Payday Loans Are Dead! Long Live Payday Loans

http://www.nakedcapitalism.com/2011/09/payday-loans-are-dead-long-live-payday-loans.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29

 Helping financial firms who do payday loans is another ALEC special, folks, same as foreclosure laws driven by corporate overlord..

Something someone should take a deep look out to see how CITIZENS are being ripped off big time.  Another conservative highjack that will be worked through state Legislatures.  Here's Naked Capitalism on the topic today:

Payday Loans Are Dead! Long Live Payday Loans!

In yet another example of finance double-speak, major financial players have moved into that netherworld of the functional equivalent of loansharking known as payday lending.

While in theory short-term loans can be a boon to cash-strapped individuals, in practice, the usurious interest of payday loans result in many borrowers falling into a debt treadmill. The Pentagon was so concerned about the way that payday lending could wreak havoc with the lives of combat personnel that it restricted the rates that could be charged to military personnel to 36%. The industry howled that rules would drive payday lenders out of the business of serving the armed forces (they had previously been targeting bases). I suspect that result was a feature, not a bug.

In 2008, the Wall Street Journal reported on how payday lenders targeted the elderly. This extract gives you some insight into the business model:

The crowd represents the newest twist for a fast-growing industry — lenders that make high-interest loans, often called “payday” loans, that are secured by upcoming paychecks. Such lenders are increasingly targeting recipients of Social Security and other government benefits, including disability and veteran’s benefits. “These people always get paid, rain or shine,” says William Harrod, a former manager of payday loan stores in suburban Virginia and Washington, D.C. Government beneficiaries “will always have money, every 30 days.”

The law bars the government from sending a recipient’s benefits directly to lenders. But many of these lenders are forging relationships with banks and arranging for prospective borrowers to have their benefits checks deposited directly into bank accounts. The banks immediately transfer government funds to the lenders. The lender then subtracts debt repayments, plus fees and interest, before giving the recipients a dime.

As a result, these lenders, which pitch loans with effective annual interest as high as 400% or more, can gain almost total control over Social Security recipients’ finances….
An analysis of data from the U.S. Department of Housing and Urban Development shows many payday lenders are clustered around government-subsidized housing for seniors and the disabled…

But some industry critics say fixed-income borrowers are not only more reliable, they are also more lucrative. Often elderly or disabled, they are typically dependent on smaller fixed incomes and are rarely able to pay off their loans quickly. “It’s not like they can work more hours,” says David Rothstein, an analyst at Policy Matters Ohio, an economic research group in Cleveland. “They’re trapped.”

The latest sighting, via the Associated Press (hat tip April Charney) is that bigger, more reputable-looking banks are offering payday loans, but predictably calling them something else, in much the way that the term “escort service” is meant to imply something more refined than “prostitution”. From the Clarion Ledger:

Perhaps muttering, if you can’t beat ‘em, join ‘em, big banks are now aping the payday lending industry and offering short-term loans at rates that once were called usurious.

The banks are not calling them payday loans and say there are safeguards that distinguish them from payday loans. But, it’s still a short-term note. Wells Fargo, for example, offers its loans for direct deposit customers. As The Associated Press has reported, it says customers can only borrow up to half their direct deposit amount or $500, whichever is less. Its fees are cheaper too, at $7.50 for every $100 borrowed.

That still amounts to a 261 percent annualized interest rate over the typical pay cycle. The amount of the advance and the fee are automatically deducted from the next direct deposit.

The article does point out that Mississippi has put restrictions on payday loans. The maximum loan is $400 and the charges are limited to an equivalent of an interest rate of 572% a year. Since there appears to be no restriction on how many loans a consumer can have at any time, this legislation doesn’t cut it as a fig leaf.
If you watched Congresscritters grilling Elizabeth Warren in July, several pressed her on whether she would use the CFPB’s power to ban products. She ducked the question. There is something very diseased in our society when a public official can’t cite the Pentagon’s stance and say there are interest rates that are intrinsically damaging to consumers and therefore should not be permitted. A loan with an effective annual interest rate of over 50% is the financial version of an exploding toaster.

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Consumer Financial Protection Bureau to open without a director - Los Angeles Times

Consumer Financial Protection Bureau to open without director: Consumer Financial Protection Bureau to open without a director - Los Angeles Times

With political wrangling holding up the appointment of a leader, the federal government's new agency to protect consumers from financial fraud won't have the authority to regulate mortgage brokers and other firms outside the conventional banking industry.

