions from pay day and predatory lenders.  Rep. Jeb Hensarling (R-TX) took in $65,500; Rep. Kevin Yoder (R-KS) received $53,257; Rep. Patrick McHenry (R-NC) received $41,200; and Rep. Kevin McCarthy (R-CA) received $32,500. [OPSecrets]  Rep. Joe Heck (R-NV) received $6,700 in donations from pay day and predatory lenders. [OPSecrets] Predatory lending accounted for $190,150 in contributions to Democrats, and $748,585 in donations to Republicans in Congress. [OPSecrets]

However, no matter how generous the donation, there is no ethical or moral way to justify blocking protections for members of the U.S. Armed Forces from the practices mentioned above on the part of predatory lenders.  The White House was quick to respond:

“On Monday, in response to reporters’ questions, White House spokesman Josh Earnest called the potential addition to the annual authorization bill a significant concern for President Obama.

“It’s almost too difficult to believe that you’d have a member of Congress looking to carry water for the payday loan industry, and allow them to continue to target in a predatory fashion military families who in many cases are already in a vulnerable financial state,” he said.

Earnest said he “can’t imagine (the amendment) earning the majority support in the United States Congress.” [MilitaryTimes] [The Hill]

Representative Joe Heck (R-NV3) didn’t cover himself in glory the last time this subject emerged [Desert Beacon] one can only hope he’s seen the light since and will oppose the Stiver’s Amendment.  At best he can avoid some of the more lame excuses offered by the proponents of this amendment.

Stivers is anxious to tell everyone that he was a member of the military for 30 years – so he cares!  And that the Obama Administration doesn’t have a good track record of getting systems going on  ‘day one’ noting the computer problems with the health insurance rollout. [TheHill]  The “I care” argument is specious if not associated with legislation the intent of which is to protect those about whom one “cares.”  Secondly, it is a rare policy indeed which works perfectly the first day – in the public or private sector. in this instance the Representative is making the Perfect the enemy of the Good.

There’s another excuse which needs rehabilitation: “Rep. Mike Conaway (R-Texas) added, “I would quickly point that there are always unintended consequences,” citing concerns of “drying up sources of credit for folks at  the bottom end of the economic scale.” [TheHill] “Concerned” is getting to be one of the words commonly connected to opposition to any policy or legislation which might help someone.  The question is: Are you more concerned about payday lenders being forced to shave a bit from their profits than about enlisted personnel and young officers being shaved by the pay day lenders?

As for pay day lending drying up any time soon, probably not.  In March 2013 the Washington Post reported on some big banks who were treading into the shark pool of pay day lending.  By April 2013 the FDIC and the Comptroller of the Currency were looking at the banks’ payday lending practices. [NYT]  The spotlight must have been a bit too bright because by January 2014 the larger banks were dropping the pay day loans and trying to find options which “fit within current regulatory expectations.” [CNNMoney]  However, the banks were still selling account data to pay day lenders until January 21, 2015. [Bloomberg]  And, nothing prevents the major banks from financing the operations of “independent” pay day lenders. [ConsAffairs]

While the big banks may have scurried back out of the light, the payday lending industry continues along,

“Currently, there are about 22,000 storefront payday loan stores nationwide, according to the Consumer Federation of America in Washington, D.C. On average, the industry makes $40 billion in loans and collects $6 billion in finance charges from borrowers each year.” [Bankrate]

There are alternatives.  For example: (1) Credit Union loans; (2) Small bank loans; (3) Credit Counseling assistance; and (4) options like credit card advances and credit negotiations. [Bankrate]   Representatives Heck, Stivers, and Conway would be better advised to promote the efforts of the Services to provide credit counseling and information to members of the military and their families.  The Army Community Service offers a Financial Readiness Program for those who need basic financial information and education.  The U.S. Navy offers training in Personal Financial Management.  The Air Force has its own Financial Readiness Program, and the Navy and Marine Corps oversees a Relief Fund for urgent financial needs along with caseworkers to assist personnel.

Promoting financial education, and providing services for urgent and emergency needs is a far better way of assisting our service members than protecting the pay day lenders who extend usurious loans to those who are at the “bottom end of the economic scale.”

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Filed under Defense Department, Military pay, Republicans, troop pay

They’re Back: Banks, SLABS, and the Opponents of Dodd Frank

bankerThere are several reasons the Banker’s Boys in the U.S. Congress would like to rip the guts out of the Dodd Frank Act.  There’s a reason they fought the creation of the Consumer Finance Protection Bureau, and more reasons why the 113th Congress has tried to grab control of the agency, strip the agency of funding, or otherwise make the Bureau a hollow shell of protective camouflage for the bankers.  Here’s one of those reasons:  The Securitization of Student Debt.

Flashback: On August 29, 2012 the Consumer Finance Protection Bureau issued a report on student debt. (pdf)  One section of the Executive Summary contained information which ought to have triggered some alarms:

“From 2005–2007, lenders increasingly marketed and disbursed loans directly to students, reducing the involvement of schools in the process; indeed during this period, the percentage of loans to undergraduates made without school involvement or certification of need grew from 18% to over 31%. As a result, many students borrowed more than they needed to finance their education. Additionally, during this period, lenders were more likely to originate loans to borrowers with lower credit scores than they had previously been. These trends made private student loans riskier for consumers.”

Sound familiar? Have some of the tonal qualities of the Subprime Mortgage Debacle? Over-extending credit, to the less credit worthy, placing them at greater risk of default, and doing it during the Great Housing Bubble?

