Richard Cordray Is Putting The Smack Down On Payday Lenders

The federal government’s crackdown on abusive financial practices that take  advantage of the working poor is ramping up even before the new cop on the beat – the Consumer Financial Protection Bureau – steps into the  fray.

 

The Federal Trade Commission on Monday filed suit against a payday lender  operation headquartered on a Native American reservation that allegedly bilked  low-wage workers of tens of millions of dollars by charging annual interest  rates as high as 685 percent for short-term loans. The FTC is seeking a court  injunction to stop AMG Services Inc. of Overland Park, Kansas, and affiliated  companies from continuing to operate while the government pursues the case.

“They’ve had a number of states go after them without success,” said Nikhil  Singhvi, an FTC staff attorney. “There’s no tribal immunity for a case brought  by the federal government.”
One of the defendants who allegedly controlled the  lending companies is automobile racer Scott Tucker, according to the FTC. Tucker  and his brother Blaine Tucker allegedly transferred more than $40 million  dollars collected from consumers to Level 5 Motor Sports, which sponsored  Tucker’s racing career.

An attorney also named as a defendant in the complaint, Timothy J. Muir, did  not return phone calls seeking comment. 
Cash-strapped workers who borrow from payday lenders pledge future  earnings to pay off short-term loans, usually by giving the lender electronic  access to the borrower’s bank account.

Loans range in size from $100 to $1,000, depending on state limits, with the  average loan repayment period of two weeks. Finance charges can range from $15  to $30 per $100 borrowed – an annual interest rate of 400 percent or more.

“These are usurious loans that draw money from working families’ ability to  make ends meet,” said Jean Ann Fox, who advocates for stricter rules on payday  lenders for the Consumer Federation of America. The FTC has brought over a dozen  cases against payday lenders in recent years. “The CFPB is only getting up and  running on this issue. We expect them to expend a lot of resources on cracking  down on abusive short-term lending.”

Richard Cordray, the first director of the CFPB, devoted the agency’s first  public hearing to the issue. It was held in Birmingham, Ala., last January  because that city has one of the highest concentrations of payday lending  operations in the country and the City Council recently enacted a six-month  moratorium on start-ups because of their proliferation.

The CFPB recently released a draft guidance on how it plans to police the  industry, which generates an estimated $7 billion a year in fees. While  recognizing that the industry can provide a service to low-income workers  without access to credit cards, Cordray expressed concern that many workers fall behind and  never escape the debt trap.

“Trouble strikes when they cannot pay back the money and that two-week loan  rolls over and over and turns into a loan that the consumer has been carrying  for months and months,” he said at the hearing.

“Soon they are living off money borrowed at a rate of 400 percent.”

The payday lending industry has launched a massive lobbying campaign to roll  back or slow down the new controls on payday lending contained in the Dodd-Frank financial  services reform bill. They’ve also made major donations to Restore Our Future, a “Super PAC” that supports the candidacy of Mitt  Romney, the former governor of Massachusetts and the frontrunner for the  Republican nomination who has pledged to roll back the Dodd-Frank bill.

According to a recent report in USA Today, payday lenders that donated $25,000 or more to  Restore Out Future included Advance America of Spartanburg, S.C.; Jones  Management Services of Cleveland, Tenn.; Community Choice Financial of Dublin,  Ohio; and QC Holdings of Overland Park, Kan. QC Holdings, though located in the  same Kansas town as AMG Services, was not named in the complaint.

Merrill Goozner

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How to Prioritize Your Debt

In the past decade, U.S. consumers have had a hard time maintaining a balance  between their income and their debt due to economic and personal factors.  According to 2011 Federal Reserve statistics, the total amount of consumer debt  in the U.S. was nearly $2.4 trillion in 2010, including credit card and home  loans.

Despite the recent economic upturn, these are financially rough times for  everyone. You work hard for your money and you want to make sure that,  especially during these economically volatile times, it doesn’t go to waste  paying another high interest rate. By prioritizing your debt, you will maximize  your payments, save your credit, and achieve a more manageable debt.

Focus on Your Home First

The roof over your head should always be your main priority. Taking care of  your home mortgage is important, but the options for refinancing your home and  maintaining affordable payments can be daunting. However, with the new HARP 2.0 guidelines released to offer underwater homeowners  better rates, you may be surprised at what you’ll be able to afford.

