Deal quickly with your debt: Mark Carney’s serious now

Carney sets the stage It’s clearly time to start listening to Mark Carney when he talks about getting consumer debt under control.

The Bank of Canada governor and his colleagues today laid the groundwork for that inevitable hike in interest rates, holding steady on their benchmark rate but signalling it’s going to change, The Globe and Mail’s Jeremy Torobin reports.

“In light of the reduced slack in the economy and firmer underlying inflation, some modest withdrawal of the present considerable monetary policy stimulus may become appropriate, consistent with achieving the 2-per-cent inflation target over the medium term,” the central bank said as it held its overnight rate at 1 per cent.

“The timing and degree of any such withdrawal will be weighed carefully against domestic and global economic developments.”

That’s the key, of course. The Canadian economy is looking up – indeed, the Bank of Canada forecast growth of 2.4 per cent both this year and next – but the euro crisis still haunts markets and the U.S. economy remains on uncertain footing.

“Overall, economic momentum in Canada is slightly firmer than the bank had expected in January,” it said, its statement sparking a surge in the Canadian dollar (CAC/USD-I).

“The external headwinds facing Canada have abated somewhat, with the U.S. recovery more resilient and financial conditions more supportive than previously anticipated. As a result, business and household confidence are improving faster than forecast in January … The degree of economic slack has been somewhat smaller than the bank had anticipated in January, and the economy is now expected to return to full capacity in the first half of 2013.”

Yet again, though, as he has for months now, Mr. Carney warned on consumer debt. That debt burden has been at record levels, and economists expect it to rise even more.

Toronto-Dominion Bank economist Craig Alexander, for example, said in a recent forecast that he believes the debt-to-income ratio among Canadians could climb to about 160 per cent, the level that caused such trouble for the U.S. and Britain.

“Household spending is expected to remain high relative to GDP as households add to their debt burden, which remains the biggest domestic risk,” the central bank said.

Mr. Carney is “clearly uncomfortable” with rates below inflation as consumer debt pushes ever higher and the economy heads toward capacity, said deputy chief economist Douglas Porter of BMO Nesbitt Burns.

The timing of rate hikes is left an open question, but some are betting we’ll see them this year. Contrast that to the Federal Reserve’s expectation to hold steady until late 2014.

“The bank seems to be thinking about a small string of rate hikes at some point late this year, saying that some ‘modest’ reduction in stimulus ‘may’ become appropriate, but there’s enough doubt in that forecast that it also says that the timing and magnitude of tightening will be ‘weighed carefully,'” said chief economist Avery Shenfeld of CIBC World Markets.

Michael Babad

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Consumer advocates turn on CFPB over credit card rules

The Consumer Financial Protection Bureau is taking criticism from consumer advocates after announcing on Thursday that it is considering repealing a ban on fees that card issuers can charge consumers to open an account.

Following the passage of the 2009 Credit Card Accountability, Responsibility and Disclosure Act, annual fees charged during the first year after opening an account were capped at 25 percent of the credit card’s limit. The Federal Reserve extended the cap in April 2011 to include initial fees for opening the account, including application fees, according to Government Executive.

In 2011 a South Dakota district court attempted to block the extended rule, arguing that the 2009 Credit CARD Act was not meant to cap initial fees. The CFPB has requested public comment on whether the agency should seek to support the injunction.

Several consumer advocacy groups issued statements to the agency, encouraging the CFPB to “stay strong” against moves by “predatory lenders” to cut back rules designed to protect the American consumer. These groups have also requested that the agency appeal the injunction, Government Executive reports.

Many have also speculated that the CFPB does not want to alienate the financial industry by supporting the ban on initial fees.

“The CFPB was in a difficult place in light of the district court’s ruling,” Lauren K. Saunders, a managing attorney at the National Consumer Law Center, said, according to Government Executive. “We hope that after the comment period is over, they will decide to retain the rule, and we do not question the bureau’s commitment to protecting consumers.”

Some also cited the agency’s recent operational beginning as a reason for dodging confrontation with the courts. Ed Mierzwinski, a consumer program director at PIRG, said that the agency “either made a mistake in reading the case, or is being risk-averse. As a new agency, they won’t want to lose in court,” Government Executive reports.

