Nice article about Elizabeth Warren

In case you missed it, as I did, here is a recent article about Elizabeth Warren's "unorthodox career" from the Boston Globe.

Many Big Banks Reject Monthly Debit Card Fees, Refuse to Follow Bank of America

We have blogged here, here, and here about Bank of America's decision to impose a $5-per-month fee on its debit card users. Now, the Wall Street Journal reports that some of the country's biggest banks, including Citigroup and J.P. Morgan Chase, are not going to follow suit. Other banks, however, including Suntrust and Regions Financial, have plans to impose monthly fees on at least some of their card users. And Wells Fargo is "testing" a $3-per-month fee in five states.

J.P. Morgan Chase says that its decision not to impose a monthly fee came after "eight months of consumer testing." As one would expect, the bank did not attribute its decision to the negative publicity surrounding the Bank of America fee.

But of course monthly debit-card fees are not the only fees that a bank can impose. The WSJ article notes that

Banks are loading fees onto customer accounts in an attempt to recover billions of dollars in revenue that will be lost from new restrictions on debit cards, credit cards and overdrafts. Most big banks have already eliminated free checking for customers who don't meet certain criteria on their accounts, such as minimum balances or a certain number of direct deposit transactions.

New Student Loan Reforms and Law School Debt

This past Wednesday President Obama announced reforms to federal student loan programs. According to the President's website, the program's two main features are

• Effective this January [January 2012], if you’re someone who has different kinds of loans—guaranteed and direct—you’ll be able to roll them both into one direct loan and bring down your interest rate. You’ll only have to write one check a month—and you’ll see a discount. This switch saves money for taxpayers across the board. ...

• You might remember that, as part of last year’s student loan reform, borrowers’ loan payments could be no higher than 10 percent of their disposable income. This is a big deal—but it wasn’t going to go into effect until 2014. Today, the President announced that he’s speeding up this program so it will affect students next year—two years early. This will have huge consequences for people struggling to make their student loan payments.

According to Karen Jarvis at the National Law Journal, the changes will provide little or no benefit to current law students or recent law graduates with student loan debt.

Student Loans and the CFPB: Know Before You Owe

Americans now owe more in student loans than in credit cards. While consumer advocates were pushing for credit card reform, lenders managed to get hefty subsidies and guarantees, made student loans non-dischargeable in bankruptcy, and started handing out piles of cash to anyone with a high school diploma.

This played an important part in the inflation of the cost of education because, hey, you can pay for it with those piles of cash. But how much good is an educated workforce that is saddled with mountains of debt and that can't work because there aren't any jobs?

Today in Minneapolis, the Consumer Financial Protection Bureau's Raj Date launched the CFPB's "Know Before You Owe" for student loans and outlined how the CFPB will take on student loans. First, the CFPB has published a model student loan disclosure sheet (PDF) for colleges to use. Current students can also visit the CFPB's website to find out more about student loan repayment options. Date said the CFPB would also work to bring transparency to the student loan sector.

To what end? Is the goal to deter people from getting higher education? Because disclosures are as likely to deter students from taking out loans as the threat of prison time is likely to deter a thief from robbing a bank. Neither expects to get caught—the student by unemployment (or underemployment), and the thief by the police.

That is probably a good thing. We want an educated citizenry. We just can't afford one at current prices.

The real issue lying at the heart of the student loan problem is this: Americans have been overpaying for higher education. There's plenty more to education than job training, but it's also true that if we can't pay back our student loans, our education isn't worth what it cost.

The CFPB doesn't have the authority to regulate schools (nor should it, really), so the best it can do is try to make sure students know what they are getting into when they finance an education. But that won't strike anywhere near the heart of the problem.

Congressional Budget Office Weighs in on Income Inequality

We have been discussing rapidly increasing income inequality in the United States, including in this recent post (which, in turn, links to earlier posts). The Congressional Budget Office has just weighed in with this comprehensive study entitled "Trends in the Distribution of Household Income Between 1997 and 2007." The CBO study found that income increased in the 20-year period studied . . .

• 275 percent for the top 1 percent of households,
• 65 percent for the next 19 percent,
• Just under 40 percent for the next 60 percent, and
• 18 percent for the bottom 20 percent.

