Consumer Financial Protection Agency Could Have Stopped Abuses that Plague Americans Today
CRL shares stories of everyday people affected by financial abuse and emphasizes the need for the Consumer Financial Protection Agency to ensure that they and others are protected from such abuses in the future.
The Dow closes at 10,000 points, putting it back to where it was a year ago when Lehman Brothers collapsed, and Wall Street rejoices. But the reality is the economic crisis that began in the destructive subprime mortgage market continues for American families. Key economic indicators show American families are still struggling: foreclosures at an all time high nationwide; the dollar at a 14-month low this week; and unemployment at 9.8%, the highest in 26 years with many states at double-digit levels. And senior citizens, low-wealth working families and all Americans are still at risk of being financially compromised by hidden fees, high interest rates and loans designed to trap them in long-term debt. Consider these examples:
Overdraft: Banks Rake in Billions on "Help" Their Customers Don't Want
Kathy C. of Pottsville, PA is the mother of two and the wife of a bulldozer operator. In December 2008, she did holiday shopping believing that she had funds to cover the purchases, not realizing that her bank had withdrawn more than $1,000 from her account to pay on a line of credit. Instead of rejecting Mrs. C's checks, the bank charged $1,160 in overdraft fees. "I am so stressed out over our bank that I don't even care anymore what money we have," says Mrs. C. "I know the bank will take it all."
Credit Card Companies: Too Often Arbitrary, Capricious and Deceptive
Terri S. of Cary, NC: For missing only one payment, American Express raised the interest rate on her credit card from 10.24% to 27.24%. And consider Michael D., who transferred previous credit card balances to Chase credit cards because Chase offered a "fixed rate for life" on transferred funds. Turns out that Chase didn't really mean it. After Mr. D. paid on time for three years, Chase gave him an ultimatum: either accept a higher minimum monthly payment plus a monthly flat fee, or increase the interest rate.
Auto Financing: Full of Tricks and Traps
Auto dealers often mark up the interest rate on the car loan over that for which the buyer qualifies. The practice imposes substantial extra costs on consumers, just as the analogous "yield-spread premium" does in the mortgage market. There is simply no legitimate reason for a dealer to receive more compensation for putting consumers into a 10% loan when they qualify for a 9% loan. CRL research estimates that dealer yield-spread premiums cost consumers an estimated $20.8 billion in 2008.
Payday Loans Gouge the Poor
Patricia of Waukesha, WI is a retired nursing home aid who lives on a fixed income. When she moved to be closer to her family, she incurred unusual one-time expenses related to the move. Since her other family members were struggling financially, she went to two payday lenders, believing she would be able to pay the loans back over time. She quickly learned that the minimum payments would only cover interest, and that the loans were structured to make them nearly impossible to repay. She ended up paying over $2,700 in interest only, with not one penny going toward the principal balance of $550.
Car Title Loans Gouge the Desperate
In September 2008, in a moment of financial distress and desperation, Carla H. of Richmond, VA obtained a $1,250 car title loan. Since then she has paid over $3,600 and still has barely lowered the principal amount owed (now approximately $1,232).
And Mortgage Abuses Continue
Ms. C., who lives in the New York City area, was a homeowner with a sterling credit record until she was approached by a broker who convinced her that she qualified for lower payments and attractive loan terms because of her strong payment history. Ms. C. was diligent in asking questions and gathering information about the loan, but the lender disguised the fact that it was an Option ARM with payments that would rise sharply. The mortgage is now unaffordable, and, so far, the loan servicer has refused to modify it.
If a dedicated consumer finance watchdog had been in place, chances are that many of these abuses would have been stopped years ago.
The current system of scattered and loose oversight has failed Americans.
The time for a Consumer Financial Protection Agency is past due—we need it now.
Published: October 23, 2009