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Populist messaging, auditing the Fed, payday loans – Daily Kos

By Rachel Goldfarb, originally published on Next New Deal

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How Democratic Progressives Survived a Landslide (TAP)

Bob Moser says that populist, localized campaign messages, not the party’s own turnout strategy, saved a few key Democratic races in the 2014 midterm elections.

After every election, the losing side naturally tends to brood over where and how things went wrong. For Democrats this year, there’s no shortage of theories about the party’s avalanche of key losses in Senate, House, and statehouse contests. Perhaps it was wrong to sideline President Obama so thoroughly. Perhaps they shouldn’t have run away from the Affordable Care Act. Perhaps they still haven’t found the formula for turning out young and minority voters in midterms. Maybe it was just a bad map that couldn’t be overcome. Or maybe there had been, as the pundits chorused, no “coherent national message” for Democrats to run on.

You can find shards of truth in these tidbits of conventional wisdom, but it’s a gauzy, overgeneralized kind of truth. It’s more instructive to take a long look at what did work in 2014—at the candidates and campaigns that overcame the Republican drift. How did Democrats beat their odds in Arizona, Minnesota, New Hampshire, and Michigan even as they fell short in Iowa, Wisconsin, Florida, and Colorado? The closer you look, the clearer the picture becomes: They did it the way Kirkpatrick did. They ran with their populist boots on.

Roosevelt Take: Moser references Roosevelt Institute Senior Fellow Richard Kirsch’s post-election analysis on winning populist messaging.

Follow below the fold for more.

What ‘Audit the Fed’ Really Means – and Threatens (WSJ)

Robert Litan explains that Senator Paul’s proposal calls on Government Accountability Office economists to go outside their expertise to report on the Fed’s activity and minimize its independence.

Payday Loans Are Bleeding American Workers Dry. Finally, the Obama Administration Is Cracking Down. (TNR)

Danny Vinik breaks down how payday loans harm consumers: the initial loan might not be so bad, but the repeated roll-overs have a high cost. Limiting those roll-overs is one potential regulation.

The “War on Women” is a Fiscal Nightmare: Taxpayers on the Hook for Millions as Republicans Gut Family Planning (Salon)

Katie McDonough looks at Kansas as an example of where legal fees to fight for potentially unconstitutional abortion restrictions and cuts to family planning services create massive costs.

Is Republican Concern About Middle-Class Wage Stagnation Just a Big Con? (MoJo)

Kevin Drum doesn’t think this is a sign of Republican reformers succeeding in shifting the party in a populist direction, and says that the more likely explanation is an attempt to defuse Democrats.

New on Next New Deal

The Politics of Responsibility – Not Envy

Roosevelt Institute Senior Fellow Richard Kirsch argues that voters are responding not to envy, but to the knowledge that everyone needs to take a fair share of responsibility for shared prosperity.

[…]

Sen. Brown proposes alternative to 'payday loans' – 21 News Now …

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COLUMBUS, Ohio –

With millions of Americans turning to payday loans to make ends meet, U.S. Senator Sherrod Brown is proposing a short-term cash advance solution.

Low-income workers nationally would be allowed an advance on their income tax refund, rather than turning to payday loans for a quick influx of money, under a proposal U.S. Sen. Sherrod Brown made on Wednesday.

The proposal would allow low-income families and individuals to receive a portion of their earned income tax credit, ahead of tax time.

Those who are eligible could receive the early refund without fees or interest on the tax credit up to $500. The amount received early would be deducted from the person’s refund at tax time.

Senator Brown says the bill isn’t designed to help everybody, but those working hard and still receiving a relatively low income.

“The couple of months before they’re eligible to get their tax refund they might have some serious financial problems where they just need a few hundred dollars to be able to tide themselves over until they get their refund, we would advance $500 of this no more than that under our plan,” said Sen. Brown.

Brown said his proposal is an alternative to payday loans, which can carry hidden fees and large interest rates.

“Ohioans shouldn’t be trapped with a lifetime of debt from predatory loans particularly if they have tax refunds waiting for them,” Brown said. “Three-quarters of Americans who turn to costly, high-interest payday loans may have money that they can claim each tax season in the form of the Earned Income Tax Credit.”

To participate, workers would enroll in the program through the employers mid-year and request the early payment.

[…]

New Mexico urged to limit ‘payday’ loan rates

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MARTIN: Encouraged by some developments

One of the worst things a person without the financial wherewithal to repay a loan can do is take out a so-called “payday” or “storefront” loan to buy Christmas gifts.

But, with the holidays here, and because it is so easy to get such loans, that’s exactly what many low-income people are likely to do. Predatory lenders encourage the practice.

That’s the message University of New Mexico law professor Nathalie Martin hopes to get out to would-be borrowers. She would also like to see interest rates capped statewide at 36 percent.

“I think it’s getting a little more likely that the state Legislature will act,” she said.