Flashback 2005: Indeed, by 2005 there was a new bit of jargon in the world of fixed income investments — SLABS, or Student Loan Asset Based Securities.  The definitions can be illustrated by this information from one part of the securities industry:

“Student Loan ABS (SLABS) can be appealing to fixed income investors because they offer high credit quality, credit stability, and low spread volatility. SLABS backed by federally reinsured loans command tight spreads, in roughly the same range as deals backed by credit card receivables or auto loans. SLABS backed by other loans (so-called “private” student loans) command somewhat wider spreads, reflecting incrementally greater perceived credit risk.” [Nomura 2005 pdf]

Not to oversimplify too broadly, but there it was in 2005, a description of asset based securities (packages of student loans securitized into financial products) divided into two parts, the products based on guaranteed student loans and the less secure private student loans.  Note, please, that the advice on offer in this report doesn’t apply to the students who took out the loans — it is advice for “fixed income investors.”

Have we mentioned, at least a gazillion times, that one man’s debt is another man’s asset?  And so, the student loans were packaged (just like the home mortgages) by such dealers as Nelnet Student Loan Trust, Sallie Mae Student Loan Trust, Northstar Education Finance, Collegiate Funding Services, Access Group Inc., Education Funding Capital Trust, College Loan Corporation Trust, and others. [Nomura 2005 pdf]  Here we meet our old friend, the Tranche.

“A piece, portion or slice of a deal or structured financing. This portion is one of several related securities that are offered at the same time but have different risks, rewards and/or maturities.”

Perhaps it was that SLABS were sold as somehow being “safer” investments than their home mortgage cohorts, and maybe safer than the consumer credit securitized assets.  After all, the borrower couldn’t walk away from a student loan in most instances.  What could go wrong?

Flashback 2012:  What, indeed, could go wrong?

“Meanwhile banks have been slicing and dicing student loans into derivative financial instruments called “SLABS” — student-loan asset backed securities. We’ve seen this movie before — the one where big banks mass-market loans to a population with stagnated wages and dwindling economic prospects, then bundle them and sell them to investors who haven’t reviewed the way they were underwritten and sold.” [Eskow, HuffPo]

And, it all worked really well … until it didn’t.  There are those “derivative financial instruments” (read financial paper products) again, and again, and again.  In the wake of the derivative debacle of 2007-2008 the financial sector did some belt tightening and the CFPB was able to report underwriting and marketing changes which were far more responsible.  Additionally, the CFPB ‘autopsy’ of the student loan situation revealed some of the previous practices associated with economic issues:

#1. Some of those who took out private student loans did not understand that they had fewer repayment options than if they had assumed Stafford loans.  This sounds remarkably similar to the mortgage sales which didn’t quite lead to an understanding  about balloon payments, interest rate changes, etc.

#2. The private student loans were most commonly sold to people who were attending for-profit institutions.  While private loans were taken out by only 14% of the total undergraduates, students at for-profit schools held 42%.

And, to make matters even more murky, many of the loans were tied to LIBOR, which was perhaps not as above the board as one might have assumed before 2008. [TP]

July 28, 2014: If a person were thinking the provisions of the Dodd Frank Act, and the activities of the Consumer Financial Protection Bureau may have put more than a damper on the financial sector proclivity to create ways to peddle paper in order to create more ways to peddle paper — please think again.

Enter So-FI, Lending Club, and Prosper. “SoFi’s niche is refinancing student loans. But not just any loans. The kind of schools that are most represented in the program are selective colleges like Harvard, New York University and Northwestern. Their alumni provide the money — The students must also have a job lined up after graduation.” [CNN]  But wait, here comes the packaging. Compliments of Eaglewood Capital which securitized loans from Lending Club.

This time is slightly different. Did we notice that the packaged loans aren’t from the for-profit educational sector? Or, that most undergraduates won’t get re-financed via this new securitization scheme?  Low risk, coupled with above average returns and who might be interested in this newly peddled paper?  If you’re thinking we have the rich bailing out the rich for the benefit of the richer, the conclusion might be close to the target. Fitch explores the prospects:

“In our view, most future securitizations are likely to be concentrated with large non-bank servicers, who are also the traditional FFELP buyers. Of the 13 Fitch-rated FFELP deals that closed in first-half 2014, 10 were issued by Navient Corporation, Nelnet Inc. and the Pennsylvania Higher Education Assistance Agency (PHEAA). As some portfolio acquisitions include servicing transfers, we believe some small NFPs could experience lower account volume and profitability. These servicers are already facing sustainability issues, as some may not have the scale to weather the pressures brought by the Budget Control Act of 2011 and the termination of FFELP. They may also be pressured in the near term by rules proposed by Congress that would establish a common set of performance metrics, incentive pricing for servicers and allocate accounts to NFPs that meet the requirements.” [Reuters] *NFP = not for profit servicers

Those major players from 2008 (Nelnet, PHEAA, etc.) are still playing, and some of the newer participants in the game may not be so profitable in the long run because someone might be watching over their shoulders. “Under a law that took effect in March 2010, the government stopped making student loans through private companies that funded themselves in the market. The government now issues loans directly. Lenders sold $20 billion of student-loan securities last year, down from $62.2 billion in 2005, according to Wells Fargo.” [BloombergNews]

The good news may be that there is less Casino Activity among the bankers in the securitization of student loans, or the creation of SLABS. The bad news is that the bankers are going full bore to get rid of those pesky regulations and the CFPB which serve to put a lid on the Bubble Behavior of the recent past.