You can get refinancing options though any of the bigger lenders like Lending  Tree or Quicken Loans. You can also go through mortgage bankers, like the direct mortgage  lender New American Funding, as they don’t charge you brokerage fees like a  mortgage broker would.

Reducing or Eliminating Your Bills

Look for bills that can be reduced or eliminated. Do you really need to pay  $150 each month on cable? (How many of those 1,000 channels are you actually  watching?) With Internet streaming as popular as it is, you can practically  watch any show online for free, too. Or, consider opting for a Hulu subscription  for $8/month.

When it comes to your electricity bill, a few degrees here and there can  easily equate to hundreds of dollars in savings. In the summer, keep it set at  78 when you’re home and 85 when you’re at work. Madison Gas and Electric has a  great chart on how  much you could save with just a few degrees’ difference.

Since it’s getting warmer outside, avoid using your oven as much as possible.  Not only does it increase your electricity bill, but it also warms up the house  so your AC works overtime. Instead, use your outdoor grill as much as  possible.

A certified non-profit credit counselor will help you reduce unnecessary  expenses and make a better budget. Utilize the services of the National Foundation for Credit Counseling and the many  tools they offer to manage your debt.

Paying Off at a Lower Rate

If even after reducing or eliminating some of your bills you still have debt  to take care of, call your creditor and negotiate paying off your debt for a  lower amount but over a shorter span of time. However, the FTC suggests staying away from debt crisis clinics and  be wary of businesses with high fees or demands.

Small steps over time can help you create a better financial future for you  and your family as the economy recovers.

Brian P. Russell

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Why People Hate the Banks

A few months ago, I was standing in a crowded elevator when Jamie Dimon, the chief executive of JPMorgan Chase, stepped in. When he saw me, he said in a voice loud enough for everyone to hear: “Why does The New York Times hate the banks?”

It’s not The New York Times, Mr. Dimon. It really isn’t. It’s the country that hates the banks these days. If you want to understand why, I would direct your attention to the bible of your industry, The American Banker. On Monday, it published the third part in its depressing — and infuriating — series on credit card debt collection practices.

You can’t read the series without wondering whether banks have learned anything from the foreclosure crisis, which resulted in a $25 billion settlement with the federal government and the states. That crisis was the direct result of shoddy, often illegal practices on the part of the banks, which caused untold misery for millions of Americans. Part of the goal of the settlement was simply to force the banks to treat homeowners with some decency. You wouldn’t think that that would be too much to ask. But it was never going to happen without the threat of litigation.

As it turns out, this same kind of awful behavior has been taking place inside the credit card collections departments of the big banks. Records are a mess. Robo-signing has been commonplace. Collections practices hurt primarily the poor and the unsophisticated, just like foreclosure practices. (I sometimes wonder if banks would make any profits at all if they couldn’t take advantage of the poor and unsophisticated.)

At Dimon’s bank, JPMorgan Chase, according to Jeff Horwitz, the author of the American Banker series, the records used by outside law firms to sue people who had defaulted on credit card debt “sometimes differed from Chase’s own files at an alarming rate, according to a routine Chase presentation.” It sold debt to so-called “debt buyers” — who then went to court to try to collect — from one Chase portfolio, in particular, “that had long been considered unreliable and lacked documentation.”

At Bank of America, according to Horwitz, executives sold off its worst credit card receivables for pennies on the dollar. Its contracts with the debt buyers included disclaimers about the accuracy of the balances. Thus, if there were mistakes, it was up to the borrowers to point them out — after the debt buyer had sued for recovery. Most such contracts don’t even require a bank to provide documentation if it is requested of them. (Bank of America says that it will provide documentation.) Horwitz found a woman who had paid off her balance in full — and then spent three years trying to fend off a debt collector. Sounds just like some of the foreclosure horror stories, doesn’t it?

The practices exposed by The American Banker all took place in 2009 and 2010. In response to the problems, JPMorgan shut down its credit card collections, at least for now, and informed its regulator. (It also settled a whistle-blower lawsuit.) Bank of America says that its debt collection practices are not unique to it. Which is true enough.

But lawyers on the front lines say that credit card debt collection remains a horrific problem. “Most of the time, the borrower has no lawyer,” says Carolyn Coffey, of MFY Legal Services, who defends consumers being sued by debt collectors. “There are terrible problems with people not being served properly, so they don’t even know they have been sued. But if you do get to court and ask for documentation, the debt buyers drop the case. It is not worth it for them if they have to provide actual proof.”

