EXCERPT Mr. Chairman, Ranking Member Bachus, members of the Committee: Thank you for inviting the Center for Responsible Lending to discuss consumer financial products reform – a fundamental component of the effort to modernize and repair our financial regulatory system. Over the past decade, federal bank regulators looked the other way as responsible loans were crowded out of the market by aggressively marketed, tricky financial products carrying hidden costs and fees. Dangerous products, whose most "innovative" feature was their ability to obscure their true costs and risks, led a race to...
Excessive overdraft fees charged by banks and credit unions can cause devastation for financially vulnerable families. Many lenders used predatory policies and practices designed to repeatedly extract excessive fees from customers who could least afford them. Overdraft fees are a leading cause of financial institutions closing a consumer’s account and reentry into the banking system often is exceedingly difficult, increasing the financial insecurity of many consumers. CRL advocates for legislators and regulators to rein in the size and frequency of these fees. We estimate that the savings from these fee eliminations will be between $3 billion to $4 billion for working families.
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Reckless lending practices that became rampant in recent years have devastated the economy, costing Americans billions of dollars in lost wealth and resulting in the weakest economy since the great Depression. Unfortunately, the regulators overseeing bank safety and consumer protections fell down on the job. Congress has taken a number of actions to investigate the causes of the financial meltdown, and key legislation has been proposed or passed to clean up abusive lending practices on home loans and credit cards. Most recently, on June 17, 2009, the Obama Administration released its plan for...
Too often in the recent past, discussions over consumer protection regulation have been portrayed as a zero-sum game, where consumer protections are assumed to be a drag on the market, and must come at the expense of business. But that is a false dichotomy. Businesses have a symbiotic relationship with their customers. In the end, the health of the business community – indeed, the health of the economy as a whole – depends upon the financial health of America's households. Practices which undermine the financial health of households in the long run undermine the health of the businesses that...
These findings were obtained primarily from CRL research on overdraft loans. Total costs vs. funds extended: Total cost per year consumers pay in overdraft fees: $ 23.7 billion. Total funds extended by institutions to cover consumers' overdrafts: $ 21.3 billion. This means consumers had to repay $45 billion for $21.3 billion in very short-term credit. Mostly debit cards and small transactions: The most common trigger of overdraft fees are debit card transactions.Together, debit card and ATM overdrafts account for 46% of all overdraft fees. Most debit card transactions that trigger overdrafts...
The Center for Responsible Lending, along with Consumer Action, Consumer Federation of America, Consumers Union, National Association of Consumer Advocates, National Consumer Law Center (on behalf of its low-income clients), and U.S. PIRG provide the following comments regarding the Federal Reserve Board's proposed rule to amend Regulation E pursuant to the Electronic Funds Transfer Act. Summary of recommendations: Revisit the proposal to use the Board's UDAP authority under FTC Act to require institutions to provide a choice about coverage for checks and ACH transactions. Require institutions...
Consumers are being hit with fees amounting to triple-digit interest rates on loans they did not ask for—and in many cases cannot afford—when they overdraw their bank accounts through checks, electronic transfers, debit card purchases, and ATM withdrawals. This is possible because the Federal Reserve Board has refused to close a loophole in the rules implementing the Truth in Lending Act that exempts overdraft loans from disclosure requirements. By bringing overdraft loans within the scope of the Truth in Lending Act, H.R. 1456 would provide the same basic consumer protections to checking...
The Federal Reserve Board is considering implementing a new rule that would require financial institutions to get explicit permission before enrolling their account holders in an overdraft system that automatically approves debit card and ATM transactions, and assesses an average $34 fee if there is a negative balance in the account. A Center for Responsible Lending survey conducted by market research firm Macro International, Inc. explored consumer preferences on this issue, and found that U.S consumers overwhelmingly want to choose whether overdrafts on their debit cards are covered or not...
Overdraft lending: the problem Our nation's major banks and credit unions are making unsolicited, high-cost loans to their checking account holders when their account balance dips below zero, generating enormous fees for the banks and frequently driving their customers deeper into the negative. Financial institutions never have to reveal that customers pay triple- and quadruple-digit interest rates. They make overdraft loans without customers' consent, and they manipulate the order in which they clear deposits and withdrawals in order to maximize overdrafts. Research shows that low-income...
And guess what! That's a GOOD thing Good news! Bank of America has announced it will stop its costly, automatic approval of debit card and ATM overdrafts. Bank of America joins Citibank in covering debit card and ATM overdrafts only if their customers have signed up for more reasonably priced coverage, by linking their savings or line of credit to their checking account. Q: Why is this good news? A: Three reasons: 1. No more surprise high-cost overdrafts at the ATM or checkout for customers of these banks. These two banks are so big, the announcement means one third of debit card transactions...
Payday loans create a cycle of debt that diminishes the income of vulnerable households Marketed as short-term relief for a cash crunch, payday loans carry annual interest rates of 400 percent and are designed to catch working people – or those with a steady source of income such as Social Security or a disability check – in a long-term debt trap. The terms are set so that borrowers most often cannot pay off the loan on payday when it's due without leaving a large gap in their budget, often forcing them to immediately take out a new loan after paying the first one back. One recent study found...