The CBO also found that "the share of income going to higher-income households rose, while the share going to lower-income households fell." Specifically,

• The top fifth of the population saw a 10-percentage-point increase in their share of after-tax income.
• Most of that growth went to the top 1 percent of the population.
• All other groups saw their shares decline by 2 to 3 percentage points.

Go to the study's home page and/or read a five-page summary of the study. The New York Times reported on the study here.

Creating Jobs in a Bad Economy

Michael Hiltzik at the LA Times compares President Obama's job creation plan with the legislation offered by Republicans in Congress. The Republican plan is called the Jobs Through Growth Act, whose key provisions include a Balanced Budget constitutional amendment, reductions in corporate taxes, repeal of the health care reform legislation (which the Congressional Budget Office says will reduce the deficit), and drastic limits on recoveries in state medical malpractice lawsuits. (The Republicans have been trying to decimate the state tort system, including medical malpractice, for two decades or more, but tying medical malpractice "deform" to job creation is new to me!)

The President's plan is called the American Jobs Act. It also includes some tax cuts and incentives for corporations (with a focus on small business), but, unlike the Republican legislation, it would provide funds for direct job creation (for instance, jobs for teachers, firefighters, and police). As you probably know, the President does not have the votes to get his comprehensive bill enacted, so now he's going to try to get parts of it passed.

Payday Lending Pieces

Nathalie Martin of the

 University of New Mexico has written two more payday lending articles. The first is Regulating Payday Loans: Why this Should Make the CFPB’s Short List, 2 Harvard Business Law Review Online 44 (2011).  Here's the abstract::

This article briefly describes the history of the Consumer Financial Protection Bureau (CFPB), describes payday and title loan products and their customers, describes the CFPB’s general powers, then discusses how and why the CFPB might use its particular powers to bring this industry into compliance with lending norms used throughout the rest of the civilized world.

The second, co-authored with

Koo Im Tong

 is Double Down-And-Out: The Connection between Payday Loans and Bankruptcy, 39 Southwestern Law Review  785.  Here's that abstract: 

This Article reviews the literature on the debate regarding the causal relationship between filing for bankruptcy and the use of payday loans but does not weigh in on the subject. Rather, it uses these studies, as well as a general discussion of bankruptcy filing and payday loans, as a backdrop for analyzing new data regarding the correlation between bankruptcy filing and the use of payday loans. This Article reports on an empirical study conducted in the state of New Mexico that measures rates of payday loan use among bankruptcy debtors from a large sample of publicly available bankruptcy data.

Part I of this Article discusses the payday loan industry, its business model, how the loans work, and who the likely payday lending customer is. Part II reviews the current literature regarding the connection between payday loans and bankruptcy, and suggests some ways in which the existing literature falls short of fully answering the question of whether payday lending causes bankruptcy filing. Part III describes the new empirical study from New Mexico. This Article describes the method used to conduct this study as well as its results. In summary, our data show that from 2007 to 2009, 18.9 percent of bankruptcy debtors in New Mexico reported using payday loans. Compared to the use of payday loans reported in other studies among the general population, as well as past studies on payday loan use among bankruptcy debtors, this rate of usage is extremely high. Moreover, the correlation between bankruptcy and payday loans seems to be getting stronger, as the use of these loan products appears to be growing. We find that almost double the percentage of bankruptcy debtors reported using payday loans from 2007 to 2009, than from 2000 to 2002.

Part IV of this Article concludes that while one cannot be certain that there is a causal connection between filing for bankruptcy and using payday or other short-term loans, there is a strong correlation between bankruptcy filing and payday loan use. If the increasing use of payday loans is seen as a problem, we conclude that the problem appears to be growing, despite efforts by states to cut down on the use of these loans and to curb the use of multiple loans at one time. In fact, the usage of multiple payday loans at one time also has increased drastically, as recent bankruptcy debtors, whether individuals or families, report using far more of these types of loans simultaneously than in the past. All of this indicates that the use of multiple loans at one time is increasing, a problem states are grappling with but apparently are not solving.  

