President Obama Signs Financial Reform Bill!
AFFIL staff Sarah Byrnes and Sally Brzozowski attended the signing ceremony today at the Ronald Reagan Building in Washington, DC.
Congress Creates a Consumer Financial Protection Bureau!
At long last, both the House of Representatives and the Senate have passed legislation to create a Consumer Financial Protection Bureau!
This is a huge, hard-fought victory for consumers. We’ll finally have an agency fully devoted to us, to make sure mortgages, credit cards, and other loans aren’t full of tricks and traps in the fine print. You can read AFR’s full statement about this victory here.
We’ll be posting more about the CFPB — what it will and won’t be able to do — in future days. Stay tuned!
AFFIL’s Board Chair, Professor Cathy Lesser Mansfield, published this op-ed today in the Des Moines Register. Cathy teaches at Drake University in Des Moines, and her piece is a response to Senator Grassley’s (R, IA) announcement that he will not vote for financial reform. His announcement is surprising because he voted for financial reform when it was in the Senate twice, as a member of the Agriculture Committee and then on the floor. You can read his rather convoluted announcement here, and AFR’s response to it here.
Cathy has been practicing consumer law for two decades, and her op-ed powerfully explains why we need financial reform. Here are some excerpts.
I have been practicing, teaching and writing about consumer protection law for two decades. I am one of the many people who did see a crisis coming a decade ago, and tried to get Washington’s attention. Read more…
Financial Reform Includes Unsung Mortgage Reforms
The CFPA and Wall Street reforms have grabbed most of the headlines, but the financial reform bill also includes some strong and very important rules for new mortgages. There are also some helpful foreclosure prevention provisions, though much more remains to be done for struggling homeowners. Research suggests that up to 13 million homes could be lost in the current foreclosure crisis. 2.5 million already have.
But back to the good news. Here’s some of what the bill will do to make the mortgage market safer:
Bans Mortgage Broker Kickbacks. A major reason high-cost loans proliferated was that brokers got paid more when they sold more expensive loans. Many people–particularly people of color–ended up with loans that were more expensive than what they qualified for. The bill changes the ways mortgage brokers are paid, so they aren’t encouraged to sell high-cost and risky loans to people who are eligible for better ones.
Limits Pre-Payment Penalties. Read more…
AFFIL in the News: Students and Credit Card Debt
Even with the Credit CARD Act in effect, students are still cautioned against getting credit cards. A recent article in Oklahoma City Community College’s Pioneer talks about the reasons why students should still be wary of credit cards. This article features a number of individuals and their credit card horror stories. Janne O’Donnell, a board member of AFFIL with her own horror story, cites her son’s credit card debt troubles and subsequent suicide as an example of why students should think hard about whether or not they want to get a credit card.
There is a key point to be learned from Ms. O’Donnell’s tragedy and similar stories: college students are easy marks for credit card companies. Although the passage of the Credit CARD Act and the soon-to-be-established Consumer Financial Protection Bureau are steps in the right direction toward changing this, there is still more work to be done. In any case, it is in the best interest of students and other young individuals to arm themselves with knowledge by learning more about the options they have and understanding their financial capabilities.
(Photo: Josh Kenzer)
As of July 1, one of the government’s two student lending programs went the way of the dodo. AFFIL supported this change, since it will save taxpayers over $60 billion. Read all about it in this previous post. All federal aid will now flow through the Direct Lending program, which makes an administrative difference to students and schools, but doesn’t much change the loans themselves.
Also, there are new overdraft changes important to your wallet. You may have heard from your bank or credit union already, asking you to opt-in to overdraft “protection.” This is because as of August 15 banks will have to get your permission to enroll you in these programs, whereas before 75% of them just signed you up automatically. For new accounts, the change went into effect on July 1.
In 2008 banks make almost $24 billion from overdraft loans, so to preserve this cash flow they’re trying to convince you to stay in the program. But guess what, overdraft loans are a great deal for them, and a bad deal for you. See why here.
When your bank or credit union asks you if you’d like to enroll in overdraft protection, do the easy thing: nothing!
Below is CRL’s clever video showing your debit card on overdraft. (Those of you who were watching TV in the 80’s should get the reference.) Just say no to overdraft!