The July 23, 2014 session of the House Financial Services Committee took testimony from all the usual suspects on “Dodd Frank: Four Years Later.”  Rep. Hensarling’s Committee heard from the CEO of First State Bank, a partner in Treasury Strategies, an FMC representative on behalf of the Coalition of Derivative End Users, and a ‘resident scholar’ of the American Enterprise Institute.  The counter-balance? Former Representative Barney Frank.  The AEI testimony is instructive, [Pdf] if predictably repetitive.  A summary:

Regulation creates uncertainty, discourages investor due diligence, increases regulatory burdens, gives too much power with too little Congressional oversight, promotes a ‘naive strategy for promoting financial stability, and doesn’t solve the Too Big to Fail problem.

There is nothing new here, merely the recital of every anti-regulation talking point since the dawn of time.  However, redundant as the arguments may be, the  Republicans in the House of Representatives would very much like to repeal the Dodd Frank Act.  During the 112th Congress H.R 87, H.R. 1062, H.R. 1539, H.R. 1082, H.R. 1610, H.R. 1573, H.R. 1121, H.R. 1315, H.R. 836, H.R. 1223, @. 746, and  S. 712 were all introduced intending to either repeal or diminish the regulations in the Dodd Frank Act. In the 113th Congress, H.R. 46 is an outright repeal bill coming from Rep. Michele Bachmann (R-MN) Rep. Ted Yoho (R-FL) and Rep. Adrian Smith (R-NE)

The prospect of a wholesale repeal is dim, but not the notion that the statute could be ‘nibbled to death by ducks.’ [Hill]  House Republicans did manage to get one bill passed in June 2013 to restrict SEC and CFTC rule making capacities — arguing ironically that the agencies had 3 years to get the rules done and had not made enough progress — in the face of nearly overwhelming stalling tactics by financial sector interests and their litigators.

While the CFPB attempts to alleviate the more obvious abuses perpetrated by unscrupulous or unethical lenders, and issues annual reports (most recent 2013) noting that there were 3,800 consumer complaints about student loans, 87% of which were directed at 8 companies. The House Republicans persist in attempts to subject the agency to Congressional micro-management, if not outright dissolution.

We should expect the mid-term election rhetoric to mirror the testimony of the AEI in the most recent House Financial Services Committee hearing.  The Dodd Frank Act will be attacked “in general.” It’s reasonable to predict much will be made of the Too Big To Fail Argument, as if the consolidation of the financial sector is a function of federal statute rather than processes associated with the cyclical nature of financial enterprises.  It will be attacked as “too burdensome” for small banks.  It isn’t. It will be attacked as “big government.” Any attempt to reign in the Bankers will always be so characterized.

What opponents of financial regulatory reform won’t discuss is how the Consumer Financial Protection Bureau is attempting to guide the lenders and by extension their secondary markets into the construction of a more equitable, operable, less volatile, and more sustainable student loan sector.

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Filed under Economy, financial regulation, Politics

Not So Safe, Not So Sound: Amodei, Heck and H.R. 3193

Occupy Wall Street bankersRepublicans have never liked the Consumer Financial Protection Bureau.  Nor have the members of the Republican Party in the House of Representatives stopped trying to find ways to gut the powers of the Bureau.  A voted taken on February 11, 2014 is an indication of that opposition.

H.Res. 475: “Providing for consideration of the bill (H.R. 3193) to amend the Consumer Financial Protection Act of 2010 to strengthen the review authority of the Financial Stability Oversight Council of regulations issued by the Bureau of Consumer Financial Protection, providing for proceedings from Feb. 13, 2014 – Feb. 24, 2014.” [rc 59] (223-193) Representative Joe Heck (R-NV) voting in favor of the bill; Representatives Dina Titus (D-NV) and Stephen Horsford (D-NV) voting in opposition.

And what would H.R. 3193 do?

(1) “Amends the Consumer Financial Protection Act to authorize the Chairperson of the Financial Stability Oversight Council to issue a stay of, or set aside, any regulation issued by the Consumer Financial Protection Bureau (CFPB) upon the affirmative vote of the majority of Council members (currently, two-thirds), excluding the Director of the Bureau.”

In short, any and all regulations issued by the CFPB could be “stayed,” or dismissed on the vote of only a simple majority of the FSOC.  Nothing like making it easier for the banking lobby to get pesky consumer protection rules set aside by reducing the number of votes on the FSOC from 2/3rds to a simple majority?

(2) “Requires the Council, upon the petition of a member agency of the Council, to set aside a final regulation prescribed by the CFPB if the Council decides that such regulation is inconsistent with the safe and sound operations of U.S. financial institutions. (Currently the Council is merely authorized, upon petition, to set aside a final regulation if it would put the safety and soundness of the U.S. banking system or the stability of the U.S. financial system at risk.)” (emphasis added)

Now we get to the meat of the matter. What is “safe and sound” and why is it not so safe and not so sound?  First and foremost — “safe and sound” is a shorthand term for PROFITABILITY.

In short, what the House Republicans are proposing is that any regulation issued by the Consumer Financial Protection Bureau which impinges on the PROFITABILITY of a lending institutions can be dismissed upon the “petition” (read ‘gripe’) of a member agency of the council — including the Comptroller of the Currency, an agency which did not exactly cover itself in glory during the time prior to the collapse of the financial markets in 2008.   But wait… H.R. 3193 is even a greater boon to the bankers.