Karen Petrou, the managing partner of Federal Financial Analytics, pointed out another reason these practices are so unseemly. In effect, the banks are outsourcing their dirty work — and then washing their hands as the debt collectors harass and sue and make people miserable, often without proof that the debt is owed. Banks, she said, should not be allowed to “avert their gaze” so easily.

“In my church, we pray for forgiveness for the ‘evil done on our behalf,’ ” she wrote in an e-mail.  “Banks should do more than pray. They should be held responsible.”

When I was at the Consumer Financial Protection Bureau a few weeks ago, I heard a lot of emphasis placed on debt collection practices, which, up until now, have been unregulated. So I called the agency to ask if people there had read The American Banker series. The answer was yes. “We take seriously any reports that debt is being bought or sold for collection without adequate documentation that money is owed at all or in what amount,” the agency said in a short statement. “The C.F.P.B. is taking a close look at debt collection practices.”

Not a moment too soon.

By JOE NOCERA

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6 Tips to Consider Before You Spend this Year’s Tax Refund

Do you spend weeks each spring eagerly anticipating your income tax refund? When the money finally comes in, is it gone tomorrow? You’re not alone. Many consumers view tax refunds as unplanned bonuses, but it makes more sense to plan for that new chunk of change so it doesn’t go to waste.

“Making smart decisions with your money is a great way to reward yourself for all the hard work you did to earn it,” said Katherine Hutt, spokesperson for the Council of Better Business Bureaus. “It’s easy to get caught up in the excitement of unplanned or extra cash, but you’ll be glad you saved some of it for a rainy day when the time comes to use it.”

Whether or not you are in need of debt relief, a tax refund provides the opportunity to improve your financial situation. BBB and Clear Point Credit Counseling Solutions recommend the following tips to tax refund recipients:

Pay down your debt. Refund checks usually arrive when many consumers are still struggling with holiday bills. Use your refund for some much needed debt relief: pay off your credit card. If you have an outstanding balance on more than one credit card, you can either try to pay off the lowest balance card first (good for motivation) or direct the funds toward the card carrying the highest interest rate (wiser from financial perspective). Or, apply your refund toward other debts, like a car loan or a home equity loan.

Consider your financial goals. Are you trying to save for a down payment on a house or car? Do you hope to contribute to your child’s college tuition one day? Consider applying your tax refund toward these goals. If you don’t yet have a set of short-term and long-term financial goals, put one together. You’ll be more conscientious about how you spend your tax refund, or any other extra money that comes your way.

Save it for a rainy day. Why not give yourself an even bigger return on your tax refund by putting the money into a savings account–or an emergency savings account, CD or retirement fund? Your tax refund will continue to grow if you put it into savings or invest the money. Plus, it’s always helpful to have a savings account to draw from when a major car repair bill, medical emergency or other unexpected expense comes along. That way, you don’t have to borrow money and add to your debt-load.

Keep things in perspective. Working your way out of debt can seem like a daunting task. Perhaps you assume that a small tax refund check won’t make enough of a dent in your debt. Think again. Every little bit helps. Paying down debt takes time, but steadily increasing your monthly payments does have an impact. Just stay focused on the end goal. It may take years to pay off your debt, but your ultimate reward — being debt-free — will be well worth the effort.

If debt is a continuing problem, consider a credit counselor. Certified consumer credit counseling agencies can assist people who are facing financial challenges and are looking for debt relief. BBB has information on more than 2,000 Credit & Debt Counseling firms, including hundreds of Accredited Businesses. BBB Business Reviews are available for free at www.bbb.org/search.

Consider investing in your home or in others. Even if your finances are in good shape, your refund check provides the opportunity to improve your life or the lives of others. Use the money to spruce up your home or make it more energy-efficient. Improve your career opportunities by taking a class or training course. Use your refund to teach your older children how to handle money. Give them a portion of the refund and help them budget for school, clothing and entertainment expenses and savings. Finally, you may want to donate your tax refund to a charitable organization. You’ll help improve the lives of others, and your charitable gift may reduce next year’s tax burden.

