Prepaid Cards Should Truly be Prepaid

The prepaid card market is relatively new, and growing quickly — the number of prepaid transactions increased from 1.3 billion in 2009 to 3.3 billion in 2013. AFR has urged the CFPB to establish rules that will ensure consumers are protected in this growing market. And the CFPB has proposed to do just that.

Last month, AFR and 44 members of our coalition submitted a comment letter spelling out a number of ways in which prepaid cards need to be made safer and fairer. Now we have delivered a petition in which more than 8,500 people urge the CFPB to move ahead with rules to keep prepaid cards from being loaded up with tricks or traps.

Prepaid cards are essentially debit cards that are not tied to an individual bank account (although it is becoming more common for banks to offer them). Prepaid cards can be used by employers in lieu of paychecks, or by colleges as a way to get financial aid to students. They are also often used by individuals who have been shut out of bank accounts or hit with too many bank overdraft fees. Prepaid cards can be very useful for some consumers, but they can also come with significant disadvantages—and lack basic consumer protections that apply to debit and credit cards.  Some are linked to payday-like loan features, or to fees that consumers don’t see coming. Sometimes colleges or employers steer students or employees into accepting funds on prepaid cards instead of a personal bank account – a practice that can create problems, such as a shortage or absence of free ATMS, the inability to write checks, and a lack of paper statements.

The CFPB proposal takes a number of important steps to offer greater protections for consumers and to advance a priority of ours – keeping prepaid cards actually prepaid, so that users can only spend dollars loaded onto the cards, and cannot overdraft, triggering high fees as a result.  The proposed rule very substantially limits, but does not totally prohibit, overdraft fees.

The petition asks the Bureau to make sure that prepaid cards have “no overdraft fees or credit features that cause people to spend more money than they have put on the card, and charge them extra for the ‘privilege….’ As you move forward in the rule-writing process, we strongly support the separation of prepaid from credit products, the elimination of overdraft fees, increased protections for those at risk of being steered to higher-cost payroll cards by their employers or schools, and the adoption of basic consumer protections that already apply to ordinary credit cards and bank accounts.”

The public comment period on the Bureau’s proposal ended in late March. A final rule is expected later this year or early next year.

 — Rebecca Thiess

Off the Deep End

Wall Street bonuses are back in the spotlight. The 2014 figures are out, and so is a new study by the Institute for Policy Studies: “Off the Deep End: The Wall Street Bonus Pool and Low-Wage Workers.” Last year, it shows, the nation’s bankers got bonuses adding up to more than double the combined earnings of the nation’s full-time minimum-wage workers.

Since the first group is far smaller than the second (167,800 bankers versus a minimum-wage workforce of just over a million), this works out to an even more astonishing per-person gap: while the average minimum wage earner made $13,903, the average banker got a bonus of $169,845 – and, of course, that’s extra money, above and beyond the banker’s base pay.

Numbers like these raise profound questions of economic justice. They also remind us of the role that reckless Wall Street pay practices played in the 2008 financial meltdown, and of reforms enacted by Congress that were intended to do something about that problem.

The Dodd-Frank Act included two pay-related provisions. Section 956 prohibits compensation practices that incentivize dangerous behavior on the part of Wall Street traders and executives. And Section 953 requires all publicly traded companies to disclose the gap between the pay of their CEO, on the one hand, and their median employee, on the other. The idea was to help shareholders guard their pocketbooks against self-seeking executives and better evaluate the long-term soundness of companies in light of evidence that runaway pay at the top inhibits teamwork and reduces employee morale and productivity.

Neither of these provisions has been implemented, however. Last fall, SEC chair Mary Jo White said she expected her agency to complete action on Section 953 by the end of 2014. But since she said that, her agency has been silent, while Wall Street lobbyists have continued to fight the idea – and to make absurd claims about the supposedly burdensome costs of compiling the information.

When it comes to Section 956, the situation is more promising. Federal regulators came out with a woefully inadequate proposal, calling for a modest delay between the awarding and payout of bonuses for a limited number of senior executives, in 2011; and let the matter slide for the next three years. In recent months, however, the Administration has highlighted the importance of this provision, with President Obama  urging regulators to act and Treasury Secretary Jacob Lew identifying pay reform as a high-priority task. And now the responsible regulators are working on a whole new draft proposal which we hope and expect will be stronger.

Meanwhile, European Union officials have come out with guidelines limiting executive pay at financial firms to 100% of base salary, or 200% with shareholder approval. Perhaps the forthright attitude of EU regulators on this issue is beginning to catch on in the U.S.