(3) “Repeals: (1) the prohibition against Council set-aside of a regulation after expiration of a specified time period, and (2) mandatory dismissal of a petition if the Council has not issued a decision within such time period. Requires the CFPB Director, when prescribing a rule under federal consumer financial laws, to consider its impact upon the financial safety or soundness of an insured depository institution.”

There’s no time limit.  There’s no ‘statute of limitations’ after which the FSOC can declare a regulation made by the Consumer Financial Protection Bureau null and void?  Again, the old profitability test comes to the fore.

So, once more with feeling — Representative Joe Heck (R-NV) has voted in favor of a bill which would allow the banking sector to put the kibosh on any CFPB rule which might jeopardize the PROFITABILITY of a bank.   This, from a Representative of a state with the second highest foreclosure rate in the country — 1 in every 533 homes — where the national average is 1 in every 1,058. [LVRJ]  Not to mention the fact that the Nevada Attorney General just settled with Lender Processing Inc. over the ‘robo-signing’ mess created in our mortgage market. [News4]

Nothing says “I love you” to the financial sector more than saying, “Don’t worry about that pesky CFPB, the FSOC can overturn, dismiss, or stay any regulation which puts a crimp in your Safety and Soundness Profitability.

But Wait the GOP isn’t Quite Finished!

“H.R. 3193 makes necessary reforms to an unaccountable Consumer Financial Protection Bureau (CFPB). Specifically, the bill replaces the existing director who has sole responsibility for carrying out the CFPB’s mission with a Commission comprised of the Fed’s Vice Chair for Supervision and four members appointed by the President, with the advice and consent of the Senate.” [GOP HR 3193]

So, we would have an agency without a director — instead ‘governed’ by a committee, the members of which are subject to filibusters by the U.S. Senate.   It took ‘only’ two years to get the Senate Republicans to stop blocking the appointment of one director [HuffPo], imagine how much time could be consumed trying to get four commissioners selected, nominated, and confirmed?

“The bill eliminates the CFPB’s current exemption from the budgetary process and subjects the CFPB to the regular authorization and appropriations process.[2]  It also reins in CFPB salaries by requiring the CFPB to pay its employees according to the GS pay scale like other federal agencies.”

That second part is a nice touch, however it translates to putting the funding of the CFPB under Congressional control.  The CFPB is outside the Congressional claws and inside the protection of the Federal Reserve so that its education and enforcement missions are NOT subject to the whims of Congressional winds.

Once again, nothing says “I Love Bankers” more succinctly than allowing their allies in Congress to jam up the leadership of a regulatory agency and to let Congress bring enforcement to a halt by chopping the agency’s budget.

And… Representatives Joe Heck (R-NV) and Mark Amodei (R-NV) are  all for this?

On February 27, 2014 at 6:39 p.m.  Representatives Amodei (R-NV) and Heck (R-NV) voted in favor of the passage of H.R. 3193 [rc 85]  Representatives Horsford (D-NV) and Titus (D-NV) voted against this latest assault on the Dodd Frank Act provisions.

Background Information: Apuzzo, Bush Administration Weakened Lending Regulations, HuffPo, December 2008.   “Speed Kills,” Desert Beacon, December 16, 2011.  CFPB not out of the woods yet, WaPo, February 27, 2014.  “Cordray Confirmed,” HuffPo, July, 2013.   CFPB, Mission and Budget, 2014.

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Filed under banking, consumers, Economy, financial regulation, Politics

An Amen Chorus: Nevada Doesn’t Need H.R. 6139

Nor does any other state!  H.R. 6139 is a bill in the U.S. House of Representatives which would give predatory lenders all the latitude they need to put consumers on a debt treadmill at infinite cost to the consumer and almost limitless benefit to the lenders.  How this directly affects very real Nevadans is the topic of a MUST READ article by J. Patrick Coolican in the Las Vegas Sun.

After cringing at the descriptions in the article about what predatory lenders do to desperate customers, more gasps might be in order as we look deeper into what the bill would actually DO.

The Congressional Research Service summarizes part one of the bill:

“Requires a qualified nondepository creditor seeking a federal charter to submit an application which includes in part: (1) a business plan for at least a three-year period with its primary business activities serving underserved consumers and small businesses; (2) a market demand forecast, the intended customer base, competition, economic conditions, financial projections, and business risks; (3) a marketing plan that describes the types of financial products or services such creditor intends to offer; and (4) adequate capital structure.” (emphasis added)

Those two words, “federal charter,”  are the crucial part of the matter.  H.R. 6139 would allow predatory lenders to fall under the jurisdiction of the Comptroller of the Currency — the agency that supervises federally chartered banks.

What’s missing? State consumer protection laws — which the newly minted “federally chartered” lenders could circumvent by shuttling under the OCC jurisdiction.   Nevada has placed restrictions on predatory lending under the provisions of NRS 604A since 2007.  Section  NRS 604A.420 should be of additional interest: It prevents predatory lending to members of our Armed Forces, which would include Creech AFB in Indian Springs, NV; Nellis AFB in Clark County, and the Fallon Naval Air Station.   The state provisions define “high interest lending,” and prohibit making loans which amount to more than 25% of the individual’s gross monthly income.

By allowing the predatory lenders to slither under the OCC umbrella the bill would also protect them from oversight by the Consumer Financial Protection Bureau.