BBB

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Canadians need to make radical changes to improve economic future, Carney says

Prospects for the Canadian economy are improving for the immediate future but the country may be reaching the limits of its growth potential in the longer term unless there’s radical change, Bank of Canada governor Mark Carney says.

In a speech prepared for a Kitchener-Waterloo business audience Monday, the bank governor said he sees some reasons for optimism in recent global developments.

Europe is no longer in crisis, he said, although it is not out of the woods. The region’s debt challenges have moved from “the acute to the chronic.”

Meanwhile, the United States has begun growing slowly, the fundamentals of household spending have improved and employment has finally rebounded.

“The considerable external headwinds have abated somewhat,” Carney said in notes from the speech released in Ottawa.

But it’s the longer-term that concerns Carney, and there the picture is not so bright.

Returning to a theme he has expounded on before, Carney warns that Canada’s economy just can’t continue to trudge along on the same path and expect to prosper.

What it has been doing is depending on consumer spending and trading to the United States to keep its head above water, but both options are tapped out.

“As effective as the reliance on domestic demand in general and household spending in particular has been, the limits of this growth model are becoming clear,” he said, citing the record levels of household debt, slow income growth and that employment in construction to support a hot housing market is already at the highest level in 35 years.

Meanwhile, exports — the other major engine of growth in Canada — have fallen behind mostly because Canada has hitched its wagon to the wrong markets, Europe and the United States.

As a result, exports remain eight per cent below pre-recession levels even as the overall economy has totally recovered.

“Our exports are concentrated in slow-growing emerging economies, particularly the United States, rather than fast-growing emerging markets,” he said.

“In short, our underperformance prior to the crisis was more a reflection of who we traded with than how effectively we did it,” a situation that has been exacerbated the recession.

Canada may call itself an exporting nation, but it is doing it badly, according to Carney’s analysis.

Since 2000, Canada has the second worst export performance in the G20 group of nations. As a part of the total global export market, Canada has gone from a share of 4.5 per cent to about 2.5 per cent and the country’s exports of manufactured goods has been cut in half, he said, a large reason why employment in the factory sector has fallen nearly 500,000 jobs.

The alarming message underscores the reason the Harper government has made trade, particularly to China, India, Brazil and other emerging powers, a key priority in its economic agenda.

Over the past year, the prime minister and his trade point man, Ed Fast, have hop-scotched across Asia, making trips to India, China, Japan, Indonesia and Korea, at each stop announcing new trade deals or negotiations. The government has also expressed interest in joining the Trans-Pacific Partnership, a fast-emerging trade block that may necessitate abandoning the country’s supply management system in dairy and poultry.

Carney’s prescription, has he has previously urged, is for businesses to shift their focus to where growth is, and to start investing in innovation to improve their productivity in order to compete.

He notes that since the recession, emerging markets have accounting for two-thirds of global growth and one-half of import growth, a trend expected to continue for decades.

“This is where Canadian businesses must increasingly look for growth,” he said.

Julian Beltrame

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Cordray testifies on CFPB enforcement, oversight responsibilities

Consumer Financial Protection Bureau Director Richard Cordray testified before the House Financial Services Committee on Thursday that the agency is focused on consumer education and the goals of oversight and enforcement.

 

“One of our main objectives is to make sure the costs and risks of financial products are clear [to consumers],” Cordray said. “It is the American way for responsible businesses to be straightforward and upfront with their customers, giving them all the information they need to make informed decisions.”

Cordray added that the agency intends to ensure the existence of a fair marketplace through “even-handed” oversight of financial institutions.

“Our supervisors are going on-site to examine their books, ask tough questions and fix problems we uncover,” Cordray said. “Under the laws Congress enacted, and with a director in place, we can now do this across all markets for consumer financial products and services.”

Cordray said that the agency has all the proper information outlets necessary for proper, comprehensive enforcement and oversight.

“The Consumer Bureau will also make clear that violating the law has consequences,” Cordray said. “Through our field examiners, our direct contact with consumers and businesses, and our highly skilled researchers, we have multiple channels to know the facts about what is happening in the marketplace.”

Cordray further warned that should financial institutions be uncooperative or non-compliant, the bureau will take action.

“We plan to use all of the tools available to us to ensure that everyone respects and follows the rules of the road,” Cordray said. “Where we can cooperate with financial institutions to do that, we will; when necessary, however, we will not hesitate to use enforcement actions to right a wrong.”

Pat Dulnier

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