Chi Chi Wu, an attorney for the National Consumer Law Center, said that the ban is designed to prevent credit card issuers from charging exorbitant fees on a low-limit credit card.

“Charging $170 for a credit card with available credit of $225 is exactly the sort of abuse that the fee-harvester rule should prohibit,” Wu said, according to Government Executive. “The CFPB should not back down in protecting consumers from this sort of chicanery.”

Bryan Cohen

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Ignoring warning, racking up debt

Canadians fond of cheap borrowing

Canadians are continuing to heap on non-mortgage debt, despite warnings from top officials about the perils of cheap borrowing, according to a consumer credit study released Thursday.

Equifax Canada’s quarterly consumer credit trends report found consumer indebtedness, excluding mortgage debt, grew 3.4 per cent year-over-year in the first quarter.

New loans opened during the quarter were up by about one per cent.

The biggest increase in outstanding balances was for auto finance loans and leases, which grew by 10 per cent from the first quarter of 2011.

“Interest rates are still obviously very low so people are still borrowing, but I don’t know if it’s a good or a bad news story,” said Nadim Abdo, vice-president of consulting and analytical services at Equifax Canada.

“It is not surprising to see consumer credit continue to increase, given the significantly improved levels of consumer delinquencies and bankruptcies witnessed in the last year, coupled with record-low consumer borrowing rates.”

Since the recession, the Bank of Canada has kept interest rates low to stimulate the economy. The central bank’s current overnight lending rate — which affects prime rates at banks — is one per cent.

However, the plan to get consumers spending comes with a consequence that could spell economic trouble in times ahead.

With household debt at an all-time high above 150 per cent of income, the Bank of Canada has declared it the No. 1 domestic risk to the economy.

In a recent interview, bank governor Mark Carney lamented the comfort level of Canadians with high debt, attributing it to the illusion of affordability at a time of sky-high home values and floor-low interest rates.

If house prices fall, however, Canadians could find themselves in a situation where their net assets decline as interest rates and hence their mortgage payments rise. Even a return to normalized rates would render 10 per cent of households financially vulnerable.

In signs that consumers may be improving their overall credit situations, credit-card debt decreased by 2.1 per cent year-over-year, continuing a downward trend for the past six quarters, while consumer bankruptcies have decreased by 3.1 per cent since the same period last year.


The Canadian Press

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Consumer Bureau Declines to Resist Upfront Credit Card Fees

In one of the first tests of its willingness to show its muscle, the new agency created to protect consumers declined on Thursday to put up a fight.

The agency, the Consumer Financial Protection Bureau, introduced a proposal that would make it easier for credit card issuers to charge fees before borrowers’ accounts were officially open.

The bureau, which began overseeing many consumer financial products last year, said it was issuing the proposed rule in response to a federal court decision that challenged how the Credit Card Act was being applied. The act, which took effect in February 2010, put several rules in place aimed at curbing abusive lending practices.

Part of the new law said that credit card issuers could not charge fees equal to more than 25 percent of the borrower’s credit limit in the first year after the account was opened. But after certain credit card issuers started charging application or processing fees before consumers’ accounts were opened, the Federal Reserve expanded the rule so that the fee limit would also apply to those upfront charges. That’s the piece of the rule that the consumer protection agency, which has since assumed regulatory authority, is proposing to eliminate.

The bureau declined to say why it took this course. But some consumer advocates said they believed that the consumer agency, led by Richard Cordray, may be backing down because it has decided to “pick its battles,” while trying to show that it is not unfriendly to business.

But other advocates said they could not understand why the agency was not taking a more aggressive stand. “Even if it is a small rule, it affects the most vulnerable of consumers — consumers with impaired credit records, often of limited means, who end up with these expensive fee-harvester cards,” said Chi Chi Wu, a lawyer at the National Consumer Law Center, referring to cards marketed to people with tarnished credit histories. “Exactly the sort of consumers that we think C.F.P.B. should stand strongest for.”