– Nickolai Sukharev

CFPB Goes to Richmond, President to Alabama to Discuss Payday Lending

On Thursday, March 26th the CFPB went to Richmond, VA, to hold a field hearing and release a first look at its potential plans to regulate payday, installment and car title loans. The draft proposal is broad in scope and holds at its core the importance of an “ability to repay” standard. Count up two big wins for the advocacy community!  But the proposal also contemplates dangerous exceptions to the meaningful application of the ability to repay principle.  We’ll be working hard to push the CFPB to close the loopholes as this process moves forward.  Groups from around the country both applauded the progress the CFPB is taking on the issue and highlighted the importance of strengthening the rule.

At the hearing, CFPB Director Richard Cordray, Virginia Attorney General Mark Herring, and panelists from Virginia Poverty Law Center, Center for Responsible Lending, The Leadership Conference on Civil and Human Rights and California Reinvestment Coalition all stressed the need for a strong rule that will #stopthedebttrap. “CFPB can have tremendous impact in protecting borrowers from dangerous loans,” said Mike Calhoun of Center for Responsible Lending.  He continued, “So it’s critical that CFPB’s rule address payday installment loans, and also that states remain vigilant in applying state usury limits to these loans.”

Beforehand, more than 80 advocates and allies gathered at the Richmond Convention Center for a press conference and community meeting, and during the hearing more than 30 people – borrowers, faith leaders, state and national advocates, consumer lawyers, and others – testified in favor of a strong payday rule.

Thanks to all who attended, spoke, tweeted, retweeted, selfied, and thunderclapped to get our #stopthedebttrap message out!  Click here to see the Storify from the event, which features tweets posted on the day of the hearing.

Thursday was a big day for predatory lending reform as President Obama also took up the issue during his visit to Birmingham Alabama. He spoke about the dangers of predatory lending, “You borrow money to pay for the money you already borrowed,” the President said, aptly describing the way most payday loans play out. “… If you take out a $500 loan, it’s easy to wind up paying more than $1,000 in interest and fees.”  The President also participated in a roundtable meeting on the subject of payday loan reform with community leaders.  Click here to view video of the President’s remarks on the need to protect consumers from predatory lending practices.

Click here to check out the full range of national and local press from the Richmond & Alabama events.

– Gynnie Robnett

Department of Education Severs Ties With Five Debt Collection Companies

The Department of Education took a step in the right direction February 27th when it wound down contracts it had with five debt collection companies that, since 1997, have been hired to do the work of collecting on federal student loan repayments. The contracts were ended because the Department found that the companies—Coast Professional, Enterprise Recovery Systems, National Recoveries, Pioneer Credit Recovery (Navient’s debt collection arm), and West Asset Management—were providing inaccurate information to borrowers at unacceptable rates.

Since borrower counseling is not the specialty or mission of these loan collection companies, this is unfortunately not all that surprising. [See National Consumer Law Center’s report on the government’s relationship with debt collection agencies in the student loan arena, which discusses this inherent conflict in responsibilities.] In this instance, the Department terminated the contracts after concluding that borrowers had been misled regarding the loan rehabilitation program, which is an option that can help defaulted borrowers who agree to make a certain number of on-time payments. Borrowers were specifically misled regarding how such a program could benefit their credit rating and also about the waiving of certain collection fees. Along with terminating the contracts, the Department announced that it would be issuing enhanced guidance for the remaining collection agencies, increasing training, and expanding monitoring for these types of issues.

Navient, whose subsidiary Pioneer Credit Recovery was one of the groups terminated, has a record of misleading student loan borrowers. In 2006, the Department of Justice and the FDIC found that Sallie Mae/Navient was overcharging 60,000 active-duty servicemembers on their student loans, and handling their payments in a manner that maximized late fees. And In November of last year the CFPB issued a Civil Investigative Demand to Pioneer Credit Recovery, as part of an investigation regarding the company’s work collecting defaulted student loan debt.

Much more change is needed in this area: student loan debt collectors that make a practice of misleading or hurting consumers should be held accountable, and companies that work to collect loan debts on behalf of the federal government should be required to respect borrowers’ rights and to provide them with accurate information.

– Rebecca Thiess

Nation’s Largest Labor Coalition Reaffirms Support For Financial Reform

The eight million job losses during the Great Recession triggered by the 2008 financial crisis had a devastating impact on working families and underlined the need for effective regulation of Wall Street. Recent studies point out that the growing power of finance drives inequality and the shrinking portion of wealth that goes to wages. With this in mind, the Executive Committee of the AFL-CIO – the nation’s largest labor coalition –  reaffirmed its commitment to reforming the financial system, including protecting the progress won  in the Dodd-Frank Act.