And

Neil Bhutta

 of the Fed offers another view in The Effect of Access to Payday Loans on Consumers' Financial Health: Evidence from Consumer Credit Record Data.  Here's his abstract:

I test whether access to payday loans affects broad measures of consumers’ financial well-being by taking advantage of geographic variation in access to payday loans due to state lending laws. I draw on several sources of data including a large, nationally representative panel dataset of individual consumer credit records, as well as census data on the location of payday lending establishments at the ZIP code level. I find little evidence that access to payday loans affects consumers’ financial health. In particular, access does not affect credit scores levels, nor does it appear to either exacerbate or mitigate the probability of a major score decline over a two year period during the recent recession, nor does it appear to affect the dynamics of recovery from a low score. The estimated coefficients are generally very close to zero and precise, and robust to a within-state test similar to that of Melzer (2011). There is some evidence that access reduces the incidence of accounts going into collections – one component of credit scores – but the fact that that access nevertheless does not affect credit scores suggests that payday loans may have some small but hard-to-detect benefits.

Dodd on Dodd(-Frank)

Former Senator Chris Dodd has penned this opinion piece on "Five Myths about the Dodd-Frank. The five myths, according to Dodd, are (1) "Dodd-Frank is deepening the economic slowdown"; (2) "Dodd-Frank hurts small businesses and community banks";(3) "Dodd-Frank failed to truly reform Wall Street"; (4) "Congress didn’t fix Fannie Mae and Freddie Mac"; and (5) "It’s time to repeal Dodd-Frank."

Suskind's The Confidence Men

by Jeff Sovern

I just finished listening to the audio version of Ron Suskind's Confidence Men: Wall Street, Washington, and the Education of a President. It purports to be a you-are-there Woodward-style account of the first two years of economic-policymaking in the Obama administration. You never know how much of this stuff to believe, given that the audio version, at least, generally does not indicate sources. Still,with that caveat, readers of the blog may be interested in at least a few items from the book:

• Treasury Secretary Timothy Geitner promised bankers while the Dodd-Frank Act was working its way through Congress that Elizabeth Warren would never become the director of the Consumer Financial Protection Bureau.
• Economic policy in the Obama administration was made very slowly in what appeared to be a failure of process. Strong personalities like Larry Summers frequently sought to "relitigate" matters on which the president had decided against them, with the result that the same issues were reviewed over and over. Summers even commented that they were 'home alone" without a grown up in charge. That may help explain why the administration moved so slowly to name leaders for the OCC and the CFPB.
• The book also describes how Goldman Sachs learned a couple of years before the subprime crisis exploded that there was a problem with some of the subprime mortgage originators (or maybe it was underwriters evaluating loans; books sometimes go a little fast when you're driving while listening to them) from which it was buying loans. Specifically, some originators sold Goldman loan pools in which a whopping 10% of the borrowers were not even making their first payments. Nevertheless, Goldman continued buying from them and selling to others. It has been reported elsewhere, of course, that Goldman went short on subprime loans for its own account. In other words, Goldman bet against subprime loans while continuing to sell them to others when it knew there were problems with them.

Does California's new Reader Privacy Act threaten individual bloggers?

by Paul Alan Levy

In a blog post today about the California Reader Privacy Act, Eric Goldman raises an alarm about the law’s possible application to bloggers.  The statute provides that a “book service” — a “service that, as its primary purpose, provides the rental, purchase, borrowing, browsing, or viewing of books” — may not provide personal information about its users to a “government entity” without observing certain heightened process, and may not be compelled to provide personal information about its users to “any person, private entity, or government entity.”   Professor Goldman argues that the definition of the word “book” could be extended to blogs because it applies to “paginated or similarly organized content,” and blogs typically have a series of pages, with the most recent posts on the first page. He acknowledges that the law extends only to commercial entities, in that the law defines "provider" as "any commercial entity offering a book service to the public."   But he expresses concern that any blogger who carries ads could be argued to be a “commercial entity.”

His post suggests that the drafters of the statute may not have intended this result, but the words could be construed to apply to bloggers and the danger is heightened because “the statute has a private cause of action that will be enforced by a rapacious privacy plaintiffs’ bar.”  He concludes by offering the possible unintended consequences of the statute as an illustration of his general view that “states categorically should not try to regulate the Internet.”

Generally speaking, I tend to agree with most of what Eric Goldman posts on his Technology & Marketing Blog, but I disagree with this post.