The bureau’s proposal stems from a ruling in September by the Federal District Court for South Dakota that granted a preliminary injunction blocking the rule on the upfront fees from taking effect. To resolve the matter, the consumer agency said it was seeking comment on whether it should revise the rule so that it no longer applies to fees charged before an account is opened.

The initial lawsuit that led to the federal ruling was brought in July 2011 by First Premier Bank of South Dakota, which issues cards to borrowers with troubled credit records. The bank told the court that it would “suffer irreparable harm” if it were not allowed to collect the upfront fees. “The regulation will threaten First Premier’s very existence by causing the loss of millions of dollars in profits,” the bank said.

It also argued that it is “one of the few businesses in the country that offers such high-risk borrowers the chance to rebuild their credit history.”

A First Premier spokeswoman, Brenda Bethke, said Thursday that the bureau’s proposal is under review by its legal counsel and declined to comment.

Odysseas Papadimitriou, chief executive at, a credit card comparison Web site, said that to his knowledge, First Premier was the only bank that has been trying to make up for revenue that had been crimped by the new credit card regulations by charging more upfront fees. “However, you can count on other banks to start doing the same thing if consumers embrace these high-fee credit cards,” he added. “A smarter strategy for the C.F.P.B. might be to drop the amendment and the associated legal battle but require any issuers that charge fees before the account is opened to send a notice that clearly shows consumers how much their credit card will cost them.”

But some consumer advocates said they still believe that the fees are egregious enough to warrant more of a fight. They said First Premier began charging a $95 processing fee before the card account was opened, as well as a $75 annual fee. Yet the credit limit on the card was $300.

“The C.F.P.B. should not back down in protecting consumers from this sort of chicanery,” Ms. Wu said.

The consumer agency said all comments on its proposal must be received by June 11.

“We welcome and want public feedback on this proposal,” the agency said.


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‘No Runaround’ Mortgage Rules Proposed by CFPB

The Consumer Financial Protection Bureau is taking aim at the mortgage industry again, this time focusing on making mortgage servicers provide customers with better and more transparent information about their home loans. The CFPB is unveiling a series of proposed rules for the industry, which it will formalize this summer and implement at the beginning of next year. Director Richard Cordray said in a statement consumers should be able to expect “no surprises and no runarounds” when it comes to their mortgage.

Many borrowers, especially those with adjustable-rate mortgages or who have fallen behind on their payments, say they have a tough time getting straight answers from the bank servicing their loan about what they can do to avoid foreclosure. The rules being proposed by the CFPB would have the potential to benefit all homeowners or buyers, but it’s clear that the people who would benefit the most are those who have the most to lose — people facing foreclosure.

“For too long, mortgage servicers have not been held accountable to their customers, and the result has been profoundly punishing to homeowners in distress,” Cordray said.

This initiative parallels and in some way mirrors the settlement being worked out between a consortium of 48 state attorney generals and the big banks that handle more than half of the mortgage servicing business in the country. According to the Los Angeles Times, Ally Financial, Bank of America, Citigroup, JPMorgan Chase and Wells Fargo service around 55% of the mortgages held by American homeowners. These five have promised to adopt rules that would benefit borrowers as part of a $25 billion settlement related to foreclosure abuses (a topic first brought to national attention by Cordray when he was attorney general of Ohio).

The CFPB rules would require all servicers to provide homeowners with easier-to-understand mortgage statements, including a breakdown of their principal, interest, fees, and any escrow payments, along with the amount of and due date of the next payment. In February, the agency published a prototype disclosure box for mortgages that would spell out a lot of this information in a clear, standardized format.

These new rules would also provide borrowers with tools to help them avoid foreclosure. Servicers would have to alert people with adjustable-rate loans before any changes to the rate kicked in, and offer them other options in case the new payment was unaffordable. For people already behind on their payments, servicers would have to provide information about avoiding foreclosure. Finally, the CFPB would prohibit servicers from purchasing hazard insurance — ostensibly on behalf of borrowers but often at a much higher cost than homeowners could purchase on their own — without giving them pricing details and alternative options.