The statement also calls for further changes that go beyond the Dodd-Frank Act – including shrinking the excessive size of the megabanks, establishing a Wall Street speculation tax, and reinstating Glass-Stegall separations between commercial and investment banking – in order to do more to end the excessive risks that the financial sector poses to the rest of the economy. The AFL-CIO’s commitment to Wall Street reform has been a crucial factor in the gains that reformers have made so far and its engagement will be a crucial factor in future progress.

– Marcus Stanley

As House Holds Oversight Hearing, 340 Groups Call For Defense of CFPB (Ed Mierzwinski, US PIRG)

Last week, I captured a photo of the President, with CFPB architect and now U.S. Senator Elizabeth Warren (MA) directly behind him, as he gave a well-deserved shoutout to the CFPB and its director Rich Cordray (far right) at an event launching a new initative to protect retirement savings against Wall Street tricks.obamashoutouttocfpb23Feb15

Today, Consumer Financial Protection Bureau Director Richard Cordray will present the CFPB’s sixth Semi-Annual Report to Congress at a hearing of the full House Financial Services Committee (2:30 PM ET), whose majority members have often been harsh critics of the successful consumer agency… [P]owerful special interests, including the banks and credit unions and their many trade associations, as well as payday and high cost lenders, financial services lawyers and lobbyists, debt collectors and credit bureaus, mortgage companies, for-profit trade schools and auto finance companies, joined by generally coin-operated “free market” think tanks and other special interests, continue to try to rev up Congressional opposition to the CFPB.

 

Originally posted on US PIRG.

New Poll Shows Overwhelming Support for Strong Action Against Payday Loans

According to a new, bipartisan national poll sponsored by the Center for Responsible Lending, huge majorities across party lines support regulations to keep payday and car title lenders from making dangerous loans.  Majorities across party loans also have unfavorable views of payday lenders.

Republicans, Democrats and Independents alike are deeply concerned about a loan product with interest rates that average 300 percent. Payday and car title lenders, say most of those surveyed, should have to make sure borrowers can repay before issuing a loan, just as other responsible lenders do.

  • 78 percent of those surveyed – including 80 percent of Republicans – would support a rule that payday lenders be required to check a borrower’s ability to repay a loan within that loan’s stated time period.
  • Seven in ten voters oppose the current system of allowing payday lenders direct access to borrowers’ bank accounts.
  • Over 7 in 10 voters, across party lines, agree that car title lenders should be subject to rules capping the interest rates they can charge, and be required to assess borrowers’ ability to repay their loans.

The survey of 800 likely voters was conducted by Lake Research Partners and Chesapeake Beach Consulting.

 — Gynnie Robnett

Ho! Ho! Ho! A Season of Opportunity for Payday Lenders

The holidays are upon us, and for many this is a season of financial stress and strain as well as joy – a time when the need for an extra couple of hundred dollars can seem especially acute.

For payday, title loan, and auto title lenders, that makes the holidays a season of opportunity. And many of these lenders don’t just make an extra push at the end of the year; they actually insert a holiday theme into their advertising!

Cash Title Exchange, a Mississippi-based lender, sent out a colorful direct-mail piece promising “the cash you need this holiday season” and featuring a smiling Santa Claus with an armful of presents. “Even Santa needs help,” the ad pointed out.

Santa was also a co-star in a TV spot for TitleMax, based in Savannah, Georgia: “Come to TitleMax now for cold hard cash,” says the cheery announcer. “Your car title is your credit – Ho! Ho! Ho!”

What such companies don’t advertise, and what many borrowers don’t know, is exactly how much money they will ultimately have to pay for the relatively small sum they receive immediately. Because such loans typically carry fees that work out to the equivalent of 300 to 500 percent in annual interest, many borrowers are forced to take out a long string of loans to cover payments on the original one. Their loan fees often end up dwarfing the amount of money they borrowed in the first place.

Targeting borrowers during the holiday season hits many when they are feeling the most vulnerable. And ads aren’t just splashed in public places, they are sent out in focused mass mailings to people who are particularly likely to respond—the elderly or those with low annual incomes.

