Consumer Law & Policy Blog

Cleaning Up a Consumer Lending Mess

By Christopher Peterson

WHEN THE CEO of HSBC, one of the world's largest banks, and legal aid attorneys who represent poverty-stricken Americans find something to agree on, it is no small event. Recently, CEO Michael Geoghegan explained that massive losses in HSBC's home mortgage lending business were caused by the mistake of "going for volume." The nation's legal aid attorneys have a different description. They call it predatory lending.

Continue reading Boston Globe Op-ed   ...

More on Payday Loans: The Industry PR Folks Strike Back

    Check out this article in today's Washington Post by Michelle Singletary - - "Payday Loans: Costly Cash."  Among other things, the article discusses a new ad campaign by the Community Financial Services Association of America, the trade group for the payday loan industry.  Consumer advocates portray the campaign as part of an effort to stop state and federal legislation to curb the industry.  The industry responds that its ads are a charitable "effort to encourage consumers to use payday advances in a responsible manner."  I wonder whether the industry's shareholders are ticked off that their money is being spent to help consumers act responsibly rather than to turn profits.

NCLC Reports on Rising Debt Among Older Americans

    I just ran across an important National Consumer Law Center 2006 study - - The Life and Debt Cycle - - written chiefly by NCLC's Deanne Loonin, about the rising level of debt among older Americans.  The study begins with these basic (and to me, generally surprising) facts:

Older consumers generally hold less credit card debt than younger consumers. What is new is that elders are catching up. The average credit card debt for Americans between 65 and 69 years old rose a staggering 217% between 1992 and 2001, to $5,844. Not surprisingly, given these and other trends, elders are filing bankruptcy in record numbers.

   

Part one of the report describes the issue in detail; part two of the report offers potential solutions.  Check it out.

Senate Banking Hearing on Predatory Mortgage Lending

by Deepak Gupta

This morning, at 10am, the Senate Banking Committee will hold another important hearing on a pressing consumer issue: "Preserving the American Dream: Predatory Lending Practices and Home Foreclosures." (The last such hearing, on credit card abuses, generated a lot of attention and put the spotlight on some very indefensible industry practices.) It's still to early to tell whether these hearings will translate into actual legislation that does something about the problems being addressed, but it's certainly a step in the right direction--an indication that consumer advocates may be moving, ever so slightly, from playing defense to offense.

On the consumer side of the ledger, the witnesses will be Hilary Shelton of the NAACP, Martin Eakes of Self-Help Credit Union and the Center for Responsibe Lending, Jean Constantine-Davis of AARP; and two consumers--Delores King and Amy Womble. A late, high-profile addition is the Reverend Jesse Jackson, who will be testifying first. (It's notable that a civil rights leader of Jesse Jackson's stature will be weighing in on predatory lending issues; whether he has anything of substance to add remains to be seen.) On the industry side, the witnesses are Harry Dinham (Nat'l Ass'n of Mortgage Brokers) and Doug Duncan (Mortgage Bankers Ass'n). As always, we'll try to bring you a report or two after the hearing is over.

Once it gets underway, you should be able to watch a live webcast of the hearing at this link.

Credit Union President Predicts "death to lending to service members"

by Christopher Peterson

Consumer Law and Policy Blog Readers will recall that Congress recently passed a variety of new consumer credit protections for military servicemembers. Among the key features of the act is a 36% annual percentage rate cap and a ban on mandatory, binding arbitration clauses in consumer credit contracts with military personnel.

Today was the last day to submit comments to the Department of Defense before the Pentagon undertakes to write proposed regulations to enforce the statute. (For those of you wishing to comment, there will be another period after DOD proposes regulations.) A variety of banks, credit unions, and other lenders turned out in force to suggest the most narrow possible interpretation of the statute and predict apocalypse if the Pentagon does not follow suit. One comment submitted by Taylor Community Credit Union President Phillip A. Matous particularly stuck out in my mind. Mr. Matous predicts that “[u]nless Credit Unions join banks in having the law rewritten or suspended before it takes effect October 1, 2007, it might well be called the death to lending to service members act.”

Of course the same predictions of armegeddon follow every major policy shift in consumer lending. Some creditors predicted the same thing before the Truth in Lending Act, before the FTC adopted its holder-notice rule, and before North Carolina past its predatory mortgage lending statute.