Finally, the rules would mandate what used to be considered just ordinary good customer service: Mortgage servicers would be required to keep records up-to-date, record payments promptly, fix mistakes in a timely manner and be better about communicating with their customers.

Martha C. White

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CFPB Proposes Rules to Crack Down on Mortgage Servicers

“No surprises, No Runarounds.” That is the theme of new rules the Consumer Financial Protection Bureau proposed Tuesday for the companies that “service” your mortgage.

That means your mortgage payment would be immediately credited; your records would be accurate and up-to-date; your statement would be clear and easy to understand; and you would be notified months in advance of a rate adjustment.

The rules would officially be introduced this summer and finished by January 2013, the bureau said, adding it was given authority to impose the rules by the Dodd-Frank Wall Street Reform and Consumer Protection Act.

You do not get to select your so-called mortgage servicer, your bank does. Until the mortgage crisis, many of these companies operated under the radar. They collect your monthly payment; handle customer service, escrow accounts, collections, loan modifications and foreclosures.

In February, the nation’s top servicers – Ally/GMAC, Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo – reached a $25 billion settlement with 49 states and the federal government.

According to “The agreement settles state and federal investigations finding that the country’s five largest loan servicers routinely signed foreclosure related documents outside the presence of a notary public and without really knowing whether the facts they contained were correct.  Both of these practices violate the law.”

Other independent “nonbank” mortgage servicers were not included in that settlement, pointed out the bureau’s director, Richard Cordray, in an opinion piece for

“These nonbank servicers used to receive little or no oversight,” Cordray wrote. “The CFPB is changing that. Our new authority allows us to supervise both banks and nonbanks. Indeed, for the first time, the federal government will have the authority to look into the entire mortgage servicing market. This is a critical improvement: We will be able to monitor all players to make sure they abide by federal consumer financial laws.”

According to the National Consumer Law Center, there is a long way to go in the foreclosure crisis. “In 2012, the U.S. is reaching the mid-point of a devastating foreclosure crisis, expected to result in an additional 10 million homes being lost (nearly 3 million homeowners have already been displaced through foreclosures).”

During the mortgage crisis, the bureau said in its release about the new rules, some borrowers complained they did not receive enough information to avoid foreclosure, others said they could not get answers from their servicers or have errors corrected.

The rules “would provide consumers with clear and timely information about changes to their mortgages so they can avoid costly surprises,” the bureau said.

If you were delinquent on your payments, or fear that you would soon be, the mortgage servicers would be required to offer “direct, easy, ongoing access to employees who are dedicated and empowered to help troubled borrowers.”

What’s more, servicers would have to make “good-faith” efforts to contact you and inform you of options to help avoid foreclosure.

The bureau said the rules under consideration were meant to address two critical problems: “lack of transparency and lack of accountability.”

In announcing the new rules, Cordray said: “For too long, mortgage servicers have not been held accountable to their customers, and the result has been profoundly punishing to homeowners in distress.”

Mickey Meece

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Household debt casts long economic shadow: IMF

Housing busts and recessions are more severe and last for at least five years when they follow a big run-up in household debt, according to a study released on Tuesday by the International Monetary Fund.

The findings suggest that economies of the United States, the UK and other European countries that saw consumer debt balloon along with house prices ahead of the onset of the financial crisis in 2007 may only just be starting to see the light at the end of the tunnel.

Weak consumer spending has been holding back a strong recovery in the United States. The UK has a similar problem and has been skirting a second recession, while several euro zone countries are confronting another downturn.

The IMF studied advanced economies over the past three decades and found that household spending and national output fall more steeply, unemployment rises further, household deleveraging — whether as a result of debt default or debt pay down — is more pronounced when a crash is preceded by a large run-up in consumer debt.

The United States, Spain, Iceland, Ireland and the UK all saw a concurrent boom in asset prices that made large debt loads easy to handle. But once asset prices plunged, many households saw their wealth and incomes shrink and found their debt loads less manageable.