While loans like these may be marketed as a way to deal with a one-time emergency or secure a little extra holiday cash, they routinely lead people into a cycle of long-term debt. The Consumer Financial Protection Bureau, in its research on the small-dollar loan market, has found that four out of five payday loans end up being rolled over or renewed within two weeks, with half of those becoming part of a sequence of 10 or more loans. And that is exactly the outcome these lenders are counting on: Getting people to borrow repeatedly, paying fee after fee, is their business model.

In an enforcement action against ACE Cash Express, the bureau exposed the company for using a variety of illegal tactics, including false threats of criminal prosecution, to bully its borrowers into repeatedly taking out new loans to cover the cost of old ones. A graphic from the company’s own training manual spelled out its preferred method of entrapment.

In 2015, the Consumer Financial Protection Bureau is widely expected to announce a set of proposed consumer protection rules that could change this market for the better. This should be welcome holiday news: Most Americans have a negative opinion of payday lenders. (65 percent hold an unfavorable view, versus only 15 percent with a favorable view, according to a recent national survey.)

Payday lenders are hurting Americans; but the industry has been using political contributions to safeguard its profit stream, and Congress has so far been unwilling to regulate.

A recent report by Americans for Financial Reform sheds light on exactly how much this industry is spending to exercise influence in Washington. In the 2014 election cycle, payday, auto title and installment lenders, along with other entities that play a role in their operations, reported more than $13 million in political spending, with much of that money coming from trade associations that represent the industry in Washington. Major spenders also include some of the trade associations’ big corporate members — the actual payday lenders themselves. Cash America, a company found by the Consumer Financial Protection Bureau to be using illegal debt collection tactics and overcharging servicemembers and their families, spent over $1.7 million in the 2014 cycle on lobbying and campaign contributions.

But the next holiday season could be a bit brighter. The bureau could make lenders verify that loans are affordable in light of a borrower’s income and expenses; reduce the payday debt trap from the typical 200 days a year to no more than 90; and put borrowers back in control of their own bank accounts. The holidays are a time for joy and giving, and as the residents of Whoville know, there is no room for the Grinch.

– Rebecca Thiess

Originally published in USNews.com

Help Win More Protection for Your Retirement Savings: Have Your Portfolio Reviewed

As traditional pension plans have gone by the wayside, American workers have become increasingly responsible for their own retirement security. How much money to set aside? How to invest it?  Most people, feeling intimidated by these complicated decisions, seek help from professional financial advisers.

And their recommendations can have a profound effect on whether you enjoy a comfortable retirement or have to make significant sacrifices to your quality of life just to survive. Against that background, Americans for Financial Reform is working with the Consumer Federation of America and other organizations to ensure that workers saving for retirement get investment advice that is designed to serve their best interests.
To help make the case, we want to hear about your experiences with financial advisers. Please complete this simple online survey if any of the questions apply to you. We would also greatly appreciate it if you can forward the survey to your allies and supporters, so we have the strongest participation possible. — Marvin Silver

Faith Leaders and Consumer Advocates Mobilize Against Debt-Trap Lending

For many years, payday lenders have taken advantage of citizens and the legislative process, charging triple-digit interest, engineering loans to draw people into unmanageable long-term debt, and carving out special exemptions in state laws to make that possible.  Many citizens and communities of faith, and many AFR members, have responded by insisting that ultra-high-cost consumer loans are unjust and immoral.

The coming year presents us with an important opportunity in the struggle to uphold economic dignity in our communities – by calling on the Consumer Financial Protection Bureau (CFPB) to enact strong rules against payday and other debt-trap loans.

On November 17 – 19, representatives from over 20 states will come to Washington D.C. for Faith & Credit Advocacy Days. This gathering is a launch-pad for a broad collective effort by faith and financial reform and consumer protection groups to support strong action by the CFPB. Faith advocates and leaders will come away armed with knowledge of what they will need to do in their states and communities to promote and protect the cause of ethical lending. Monday and Tuesday will be spent better understanding the problem of predatory lending and what faith advocates and leaders can bring to the effort to put a stop to it.

Throughout Faith & Credit Advocacy Days, faith advocates and leaders will use the hashtag #StopTheDebtTrap to reach out to people and organizations interested in Payday Lending Reform. Using #StopTheDebtTrap, they hope to engage event attendees and the public. Their collective narrative will help spread a message about why strong rules are needed and what citizens are doing and can do to convey their concern to their representatives in Washington D.C.

On the final day, faith advocates and leaders will meet with lawmakers and deliver that message directly. They will ask their communities to participate in the conversation by using the hashtag #StopTheDebtTrap. Everyone is encouraged to join the conversation.

– Marvin Silver