Update: Consumer Protection Agency Almost a Reality…
After a marathon session lasting until 5:30 a.m. on Friday June 25th, Congress finally agreed upon a financial reform bill. Despite the millions of dollars the Big Banks spent to weaken it, and despite the thousands of lobbyists on their payroll, the bill is a huge advance for folks on Main Street.
At long last, the bill will create a Consumer Financial Protection Bureau!
The House of Representatives passed the final bill on June 30 (see how your Rep voted here).
But it’s not clear that the Senate has the 60 votes needed to pass the bill. Click here to tell your Senators to side with Main Street, not Wall Street, and vote “YES” on financial reform!
To be sure, there is work left to be done even if the bill passes. More must be done to break up the big banks. Much more must be done to address the foreclosure crisis. And, auto dealers did win a carve-out from the Consumer Financial Protection Bureau. As part of a last-minute compromise, however, the Federal Trade Commission (FTC) was given new authority to keep an eye on them. Click here for details about what’s in the bill.
Note: this post was originally posted on June 28, and updated on July 8.
Speaking Out Against Car Title Loans
Car title lending often goes under the radar, and some people have probably never even heard of it. But it’s some of the most abusive lending around.
Title lenders give out small loans and hold car titles (and sometimes keys) as collateral. If the borrower misses or is late on a payment, they come and take the car.
Like payday lending, these loans are designed to trap borrowers in debt. Borrowers often end up paying two or three times as much as they’ve borrowed because of exorbitant interest and fees, and they can also end up losing the family car.
Recently, two people have spoken out about car title lending on AFFIL’s Share Your Story page. One is a borrower, and the other a former employee of a car title lending shop who eventually quit because she felt too “dirty” about the job. Her reflections are poingnant:
My position as Title Manager proved to be the most difficult job that I have ever held. The company I worked for was based out of another state, therefore, it was not as personal for them as it was for me. It was MY hometown and MY people that I have known my entire life who filed into that office wanting to do loans because they trusted ME…
One case in particular made me draw the line. I had a customer who had pawned his title for 1,200.00 dollars in 2005. He had called me in June of 2010 to report that he had fallen into financial problems and was unable to continue paying on the vehicle. When I discovered that not only did he always pay on time but had already paid over 6,000 dollars back in interest alone I told him that I would speak with my supervisor. I was floored when my supervisor instructed that our “deal” was for him to pay us $800.00 in 30 days to get his title back, a day over 30 days, she said, would void out the deal and he would have to bring us his car. This customer was an old veteran and on disability and I knew he would not be able to come up with that kind of money that quick. I also think SHE knew it too.
Auto title lending is technically illegal in most states, but lenders often find ways around the law. Consumer advocates are hopeful that the Consumer Financial Protection Bureau – which Congress will hopefully create next week after the July 4 recess – will crack down on these irresponsible and abusive lenders.
Car Buyer Protections Still Up in the Air
Today is the sixth day of substantive debate by the Congressional Conference Committee discussing financial reform (see its members here). Consumer protections were discussed on Tuesday, but decisions were postponed.
AFR produced this list of outstanding questions regarding the Consumer Protection Bureau. At issue, still, is whether auto dealers will be covered by the CFPA. We’ve long argued that car dealers – when they make loans – are lenders. It’s pretty simple, really. They shouldn’t get a special exemption from the rules, no matter how much clout they have on Capitol Hill.
Because there’s no decision yet, there’s still time to sign this petition asking Congress to oversee car dealers. For more explanation and inspiration, check out Professor Elizabeth Warren on Fox Business News here or below.
Watch the latest business video at video.foxbusiness.com
Don't Forget About Payday Lending!
Two weeks ago, Gary Rivlin made a guest appearance on NPR’s Fresh Air in a program entitled “Turning poverty into a Multibillion-Dollar Industry”; he spoke about what he calls the “fringe-financing and poverty” business composed of payday lending, pawn-broking, rent-to-own businesses, and other similar industries.
Click here to listen to the full audio if Gary Rivlin’s guest appearance on NPR’s Fresh Air.
Rivlin points out that industries like payday lenders target and take advantage of the working poor and those who live hand-to-mouth. Payday lenders make big profits by lending money at high interest rates, regardless of the lifespan of the loan. Faced with a sense of urgency to pay off loans and bills, the working poor fall prey to payday lenders’ false reassurances. Eventually, they find themselves in a cycle of debt because they are still unable to pay back all their bills and loans and may feel pressed to take out even more payday loans. Read more…
Americans for Fairness in Lending 