In its “Snapshot Report,” October 10, 2012 (pdf) the CFPB summarized the complaints it has received in regard to banking practices:

“Approximately 10,300 (86 percent) of bank account and service complaints have been sent by Consumer Response to companies for review and response. The remaining bank account and service complaints have been referred to other regulatory agencies (11 percent), found to be incomplete (3 percent), or are pending with the consumer or the CFPB (5 percent). Companies have already responded to approximately 9,800 complaints or 95 percent of the complaints sent to them for response. The median amount of monetary relief reported was approximately $105 for the approximately 2,500 bank account and service complaints where companies reported relief. Consumers have disputed approximately 1,900 company responses (20 percent) to bank account and service complaints.”

Thus we have a relatively new agency which has already received and processed some 10,300 consumer complaints, 1,900 of which are still unresolved.  This doesn’t sound like all the lending industry members are yet practicing “safe lending.”

The second major section of the bill is summarized by the CRS as follows:

“Directs the Comptroller to: (1) ensure that Credit Corporations focus their business operations primarily on providing underserved consumers a variety of affordable and commercially viable financial products or services, including some that facilitate personal savings and enhance the credit record of such consumers; (2) facilitate business partnerships among Credit Corporations, insured depository institutions, other nondepository creditors, third-party service providers and vendors, and nonprofit organizations in order to ensure greater credit access for underserved consumers and small businesses; and (3) examine and supervise the Credit Corporations.” (emphasis added)

Who are those “underserved consumers?” Many of them, as reported by Mr. Coolican, are in Nevada:

“Nevada leads the nation in the percentage of residents who are “underbanked” — meaning they have some sort of bank account but also resort to high-interest loans from nontraditional lenders to make ends meet. In theory, a borrower uses these services to tide him or her over until the next paycheck because he or she doesn’t have access to a bank loan or credit card. One-third of Las Vegas Valley residents use these services.” (emphasis added)

Riding the tide until the next paycheck could be a problem for those who would be at risk of being “sold” a pay day loan greater than 25% of their gross monthly income should that protection by the State of Nevada no longer be available to them.  Nor could these “underbanked” individuals and families count on the State to protect them from pay day lenders who want to issue multiple loans.

And Nevadans aren’t alone, although 7.5% of Nevada households are unbanked, and another 31.2% are underbanked.  This, as Coolican notes, puts  us in the Dubious Category of Number One in the Nation in underbanked persons.  [FDIC pdf]  8.2 percent of US households are unbanked. This represents 1 in 12 households in the nation, or nearly 10 million in total.  20.1 percent of US households are underbanked. This represents one in five households, or 24 million households with 51 million adults. [FDIC pdf]  Which brings us to the part of the bill which is supposed to make us feel better.

“Requires Credit Corporations to make available to each consumer to whom a financial product or service is being offered: (1) information on how a consumer may obtain financial counseling services, the benefits of following a regular personal savings program, and how consumers can improve their credit ratings; (2) disclose clearly and conspicuously in the loan agreement the true cost of the loan, including all interest, fees, and loan related charges; and (3) offer an underserved consumer who is unable to repay an extension of credit with a loan repayment term of less than 120 days, an extended repayment plan, at no cost to the consumer, at least once in a 12-month period.”  [CRS]

Not. So. Fast.  The Center for Responsible Lending research found that —

“Although marketed and advertised as a quick solution to an occasional financial shortfall, the actual experience of payday loan borrowers reveals there is nothing quick about the loan except its small principal. According to new CRL research that tracked about 11,000 payday borrowers over two years, many borrowers remained indebted for the 24 months that followed their initial loan.”

The lending isn’t quick, it isn’t inexpensive (with rates up to about 400%), and it is borderline pathological.   Credit counseling is fine — depending upon who does the counseling.  Even adequate credit counseling should put off the borrower from even considering a pay day loan.  Disclosing the true cost of the loan is fine — but it may very well NOT prevent the individual from taking on more debt in subsequent transactions.  Further, an extended re-payment plan for one loan does nothing to ease the pain of the subsequent ones.

There is one more thing we should notice about H.R 6139 — the enthusiasm for placing the predatory lenders under the jurisdiction of the OCC (which doesn’t want it).

Why?  Because the Consumer Financial Protection Bureau is tasked with handling consumer complaints about predatory lending practices, and has a special section dealing with the issues affecting military families and their  lending or home ownership issues.   AND because the Federal Deposit Insurance Corporation created the Division  of Depositor and Consumer Protection in August 2010.

“The establishment of a new division dedicated to depositor and consumer protection will provide increased visibility to the FDIC’s compliance examination and enforcement program. That program ensures that banks comply with a myriad of consumer protection and fair lending statutes and regulations. While Congress established the new bureau to promulgate consumer protection rules, the FDIC maintains the responsibility to enforce those rules for banks with $10 billion or less in assets and to perform its traditional depositor protection function.” (emphasis added)

And, there we have it. The FDIC has a new initiative to regulate the activities of lending institutions under its jurisdiction to curtail predatory lending practices, and the CFPB is tasked with restraining predatory lending practices, so … the only regulatory agency remaining would be the Office of the Comptroller of the Currency which oversees nationally chartered banking institutions.

The bill now sits in the House Subcommittee on Financial Institutions and Consumer Credit to which it was referred on October 1, 2012.  It should stay there.  Forever. And ever. Amen.