• 

Elizabeth Warren, the White House and Treasury advisor in charge of setting… (Joshua Roberts, Bloomberg)

July 16, 2011|By Jim Puzzanghera, Los Angeles Times

When it opens its doors next week, the federal government's new agency to protect consumers from financial fraud won't be quite the aggressive watchdog promised a year ago.

Because of political squabbling, the Consumer Financial Protection Bureau formally will launch without an appointed director. And the lack of leadership has real consequences.

The agency won't have power, for instance, to crack down on mortgage brokers, some of which helped lead the nation into the housing debacle four years ago. It also won't have authority over other largely unregulated sectors of the financial services industry, such as payday lenders and remittance companies such as Western Union, that it was created to police.

"It's very disappointing that the centerpiece of the president's financial reform agenda is not ready to hit the ground running," said Travis Plunkett, legislative director for the Consumer Federation of America.

Vehement opposition to the agency from Republicans and much of the financial services industry has stalled efforts by the Obama administration to install a director, a five-year appointment that must be confirmed by the Senate.

With the agency formally opening for business Thursday, there is not enough time to put a director in place. And without an appointed director, the agency legally cannot exercise expanded consumer protection powers that Congress granted it in last year's financial regulatory overhaul to try to prevent another crisis, government officials said.

Besides being unable to use its authority to regulate mortgage brokers and other financial firms outside the conventional banking industry, the agency would be denied, at least initially, broad authority to prohibit "unfair, deceptive or abuse acts or practices" or to issue rules requiring better disclosures of the terms of financial products, the inspectors general of the Treasury Department and Federal Reserve determined.

The consumer bureau still will be able to function under its de facto acting director — White House and Treasury advisor Elizabeth Warren, who has been working since last year to hire staff and organize the sprawling agency.

And it will have plenty of other powers to exercise. The agency immediately will take over from banking regulators the authority to enforce 18 consumer protection laws that existed before last year's financial overhaul. Those include rules governing credit cards and oversight of mortgage servicers.

Some banks aren't happy that they will face oversight by the consumer agency beginning next week while competitors, such as payday lenders, initially won't.

"One of the purposes of the CFPB was to have a level playing field and that certainly will not be accomplished," said Richard Hunt, president of the Consumer Bankers Assn. Visiting a bank in Tupelo, Miss., this week, Hunt said he counted 14 payday lenders in a 1-mile stretch.

Rep. Barney Frank (D-Mass.), one of the architects of the financial regulatory overhaul, said the agency's situation wasn't a major problem — yet.

"A month without raising the debt limit would be a disaster," he said. "A month of not adopting new rules for check cashing — not a disaster."

But Frank said that if the agency remains without an appointed head for "many more months" that he would be "very disappointed."

Warren acknowledged the limited initial authority, telling lawmakers this week that when the consumer agency has its director and fully operational powers, it will be "a very good day."

Some Republican lawmakers, who opposed the creation of the agency, said it should not get any power until it has a Senate-confirmed director.

"I think everybody's still very much in a wait-and-see mode, and we're running up against a deadline without somebody to give the direction that's needed," said Rep. Shelley Moore Capito (R-W.Va.), who introduced legislation blocking the transfer of all powers to the agency until it has a director.

Capito and nearly every other Republican in Congress opposed the creation of the Consumer Financial Protection Bureau, arguing it would restrict access to credit by average Americans. Banks opposed the new agency as well, saying it made no sense to remove consumer protection from the oversight of banking regulators who could balance it with the health of those financial firms.

Warren, a Harvard law professor who specializes in consumer bankruptcy, argued that those regulators made consumer protection a low priority. In 2007, she proposed creating an agency to protect consumers from bad loans and other financial products.

The idea quickly was embraced by consumer advocates and the Obama administration, who made it the focal point of the most sweeping rewrite of financial regulations since the Great Depression. They charged that existing federal regulators put bank profits ahead of consumer protection in the years leading up to the subprime market meltdown.

Warren appeared the obvious choice for the agency's powerful director. But strong Republican opposition made the White House nervous that the nomination would be filibustered in the Senate, preventing Warren from playing any role in organizing the agency.

So in September, Obama appointed Warren to dual White House and Treasury advisor positions that did not require Senate confirmation. Under the law, Treasury Secretary Timothy F. Geithner is responsible for launching the agency and would exercise its authority until a director was confirmed.

