Headlines
- Board Reconsiders Stand Against Payday Loans
Sun Herald 30 Aug 2010
In Missouri, some members of the Jackson County Board of Supervisors have been persuaded by payday lending advocates, legislators, and state financial officials to reconsider their stand against the payday industry. Speaking on behalf of a state association for quick-cash lenders, Scott Putnam told the board that restricting the high amount of interest a fast-money store could charge would put them out of business, ultimately destroying 4,000 jobs across Mississippi. He touted the loans as a cheaper option than repeated overdraft fees and said people who are trying to shutter them simply do not understand them. The supervisors had voted to ask that the Legislature allow laws to sunset that support high-interest loans and then cap annual interest rates at 36 percent, but they rescinded that vote and plan to look at the issue more thoroughly. Still, Supervisor Melton Harris described the peril of cyclical debt often caused by repeated use of payday loans and urged his fellow supervisors to not change their minds on the issue.
- 2 New Federal Programs to Help Borrowers Pay Their Mortgages
New York Times 30 Aug 2010
The Federal Housing Administration in the next few weeks will launch a refinancing program to help struggling borrowers pay their home loans and also offer an emergency loan initiative to help jobless homeowners to stay put. Record foreclosures have swollen the supply of for-sale homes, causing residential prices to slide. Meanwhile, lower prices and favorable borrowing costs have not been able to rejuvenate the market for new homes. "We are going to continue to make sure folks have access to home ownership," Housing Secretary Shaun Donovan said of the new efforts. However, he added that it is too soon to say whether the Obama administration would revive the $8,000 tax credit for first-time home buyers that expired on April 30. However, Florida Gov. Charlie Crist -- whose state has one of the highest rates of foreclosure in the nation -- argued that bringing back the tax incentive would "help enormously" in the campaign to mitigate foreclosures and perk up the economy. Both men made their remarks on CNN's "State of the Union" program.
- Beware Of That New Credit-Card Offer
Wall Street Journal 29 Aug 2010
Synovate reports a 256 percent surge in mailings for "professional" credit cards to 47 million in the first quarter from the same period in 2009. These small business or corporate accounts now are being offered to ordinary consumers, and consumer advocates are urging them to use caution because professional cards are not covered by the Card Act. As such, issuers can apply payments to low-rate balances first, hike rates on existing balances if consumers fall behind in payments to another creditor, impose large fees for exceeding credit limits, and alter card terms without advance notice, among other things. In a move to shift customers away from cards that are protected under the new reforms and toward unprotected cards, issuers have eased requirements for professional cards; the Ink From Chase Cash Business Card, for instance, now asks applicants to check a box stating "Yes, I am a business owner" or "Yes, I am a business professional with business expenses" instead of requiring the company's name, address, and federal employer identification number. Center for Responsible Lending senior researcher Josh Frank says, "By pushing professional cards to consumers who otherwise wouldn't want them, card issuers can get around some of the provisions of the Card Act." And Beverly Harzog of Cardratings.com warns that "a lot of consumers really don't know the difference, and some of the wording on the offers can be ambiguous."
- Credit-Card Law Is Working Well
Wall Street Journal 29 Aug 2010
Rep. Carolyn Maloney (D-N.Y.) defends the integrity of credit card reforms she introduced, in a letter to the editor published in the New York Times. The changes, she writes, have helped lower defaults in the six months since they were enacted. She adds that consumers are paying off their credit card debt, spurred by new rules requiring statements to indicate how long it will take to pay off balances. Maloney declares that the reforms both protect consumers and foster competition among lenders by banning retroactive rate hikes on existing balances, providing advance notice of rate increases so that consumers can comparison shop, and restricting fine-print tactics deemed "unfair," "deceptive," and "anticompetitive" by the Federal Reserve.
- The New Consumer Bureau: a To-Do List
Wall Street Journal 28 Aug 2010
The new Consumer Financial Protection Bureau must quickly begin writing rules to regulate checking accounts, credit cards, and education and home loans if it hopes to stave off critics. The bureau will first have to study reverse mortgages, private education-loan practices, why consumers who buy credit scores get numbers different from the ones lenders get, and whether arbitration is the right way to settle financial disputes, according to congressional mandates. Experts have suggested that since those topics could take years to examine, the bureau should consider addressing credit report errors and the process consumers must use to correct them. Consumer advocates say the credit reporting agencies do not play referee and simply defer to lenders, and creditors that often disagree with complaints force consumers to take further action. Other topics that should be addressed include extending built-in protections against fraudulent charges to prepaid cards, not just credit and debit cards; improving the transparency of student loans; speeding up complaint response times related to financial issues; and other protections against other financial practices.