Monetary policies can ease the pain quickly via a reduction in interest rates to reduce the cost of household debt repayment, the IMF said. And government policies can boost household incomes through unemployment benefits and other social support programs, which improve the ability to repay debts, as the Scandinavian economies showed in the 1990s.

“These programs help reduce reinforcing cycles of declining house prices and lower aggregate demand,” the IMF said.

These programs must be carefully designed, however, and they have their limits. Central banks cannot cut rates below zero, and fiscal policies that are too restricted have limited effects and ones that are too broad undermine the health of the financial sector, the IMF said.

The study is included in the World Economic Outlook, due for release next week when the IMF holds its spring meetings.

Stella Dawson

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No lifeboat for Titanic load of personal debt

Sunday is the 100th anniversary of the sinking of the Titanic, which provides  many financial cautions, such as always be extremely careful when pulling over  to pick up ice.

The great ship’s best lessons come from “Titanic” director James Cameron, who  plugged his movie’s re-release by plunging 6.8 miles to the ocean’s deepest  spot, making two vital points:

It actually is possible to sink farther underwater than my mortgage.

Even if you put 35,000 feet

of water between you and the surface, you can never escape the sound of  Celine Dion wailing that infernal song.

A boatload of debt

Like the Titanic, Americans felt foolishly unsinkable themselves in piling on  debt in the past, and may be doing it again.

According to the Federal Reserve, total consumer debt hit its highest level  in three years during February. Debt had fallen 4.5 percent — $114billion — between 2008 and 2010. Revolving credit, such as credit cards, remains low, but  other categories, such as auto and student loans are up, increasing total debt  by $113.5billion and nearly back to its pre-bubble level.

With the economy slowly improving, credit is more available, so it makes  sense that we’re using more of it — as long as we don’t run up tabs like we had  before the credit bubble burst. The lesson from that Titanic bust, warns Mary  Hunt, author of “7 Money Rules for Life,” is simple: Don’t run yourself into a  financial iceberg.

“The No. 1 rule is the importance of spending less than you earn,” Hunt says.  “If you spend all you earn, or more than you earn, you’re pretty much in  trouble.”

If you skip that rule, Hunt says you can forget her other six guidelines. “If  you’re living beyond your means, and you’re borrowing money, that’s toxic, and  it’ll poison your life.”

Don’t sink financial ship

So, while the tide of the slowly improving economy may be lifting most boats,  don’t take on more debt than you can afford.

Think twice, for example, if you’re heading to Cullen’s Upscale American  Grille in Houston for the re-created 10-course first-class dinner for 12 from  the Titanic’s doomed final night. It includes oysters a la russe, filet mignons  Lili, $400-per-ounce brandy and will run you $12,000.

Instead, stay home and economize with a nice salad. That way you really can  mark the occasion just like the Titanic — by hitting the iceberg.

Brian O’Connor

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Consumers borrowed more in Feb., but card debt declined

Americans took out more loans to buy cars and attend school in February but used credit cards less frequently for a second straight month.

The Federal Reserve said Friday that consumer increased borrowing by $8.7 billion, sixth straight monthly increase.

The jump in borrowing was driven by an $11 billion increase in the category that mostly measures demand for auto and student loans. Borrowing on credit cards fell $2 billion after a $3 billion decline in January.

In February, total consumer borrowing rose to seasonally adjusted $2.52 trillion. That’s nearly at pre-recession levels and up from a post-recession low of $2.39 billion in September 2010. Borrowing had tumbled for more than two years during and immediately after the recession.

Consumer borrowing rose by $18.6 billion in January, following similar gains in December and November. The gains for those three months were the largest in a decade.

A rise in borrowing could suggest that consumers are feeling more confident about the economy. However, few are comfortable enough to step up credit card use. Consumers carried $799 billion in credit card debt in February — 15% less than in December 2007, first month of the Great Recession

The job market slowed in March after three of the best months of hiring since the recession. Employers added just 120,000 jobs last month — half the December-February pace. The unemployment rate fell from 8.3% to 8.2%, the lowest since January 2009, as more people left the workforce.

Many economists blamed seasonal factors for much of Friday’s disappointing jobs report from the Labor Department. Even with the March pullback, the economy has added an average of 212,000 jobs per month from January through March.