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Filed under Economy, financial regulation, Nevada economy, Nevada politics

The Very Pat Answer To Every Question: Three Pillars of the Financialist Creed

One of the significant problems associated with Democrats is their propensity to get wonkish when policy questions arise.  Democrats quite often take policy questions seriously and thereby offer long answers to short questions while their Republican counterparts are busy repeating the Three Pillars of the Financialist Creed: Less Government, Less Taxation, and More Freedom.

The first two elements are easily decipherable. Less government means corporations are less regulated. A less regulated corporation has greater latitude to pollute the environment in manufacturing processes, and greater license to speculate in highly dubious investments.  The targets of sustained attacks by Congressional Republicans bear this out.  What have they set their sites upon? Two examples should suffice.

Consumer Financial Protection Bureau — The first wave of GOP attacks assaulted the Bureau as “unaccountable,” “too powerful,” and “didn’t solve Too Big To Fail.”  The second wave came from the House action to defund the agency. The third wave focused on crippling the agency by refusing to confirm a director. [Fiscal Times] The fourth wave comes as Republicans declare the recess appointment of Richard Cordray  unconstitutional.  [TPM] A fifth wave comes in as House Republicans complain that the agency will be too expensive. [Bloomberg]   Why attack the CFPB?

Why have there been five major waves of attack on an agency the mission statement of which says its job is: “To make markets for consumer financial products and services work for Americans by promoting transparency and consumer choice and preventing abusive and deceptive financial practices.” [Treas pdf] Don’t we want transparency? Consumer choice? And, the prevention of “abusive and deceptive financial practices?”  Yes, but the bankers want to “self-regulate,” and we saw where that got us in 2008.

The entire point being made by the Republican opponents of the Consumer Financial Protection Bureau is not about our freedom from deceptive, abusive, and predatory lending practices, but the license for the bank holding companies to devise and market any financial products they believe to be profitable in the short term.

The Environmental Protection Agency — Republican presidential candidates Rick Perry, Michele Bachmann, Ron Paul, Herman Cain, and Newt Gingrich have all called for the abolition of this agency.   However, when the Pew Center asked if environmental regulations cost too many jobs and hurt the economy only 39% of the general population respondents said yes, and only 22% of Republicans categorized as “Main Street” adherents replied in the affirmative.  [Pew pdf]  Given this gap between the positions taken by Republican leadership and the view of the general public, why would the GOP so diligently on the offensive about the EPA?

Why the emphasis on the alleged job-killing nature of regulation? “The dialogue between ‘jobs’ and ‘regulation’ is endless and repetitive, and in almost every instance, the claims by industry that new, more protective regulations would result in job losses and harm competitiveness have turned out to be dramatically overstated.” [Guardian] If the historical claims have been overblown, then why the perpetual hue and cry from conservatives?

The answer is that the American Petroleum Institute, the major oil companies, and the major chemical manufacturers would very much like to be free of government oversight and regulation.

This issue isn’t about our communities being free of air pollution, or the statistics concerning the incidence of childhood asthma declining in our cities and towns.  It isn’t about clean drinking water coming out of our taps, and the proper disposal and treatment of waste water.  It’s about the license given to major corporations to cut corners and save expenses in their production and manufacturing processes — again, in the short term.  The Republicans may bemoan the regulation of dry cleaning fluid disposal, but their bottom line corresponds more definitively with corporate quarterly earnings reports.

Lower taxes cure everything. Almost.  There’s a major exception to the general Republican rule.  It seems perfectly acceptable to allow increases in payroll taxes (those paid by most American workers) but not acceptable to raise taxes on millionaires and billionaires.  The Bush Administration tax cuts in 2001 and 2003 are demonstrably beneficial predominantly to those in the highest income brackets, yet the Republicans have strenuously objected to allowing these cuts to expire.

Republican arguments are framed as “taking your hard earned money out of your pocket to give to someone else,” but it appears to be quite acceptable to them that our pockets are picked while the millionaires and billionaires secure their wallets.   Lost in the deluge of rhetoric is the answer to a rather simple question — If lower rates of taxation are the panacea for everything that ails us, why when we have the lowest rates since the Eisenhower Administration are we not awash in jobs?

Republicans oppose increasing the taxation rate on carried interest but had difficulty supporting the extension of payroll tax reductions.  This should have been a dead give-away.  It’s not OUR taxes about which they are the most concerned.  WE pay increasing state and local levels of taxation to make up for cuts in federal spending.  WE pay payroll taxes and sales taxes, while the billionaires pay 15% on their hedge fund income.   We are told we can’t have nice things (Social Security, Medicare, a modern infrastructure) because we can’t “afford them.”  The response, of course, is that we could afford them if the billionaire financialists weren’t so firmly implanted in our government.

More freedom — to what?  We’re not “free” to take an affordable family vacation if the national parks have to close down on some days or raise the fees.  We’re not “free” to plan our retirement if we have to consider that the Social Security safety net might be privatized and added to the money Wall Street gets to play with in its casino.  We’re not “free” to shop for comprehensible and honest home loans if mortgage originators are given license to devise products that turn toxic with the first balloon payment.

We aren’t “free” from the impact of toxic waste disposal if the plant or mine upstream has license to dump whatever wherever.  We aren’t “free” to purchase products for our children and infants if we have to do our own chemical analysis to see if they contain toxic contaminants.  We aren’t “free” to make intelligent consumer purchases if we don’t have access to information about basic product safety.