- Overdraft Shift Sinking In
American Banker 27 Aug 2010
A July survey of 1,000 U.S. consumers by Mintel Comperemedia indicates that 60 percent knew about the new federal rules implemented on Aug. 15 requiring that consumers opt in to overdraft protection programs, up from 40 percent who were aware in a May poll. Consumers have received information about the new rules from their banks via e-mail, direct mail, and online messages. However, Susan Wolfe, vice president of financial services at Mintel, notes that "when you drill down to see what consumers really understand about their options, most are hazy." In the July survey, 26 percent of respondents said they opted in to overdraft protection programs, 26 percent planned to opt in, and 48 percent had no plans to do so.
- Credit Reforms Reach Campuses
Washington Post 27 Aug 2010
The new credit card reform legislation is aimed at protecting college students, among other vulnerable segments of the population, from credit traps. It bans card issuers from giving cards to people younger than 21 unless an adult co-signs or the student can show an independent source of income. It also prohibits companies from offering students freebies in exchange for signing up for a card on campus or at school events, and colleges and university groups must disclose any partnerships they have with card issuers. Young people are an attractive market for card issuers hoping to expand -- 42 percent of college students have a credit card and graduated with an average debt of $4,100 in 2008. Lawmakers and consumer advocate groups chastised issuers for inappropriately marketing the cards to students by holding giveaways on campus, searching alumni association databases, and negotiating lucrative partnerships to provide university-branded cards. Several issuers have cut back on their promotions, including ceasing their use of student mailing lists and no longer setting up marketing tables at colleges. Another provision in the new law requires card issuers to submit any contracts they have with collegiate groups to the Federal Reserve, which will then compile a report detailing the nature of the relationship. Consumer advocates hope this legislation will bring increased transparency.
- Card Firms Scramble to Recoup Lost Profit
Wall Street Journal 27 Aug 2010
Credit card companies have lost $1 billion over the past year due to the financial crisis; and facing new regulations and consumers less willing to rack up debt, they are looking for opportunities to boost revenue. Despite a slowdown in defaults and delinquencies, profitability likely will not improve due to high unemployment rates and lower rates of consumer spending. The Nilson Report shows a 10 percent decrease in outstanding credit-card loans to $772.19 billion in 2009, as consumers tightened their wallets and lenders tightened their standards. Thousand Oaks, Calif.-based credit-card consultant Robert Hammer expects the industry to lose $11 billion during the next five years as a result of new federal card rules; and while card companies boost interest rates and implement new fees, he says only 25 percent of lost revenue will be recovered through these strategies.
- The New Face of Housing Discrimination
Housing Watch 26 Aug 2010
According to a study recently released by the Center for Responsible Lending (CRL), African-American and Latino homeowners have a disproportionate share of foreclosures nationwide compared with their percentage of homeownership. In Chicago, for example, African Americans make up 26 percent of the National Foreclosure Mitigation Counseling Program and Latinos account for 21 percent of the same initiative -- even though these demographics represent just 9 percent and 8 percent of U.S. homeowners. Some experts say the discrimination is simply an extension of the days when minorities could not get loans or buy in certain neighborhoods. Now, however, Latinos and blacks are getting loans -- but at much higher rates than what white borrowers are paying. The CRL study found that Latino and African-American families disproportionately received the most expensive and riskiest types of loans during the subprime lending boom, which also means these groups have needed the most help. However, many banks are unwilling to help minorities with refinancing unless a nonprofit counseling agency intervenes on their behalf. There are steps homeowners can take to prevent becoming a victim of housing discrimination: knowing the true cost of their loan, avoiding adjustable interest rates that involve deceptive teaser rates, understanding all the paperwork they sign and asking for explanations if they do not, and avoiding scams by seeking help from a non-profit credit counselor.
- Banks Appear Close to Killing Foreclosure-Prevention Bill
Los Angeles Times 26 Aug 2010
Lobbyists from banks, securities firms, home builders, and business groups have been working overtime to defeat SB1275 in the California Assembly; and they may be close to success. The measure by Sen. Mark Leno (D-San Francisco) fell 14 votes short of the 41 needed to pass the Assembly. Leno said many of the lawmakers abstained from voting because of fear instilled in them by the lobbyists, who argued that the measure would make the foreclosure process overly complicated. The legislation would require mortgage servicers to give borrowers a decision regarding their request for loan modification before beginning the foreclosure process. Leno, bill co-author Senate President Pro Tem Darrel Steinberg (D-Sacramento), and consumer advocates say the law is needed to protect borrowers whose properties are sold out from under them before their loan workouts are processed. Paul Leonard, director of the Center for Responsible Lending in Oakland, called the reform "fairly modest," although banks continue to express disdain for the proposal because they say it would allow homeowners to sue for monetary damages and seek injunctions to delay or void a foreclosure.