Geithner delegated the job to Warren, who has been hiring staff, meeting with bankers and consumer groups and readying the agency for operations. In May, nearly all Republican Senators vowed to block any nominee for the job unless the administration made major changes to the agency's structure, including replacing the director with a five-member bipartisan commission.

White House spokeswoman Amy Brundage said Obama "will continue to oppose any efforts like these that weaken the agency and hurt American consumers." She said the president is considering "a number of candidates" but has made no decision.

Obama could overcome the Republican threats by making a so-called recess appointment when the Senate goes on break next month, temporarily installing a director until the end of 2012 without a confirmation vote.

But that would be a highly controversial move that would rob the new director of a five-year term. And Republicans could use procedural tactics to prevent such an appointment by keeping the Senate from technically going into recess.

Plunkett said the consumer bureau could run for a short time without an appointed director, but that will slow the agency from addressing longstanding holes in consumer protection.

"Not having a director merely pushes the agency back further," he said. "It's like holding the runner at the beginning of a race. It's going to make it harder for the runner to catch up."

jim.puzzanghera@latimes.com 

Why Elizabeth Warren Scares Republicans

By Brian Dockstader

May 23, 2011 - 6:28pm ET

“There is only one person who should lead the Consumer Financial Protection Bureau and that is the brilliant advocate who championed it, the remarkable administrator who has helped get it off the ground, and the middle class champion who will make it work – Elizabeth Warren.”

—Robert L. Borosage, Co-director, Campaign for America's Future

That is a statement that even Republicans couldn't argue with--with the small exception that Republicans view these as negative qualifications. The rest stands, however, because no one is arguing that Elizabeth Warren shouldn't be appointed director of the Consumer Financial Protection Bureau (CFPB) because she isn't the best person for the job. No, the opposition to her comes from the exact opposite position: 

Republicans oppose Elizabeth Warren because she is too good at her job.

Since when is being too good at your job--too qualified, too committed--a bad thing? Well if you are a conservative, bankrolled by Wall Street and beholden to their interests, these are all bad qualities because what you really want is to destroy all financial regulation.

The CFPB was a key part of the 2010 Wall Street Reform and Consumer Protection Act that sought to rebuild the regulatory framework established as a response to the Great Depression that had been slowly dismantled by conservatives over the years. All honest observers, even many prominent conservatives, have acknowledged the role of financial deregulation in contributing to the financial collapse and subsequent recession. Wall Street reform and the CFPB were an attempt to make sure such an economy-devastating collapse never happened again. Wall Street had to be reined in. No more playing roulette in the Wall Street casino with the US economy. What could be more sensible than that?

Jump back to now--the CFPB has been without a director at the helm since it was established, and it is legally mandated to fill that position by July. During this time, Elizabeth Warren has proven "her value as an advocate and as an administrator" while setting up the "only financial bureau dedicated to the protection of consumers." Meanwhile, Wall Street lobbyists and the best minority party they can buy have been hard at work trying to cripple the bureau, to make sure the financial sector remains the dangerous and lawless Wild West that made a handful of people incredibly rich while it wrecked the economy for the rest of us. In short, they want to make sure there is no sheriff in town.

Of course we have a sheriff, ready and waiting, and she just happens to be incredibly qualified and dedicated. She set up the bureau and she has persevered in the face of intense resistance from the Right. She is great at her job. She is fearless.

That has the outlaws (and their henchmen) terrified.

Thus we have Tuesday's Republican-led House Oversight Committee hearing entitled "Who's Watching the Watchmen?," which will again put Warren in the interrogation seat. (Note the irony that after the greatest financial meltdown since the Great Depression, Republicans are more concerned with who is watching the sheriff than who is watching the outlaws who collapsed the system. Talk about distorted priorities.)

In case you were wondering how a committee could be so focused on shackling the sheriff while ignoring the outlaws, you need only look at who is running the show: Rep. Patrick McHenry (R-NC). One has ample reason to question the motives of Warren's inquisitor. Even before McHenry convened the hearing to question Warren about the CFPB he had already co-sponsored a bill that seeks to eliminate her position entirely! (Talk about a rough crowd.) So Mr. McHenry is already coming into this hearing with a clear agenda, one that includes hog-tying the sheriff and shipping her off on the first train out of town--but why? For whose benefit? What's the motive? Well, let's just look at Rep. McHenry's top campaign funders in 2010 (show me the money!):

#1: Wells Fargo - $15,550
#3: Deloitte Touche Tohmatsu - $11,500
#5: American Bankers Association - $10,000
#5: Bank of America - $10,000
#5: Ernst & Young - $10,000
#5: PricewaterhouseCoopers - $10,000
#5: Independent Insurance Agents & Brokers of America - $10,000
#5: American Society of Anesthesiologists - $10,000 (seems relevant, since you'd have to be sedated to not see the quid pro quo going on here)

Well it looks like McHenry has a posse of his own! And I see a trend: McHenry's financial backers read like a laundry list of people who have a vested interest in seeing the sheriff run out of town (and the police station burnt to the ground). Perhaps there might be a connection between what the outlaws want and committee's agenda? Hmm..