We want the freedom to work. However, that doesn’t mean we want employers to have the license to demand that we labor in unsafe working conditions.  We want our high rise construction workers secure in their environs; we want our chemical workers safe from emissions. We don’t want to watch vigils of miner’s families while they wait for someone to be found alive, or not.

If our recent history is any guide, what we want is a capitalist system which rewards work, inspires entrepreneurship, and secures our futures.  What we could do without is the Financialist myopic vision of short term gains at the expense of long term economic growth, and quick revenue booked in the quarterly earnings reports at the expense of the American dream.

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Filed under consumers, EPA, Taxation

Coffee and the Papers

** There are some interesting political predictions for various and sundry Nevada 2012 races in the Las Vegas Sun.  Question: Will Rep. Shelley Berkley (D-NV1) be able to pin the Wall Street Warrior label on anointed Senator Dean Heller?  Heller will continue to tout his vote against the TARP program as “evidence” of his “populism,” but the rest of his voting record is pure Wall Street.

** Willard Mitt Romney ekes out a slender win in the Iowa GOP caucus [WaPo] and the Nevada Progressive observes the Republican house divided against itself.  The Nixonian formula (Southern + evangelical + corporate money = victory) works best when the Southern + evangelical wing isn’t fighting with the corporate money wing.  Someone remind me why the Iowa GOP caucuses are worth so much air time?  Because Mike Huckabee won there in 2008?

** How can WMR hope to be a “man of the people?” By not disclosing his income? [Perrspectives] How can Rick Santorum out run his top ten outrageous campaign statements?  [Think Progress] My favorite is still, “Contraception is a license to do things.”

** No surprise, the incandescent light has gone out of Rep. Michele Bachmann’s presidential run.  [TPM] Then we have Rick Perry choking up in praise of Rick Perry [C&L] complete with video.

** Nevada now has online filing for financial disclosure forms.  [NNB] And, no, the process doesn’t require training in computer science or a degree in electrical engineering.  Following the prompts on the screen does nicely.  Score a win for Nevada Secretary of State Ross Miller on this one.

** Understatement of the Week: “There is a lot of frustration out there and more than a little hostility toward our industry.”  Jamie Dimon, CEO JPMorganChase. [Bloomberg] Yah think?  The “Jamie Deal,” or how to get Bear Stearns for $10/share [NYMag]  is still within living memory.  So are the machinations of AIG, Lehman Brothers, Bank of America, Goldman Sachs, et. al.  And then there’s the branch of BoA which wouldn’t allow a bride to deposit a check. [BusInsider]

** President Obama announced his intention to use a recess appointment to fill the directorship of the Consumer Financial Protection Bureau [Reuters] a nomination Senator Dean Heller (R-NV) refused to support.  [roll call 223]

“…Republicans won’t allow that because they disapprove of the existence of the Consumer Financial Protection Bureau. The agency is already part of federal law, but GOP senators have said they will refuse to allow the agency to function or do any work unless Democrats agree to weaken the CFPB’s powers and lessen consumer protections.”  [WashingtonMonthly]

** Recommended reading:  An interview with the last survivor of the Rosewood (FL) massacre of 1923.   [The Grio]

“A lot of people had to get out of Rosewood that night. Mortin and her aunt Polly, Sam Carter’s mother, were fortunate. They made it to the train depot from which they escaped to Chiefland about twenty miles away. Many others spent several freezing nights hiding in the dank woods trying to avoid the mobs.”

** In case you missed it: “Weakening government oversight results in workers being hurt, not hired.”  [PLAN] The Bureau of Labor Statistics confirms: Only 0.3% of layoffs in 2010 were the result of government regulations [BLS pdf] The rest were seasonal, production specific, related to financial issues, organizational changes, or The Big One — Demand.

** Nifty Graphic — too large to insert here — on the GOP candidates’ tax proposals.   No surprise, 6 out of 7 call for repealing the estate tax, or the Paris Hilton Legacy Protection Act.  Romney would lower corporate taxes by 25%.  5 out of 7 would cut capital gains taxes.  7 out of 7 are members of the 1%.  [via Angry Bear]

** Fact Checking: No, Representative McKeon (R-CA), scheduled budget cuts do not impinge on defense spending more than non-defense spending. [Off the Charts]

** It takes several clicks to get to this report from Pew Trusts (pdf) “Downward Mobility From the Middle Class: Waking Up From the American Dream,” so here’s the quick link.   Recommended reading for 2012.  The report is part of the Economic Mobility Project.

** It also takes two clicks to get to the Treasury Department’s initiative on housing finance reform.  However, the search is worth the information in the report (pdf).

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Filed under banking, Berkley, Economy, employment, financial regulation, Heller, Romney

The Big Lie of 2011 and Why It Is Important

The bankers and their allied Wall Street Warriors would very much like to have us believe that “The Problem” which spawned the Mortgage Meltdown Credit Crunch Great Recession was caused by “Government Housing Policy, Fannie Mae, and Freddie Mac.”

There is no small amount of self-serving utility in this line of argument, even if there is precious little actual evidence that this is the reason for the crash.  This territory has been covered extensively in this blog, but because of the serious ramifications inherent in adopting  The Big Lie, we ought to review.

The argument is patently false.  The extension of credit to the un-creditworthy was not the product of government housing policy, it was a perversion of it.  Wall Street discovered a taste for the fees associated with collecting mortgages — the more the merrier — parking them in “special investment vehicles” (read: off shore warehouse accounts), then slicing/dicing them into securitized assets (bonds) with various “levels” of risk. If government policy encouraged home ownership, a lá Iron Lady Margaret Thatcher’s Ownership Society, so much the better, this gave an excuse for  selling mortgages by the ton, rather than exercising any judgment about to whom the mortgages were being sold.   No one, no government agency, no government sponsored entity, no government bureau forced the banks to solicit  sales among the unworthy.