Virginia Poised to Enact Lenient Payday Loan Legislation

    Those of you interested in state legislative efforts in the predatory lending area should take a look at this report from the Richmond-Times Dispatch, which describes yesterday's committee action in the Virginia House of Delegates signing off on legislation "sought by" the lending industry that provides for almost no regulation of payday loans.  The same legislation has already easily passed the Virginia Senate.

Center for Responsible Lending Critiques Predatory Lending Study

Ed Mierzwinski over at U.S. PIRG's Consumer Blog reports that "The Center for Responsible Lending has published a critique of major analytical flaws in a new working paper 'Defining and Detecting Predatory Lending' . . . by Federal Reserve economist Donald P. Morgan of the Federal Reserve Bank of New York."  Ed's post and all the relevant links can be found here.

What Does Barney Have Planned?: Are Stricter Mortgage Lending Rules On Their Way?

    By Brian Wolfman

    Today's Washington Post has this annoyingly non-specific article based in part on the author's interview with Rep. Barney Frank (D-Mass.), the new Chair of the House Financial Services Committee.  The topic is "suitability" in mortgage lending -- the quaint notion that lenders should only lend on terms that provide borrowers a realistic ability to stay out of foreclosure.  Frank is quoted as saying that "[y]ou shouldn't lend [home buyers or refinancers] more than they can afford to pay back, and you [shouldn't] lend them more than their house is worth."  As I said, the article is short on specifics, but Frank seems to be considering a combination of more disclosure for potential borrowers and substantive requirements that would prohibit lending to people who don't have a realistic likelihood of repaying.   Is he contemplating a sort of HOEPA for all mortgage lending or something with more teeth?  Comments anyone?

20/20 Takes on Credit Card Debt; Payday Lenders as Lions in the Economic Jungle, and More

by Deepak Gupta

Tonight, at 10pm EST, the ABC News Program 20/20 will air an episode entitled "Flat Broke: Begging And Borrowing In America."  I'm reliably informed that the segment will include interviews with prominent consumer advocates, including Professor Elizabeth Warren of Harvard Law School and a NACA member or two.  You can read one of the stories that will be featured tonight here.   The episode looks promising and seems to be part of a noticeable upswing in mass media coverage of credit and debt issues.

On the other hand, if you're familiar with the work of the conservative ABC News correspondent John Stossel, you won't be surprised to hear that--despite every indication that the rate of complaints against abusive and out-of-control debt collectors is skyrocketing--he was somehow able to muster a story that's largely sympathetic to the collection agencies; debt collectors, it turns out, are people too.  ("Is Debt a Four Letter Word?  Why Some Americans Need to Learn to Pay Up").  Along similar lines, The New York Times yesterday ran an astonishing column by the Cornell economist Robert Frank, comparing payday lenders to blameless lions in a jungle of lax credit--moral outrage against the industry, the author suggests, is misdirected; they're just following their Darwinian role preying on weaker members of the community.

More on Tax Refund Anticipation Loans

    By Brian Wolfman

    The National Consumer Law Center and the Consumer Federation of America have issued a press release warning consumers to avoid tax refund anticipation loans (RALs) and reporting on the state of the RAL industry.  The press release comes in advance of the groups' annual comprehensive report on RALs, which will be available later this month.  To give you a sense of where the NCLC and CFA are coming from, here's an excerpt from the press release:

  Some of America’s most cash-strapped taxpayers – those from low- and moderate-income families – spent nearly $1 billion in the latest year recorded for what is almost always an unnecessary product: the so-called “refund anticipation loan” at income tax time. With another tax season gearing up, consumer advocates at the National Consumer Law Center (NCLC) and Consumer Federation of America (CFA) are warning taxpayers to steer clear of refund anticipation loans (RALs), one of the most avoidable tax-time expenses. New figures reveal that RALs drained about $960 million in loan fees, plus over $100 million in other fees, from the wallets of nearly 9.6 million American taxpayers in 2005. “Taxpayers can save themselves over a billion dollars by just saying ‘no’ to quick tax refund loans,” says NCLC staff attorney Chi Chi Wu. “These loans take a chunk out of your hard earned tax refund, and they expose you to the risk of unmanageable debt if your refund doesn’t arrive as expected.”

     Michelle Singletary discussed the NCLC-CFA findings in her "Color of Money" column in today's Washington Post.  Late last year, NCLC and CFA issued a report on new forms of RALs - - "pay stub" and "holiday" RALs - - which give consumers the opportunity to acquire debt at crushing interest rates year 'round.   I blogged about the earlier report here.