Political puppetry aside, it is also important to note that the CFPB isn't some all-powerful agency that is single-handedly restructuring the entire financial sector. It is simply one modest and sensible part of a larger set of reforms that were viewed by many as too moderate too begin with. We are talking about making credit lenders more accountable for their practices--cutting down on the fine print, outrageous fees and other abuses that have turned all too many Americans households into money farms for large banks. You can't get less controversial than that.

Nevertheless, the sheriff is going to be put on trail, to be berated and heckled in the town square, again. This has become a bit of a theme for the Republican-led House Oversight Committee--attack the humble defender of the middle class while pretending that the financial crisis never happened. This game is no secret either. After her first appearance before the tribunal congressional hearing (entitled "Oversight of the Consumer Financial Protection Bureau"--notice the consistent hang up on horribly misplaced priorities), Joe Nocera identified the true agenda of the committee in The New York Times:

And thus the real purpose of the hearing: to allow the Republicans who now run the House to box Ms. Warren about the ears. The big banks loathe Ms. Warren, who has made a career out of pointing out all the ways they gouge financial consumers — and whose primary goal is to make such gouging more difficult. So, naturally, the Republicans loathe her too. That she might someday run this bureau terrifies the banks. So, naturally, it terrifies the Republicans.

You can be certain that Tuesday's hearing will be no different.

Lest I give the impression that this is all about Elizabeth Warren, it should be pointed out that the Senate Republicans have vowed to filibuster any nominee to head the CFPB until the majority concedes to their demands to gut the fledgling bureau. They may be terrified by the prospect of a strong, competent leader like Warren running the CFPB, but that doesn't mean they would be satisfied with a weak leader either. No, the whole bureau must fall to their quest to erase financial reform and keep the Wild West of Wall Street alive and well (until the next completely preventable meltdown).

So the agency needs a leader to be truly effective, however Republicans refuse to allow any leader until the bureau is made completely ineffective. What's a president to do? That much is simple:

The president should stand up to this outrageous extortion. He has the power to make a recess appointment when the Senate goes out of session at the end of this month. He should use that power to appoint Elizabeth Warren, a true champion of working families to head up the agency. It is time to act.

President Obama must stand up to the right-wing obstructionists and make the case for Elizabeth Warren and financial reform. Then, after Republicans again declare they don't care about protecting the country from another financial meltdown and recession, President Obama should use his constitutionally authorized authority to use a recess appointment to make Elizabeth Warren the director of the Consumer Financial Protection Agency. We need it. She deserves it. President Obama can do it. Outlaws be damned. Sign the petition to the President calling for a recess appointment for Elizabeth Warren.

♦ ♦ ♦

Update: To give you an idea of how good (and completely non-controversial) Elizabeth Warren is, the head of the Oklahoma Banker's Association, who at one point (before he knew her) described Warren as "akin to the Antichrist" has been completely won over by her abilities and is now pushing President Obama to give her a recess appointment to direct the CFPB. Really.

 

Update #2: The hearing is scheduled to begin at 1:15pm today (Tuesday). Streaming video should be available on the committee website. As you watch the hearing, see if you can guess which members of Congress have pocketed wagon-fulls of cash from the banking industry. @OurFuturedotorg will also be live tweeting the hearing.

Update #3 (2:40pm): Wow, that hearing got nasty. It was clear from the very beginning that Rep. Henry wanted to attack Elizabeth Warren & the CFPB (his campaign contributions preordained that), but it got so bad that Rep. Yarmuth actually had to apologize to Warren for the rude and disrespectful behavior of the chair (Rep. Henry) and his snarky comments. After watching that circus it is even more clear just how much Republicans fear Elizabeth Warren and financial reform.

Kudos to Rep. Maloney for pointing out that the title of the GOP's hearing should have actually been "Let's Pretend the Financial Crisis Never Happened."