The community reinvestment banking rules simply say that a bank must make its products available to all people from whom it takes in deposits, the rules do NOT require the bank to create subprime loans, Alt-A loans, No Doc loans, or any other creative means to sell its mortgages.   We shouldn’t take this to mean that Fannie and Freddie were without blame, after all, when it became obvious they were losing market share in the secondary mortgage market the Mortgage Twins played the game with equally disastrous results as their totally private sector cohorts.

The argument is patently self-serving.  In case we’ve not noticed, the banking sector is doing rather well, Wall Street is raking in the money — even as Main Street continues to struggle.  If the Wall Street Warriors can succeed in removing all blame from the bankers then they will be able to argue against any regulation of their banking operations.  “It wasn’t OUR fault,” they cry, “therefore, we need no new regulations concerning our unmonitored use of Credit Default Swaps, no oversight of our Collateralized Debt Obligations and their origins, no consumer protection bureau in the Fed to enforce rules regarding the transparency and honesty of the financial products being sold to the general public.”

The argument is patently insulting.  The bankers, having secured tax-payer relief in the form of the Troubled Asset Relief Program/ Capital Purchase Program, would like to say, “Thank you very much, now we’ll go back to business as usual — our usual.”  While the $66 billion spent on the TARP program (CBO pdf) was a fraction of the proposed $700 billion number that has stuck in everyone’s mind, it was still a major expenditure, and it should be added to the cost of such things as the “Jamie Deal” in which JPMorganChase acquired Bear Stearns for $10 per share.  [Reuters]

The Big Lie is tantamount to arguing that the taxpayers, having bailed out the banks and guaranteed the survival of our financial sector, should smile politely and be pleased that those self-same bankers are now “job creators” and must not be inconvenienced by “onerous regulations” or any other form of regulation to insure that their misbehaviors of the past aren’t repeated in the near future.

At least Bank of America should have figured out that a bit of regulation would have gone a long way toward enhancing their bottom line.  After adding in all the settlements related to its take over of Countrywide for $4.1 billion, the bank has paid out $37,858,000,000 to date.  [BusinessInsider]

It would be far more honest to say that the “uncertainty” about which the bankers are currently moaning has less to do with the creation and implementation of rules regarding credit default swap transactions, or mortgage term transparency, and much more to do with the continuing problem of how much capital is needed in reserve to cover the costs associated with the remaining toxic assets still in the financial system.

Backward! March!  The banking lobby is fighting the implementation of the Dodd Frank Act with every tactic available.  They are fighting the funding for the Consumer Financial Protection Bureau, the appointment of a director for the CFPB, indeed the entire rationale for the CFPB.  They are fighting the efforts of the Commodity Futures Trading Commission to oversee the credit default swap transactions.  They are fighting efforts to monitor the over the counter trading of derivatives.  They are fighting against having oversight of their capacity to create systemic risk.  They are fighting any proposal for an “Orderly Liquidation Authority,” i.e. a plan to wind down bankrupt banks.

It would be very helpful for the bankers to have us believe that WE are the problem, to believe that WE bought too many homes, that OUR government is at fault, and NOT that THEY engaged in financial manipulations which created the need for consumer protection, for regulating over the counter derivatives, for monitoring systemic risk, and for creating a process for the orderly liquidation of banks on the verge of collapse.

If we give the Big Lie credibility, then WE will be authors of our next Mortgage Meltdown, Credit Crunch, and Great Recession.  When we had the tools (Dodd Frank Act) to reduce the risk to our financial system, we gave into the ideological dog whistles, cat calls, and siren songs of the financialists who promoted the false, self-serving, and insulting Big Lie.


Several references have been mentioned in previous posts as very helpful toward understanding what happened during the period of bank deregulation and in the collapse of the financial sector in 2008.  This list includes Yves Smith, “Econned,” Palgrave-Macmillan, 2010; Michael Lewis, “The Big Short,” Norton, 2010; Roger Lowenstein, “The End of Wall Street,” Penguin Press, 2010; and Scott Patterson, “The Quants,” Crown Business, 2010.  To this list should be added:

Eisinger and Bernstein, “The Wall Street Money Machine,” Pro Publica, 2011; Greg Farrell, “The Crash of the Titans,” Crown Business, 2010;  Suzanne McGee, “Chasing Goldman Sachs,” Crown Business, 2010;  Bethany McLean and Joe Nocera, “All The Devils Are Here,” Penguin Press, 2010; Andrew Ross Sorkin, “Too Big To Fail,” Penguin Books, 2009; Vicky Ward, “The Devil’s Casino,”  Wiley & Sons, 2010.

See also: Joe Nocera, “The Big Lie,” New York Times, December 23, 2011.  Joe Nocera, “Banking’s Moment of Truth,” New York Times, June 20, 2011.  Joe Nocera, “Sheila Bair’s Bank Shot,” New York Times, July 9, 2011.  Nathaniel Popper, “Banks Step Up Spending on Lobbying,” Los Angeles Times, February 16, 2010.  Bullock & Makan, “Wall Street Gears Up For Regulatory Fight,” Financial Times, December 22, 2011.

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Filed under banking, Economy, financial regulation, housing