The increase in hiring has helped boost consumer spending, which jumped in February by the most in seven months.

But consumers are also borrowing more at a time when their wages have not kept pace with inflation. And they are paying more for gas — the average price per gallon nationally was $3.94 on Friday.

Households began borrowing less and saving more when the 2007-2009 recession began and unemployment surged. While the expectation is that consumers are ready to resume borrowing, they are not expected to load up on debt the way they did during the housing boom of the last decade.

The Federal Reserve’s borrowing report covers auto loans, student loans and credit cards. It excludes mortgages, home equity loans and other loans tied to real estate.

Derek Kravitz

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Consumers and compliant debt relief service providers help the CFPB

Consumers and compliant debt relief service providers can help the CFPB reign in debt relief companies who are employing Unfair Deceptive Abusive Acts or Practices.

Consumer Financial Protection Bureau (CFPB) accepts direct consumer complaints and also offers an industry whistleblower program.

The Debt Relief industry is a very competitive environment with hundreds of companies for debt ridden consumers to turn to for help. There are many players operating in the Debt Relief space making less than truthful claims in their marketing materials and on their website. Vulnerable consumers most often will believe what they read and based on the company’s claims will end up working with a company that does not have their best interest at heart.

The Consumer Financial Protection Bureau (CFPB) is the new sheriff in town and is tasked with protecting consumers from the unfair, deceptive and abusive acts or practices (UDAAP) of companies offering debt relief services. The CFPB has said that their main tool will be to use its enforcement authority relating to  (UDAAP). The CFPB will set the standards for what is an “unfair”, “deceptive” or “abusive” act or practice for purposes of their authority to prohibit such acts or practices.

From the CFPB website:

“Unfair, deceptive, or abusive acts and practices (UDAAPs) can cause significant financial injury to consumers, erode consumer confidence, and undermine the financial marketplace. Under the Dodd-Frank Act, it is unlawful for any provider of consumer financial products or services or a service provider to engage in any unfair, deceptive or abusive act or practice. The Act also provides CFPB with rule-making authority and, with respect to entities within its jurisdiction, enforcement authority to prevent unfair, deceptive, or abusive acts or practices in connection with any transaction with a consumer for a consumer financial product or service, or the offering of a consumer financial product or service. In addition, CFPB has supervisory authority for detecting and assessing risks to consumers and to markets for consumer financial products and services.”

The CFPB definitions of UDAAP are posted on their website here:

Consumers who believe that the debt relief company that they have worked with operated in an unfair, deceptive or abusive manner in any way can now work directly with the CFPB by submitting a complaint against the company and can track the CFPB’s progress with their complaint. Debt relief companies are now directly accountable to their consumer clients and federal regulators. Companies would be well advised to resolve all consumer complaints including refund requests directly with their client before being reported to the CFPB. Companies that do not satisfy the CFPB after a consumer complaint is filed can quickly find themselves out of business and facing stiff penalties.

Compliant debt industry service providers have a strong desire to provide services based on truth and transparency. There is a very large number of debt relief companies who are operating in total compliance of all industry regulations and providing their consumer clients with outstanding customer service. These compliant service providers are being unfairly judged by the actions of their non-compliant competitors.

Consumer focused and compliant debt relief providers can now do something to help themselves while helping the CFPB rid the industry of the companies who are operating non-compliantly, providing poor customer care and putting their profits ahead of helping debt burdened American consumers.

The CFPB has included a special page on their website which encourages individuals (whistleblowers) to report companies violating any consumer financial law or violating a component of UDAAP for direct investigation by the bureau. The CFPB encourages the submission of information from “a current or former employee of such a company, an industry insider who knows about such a company, or even a competitor being unfairly undercut by such a company“.

With help of compliant debt relief companies and industry insiders the CFPB has the ability using it’s authority under UDAAP to radically and quickly clean the Debt Relief industry of companies who do not play fairly and do not place the consumer first.

The future of the consumer debt relief industry has never looked so bright for providers who will play by the new rules and will focus on providing stellar customer care.




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