Martin – and others – are encouraged by a number of developments:

In 2007, with broad bipartisan support, President Bush signed the Military Lending Act, placing a 36 percent limit on interest rates on loans to armed forces personnel. In September, with lenders seeking to circumvent the MLA, the Defense Department proposed new and stronger regulations to shore up the law. The cities of Albuquerque, Santa Fe, Alamogordo and Las Cruces, and Doña Ana County – and the New Mexico Municipal League and Association of Counties – have adopted resolutions supporting a 36 percent annual percentage rate cap. Eighteen states have imposed interest rate limits of 36 percent or lower, most of them in recent years. In Georgia, it is now a crime to charge exorbitant interest on loans to people without the means to pay them back. In 2007, New Mexico enacted a law capping interest rates on “payday” loans at 400 percent. Many of the lenders quickly changed the loan descriptions from “payday” to “installment,” “title” or “signature” to get around the law.

But this past summer, the New Mexico Supreme Court, citing studies by Martin, held that “signature” loans issued by B&B Investment Group were “unconscionable.” B&B’s interest rates were 1,000 percent or higher.

High-interest lenders argue that they provide a much-needed source of funds for people who would not ordinarily qualify for loans, even those who are truly in need. One lender, Cash Store, in an ad typical for the industry promises borrowers that they can get “cash in hand in as little as 20 minutes during our regular business hours – no waiting overnight for the money you need” and boasts a loan approval rate of over 90 percent. It also offers “competitive terms and NO credit required. Be treated with respect by friendly store associates. Installment loans are a fast, easy way to get up to $2,500.”

Pushing a cap

Martin teaches commercial and consumer law. She also works in the law school’s “live clinic,” where she first came into contact with those she calls “real-life clients,” people who had fallen into the trap of payday loans.

“I would never have thought in my wildest dreams that this was legal, interest rates of 500 percent, 1,000 percent or even higher,” she said.

Martin is not alone in fighting sky-high interest rates and supporting a 36 percent cap.

Assistant Attorney General Karen Meyers of the Consumer Protection Division noted that it wasn’t simply interest rates that the Supreme Court unanimously objected to as procedurally unconscionable in New Mexico v. B&B Investment Group.

The court also addressed the way the loans were marketed and the fact that B&B “aggressively pursued borrowers to get them to increase the principal of their loans,” all of which constitutes a violation of law.

In another lawsuit from 2012, New Mexico v. FastBucks, the judge found the loans to be “Unfair or deceptive trade practices and unconscionable trade practices (which) are unlawful.”

Long legal road

Both the B&B and Fastbucks cases were filed in 2009 and ultimately went to trial. The time period indicates the commitment of the Attorney General’s Office and how long it takes a case to wend its way through the legal system.

Each of the cases dealt with one business entity, although they often do business under several names. B&B, for example, an Illinois company, operated as Cash Loans Now and American Cash Loans.

According to the president of B&B, James Bartlett, the company came to New Mexico to do business because “there was no usury cap” here.

Early this year, a survey by Public Policy Polling found that 86 percent of New Mexicans support capping interest at an annual rate of 36 percent. Many people think that is too high.

Meyers said predatory lending profits depend on repeat loans. Analysts estimate that the business only becomes profitable when customers have rolled over their loans four or five times.

‘Really heartbreaking’

“We have interviewed a lot of consumers,” she said. “It’s really heartbreaking.”

Steve Fischman, a former state senator and chairman of the New Mexico Fair Lending Coalition, said three-fourths of short-term borrowers in the state roll over loans into new loans, which is precisely what predatory lenders want.

“New Mexico is one of the worst states when it comes to such loans, because we have the weakest law,” he said.

The coalition is working with lawmakers to draft a bill that would impose the 36 percent cap. It is likely to come up in the next session. But the chances of passage, despite popular sentiment, are unknown.

The Legislature has failed to act in the past, Fischman said, largely because of the many paid lobbyists – including former lawmakers – working for the lenders. He described the Roundhouse back-slapping as “bipartisan corruption.”

The National Institute on Money in State Politics, a nonpartisan national archive of such donations, reports that, thus far this year, payday lenders have made 122 contributions totalling $97,630 to state lawmakers.

Opponents of storefront loans say one way some lenders entice the poor into taking out loans is to cajole them with smiles and misinformation. Loan offices – often in lower-income neighborhoods – often become places for people to hang out and socialize. Agents behind the loan office desks pass themselves off as friends.

But, Fischman said, “A lot of people thought Bernie Madoff was their friend.”

Creating crises

The Pew Charitable Trust and the Center for Responsible Lending, acting independently, reported last year that the cost of the loans turn temporary financial shortfalls into long-term crises. After rolling their initial loans over, perhaps more than once, borrowers find that they’re paying up to 40 percent of their paychecks to repay the loans.

Prosperity Works, an Albuquerque-based nonprofit striving to improve financial circumstances for lower-income New Mexicans, is a strong supporter of the effort to cap loans.

President and CEO Ona Porter said one drawback of the short-term, high-interest loans is the effect they often have on individuals’ credit ratings. “And credit scores are now used as a primary screen for employment,” she said.

The loans do little, if anything, to boost the state’s economy. A 2013 study by the Center for Community Economic Development found that, for every dollar spent on storefront loan fees, 24 cents is subtracted from economic activity.

UNM’s Martin has conducted five studies related to high-cost lending practices. She firmly believes that low-income people are better off if they don’t take out unlimited numbers of high-cost loans and that such forms of credit cause more harm than good.

“They are neither safe nor affordable,” she said.

[…]

Banking At The Post Office Is Better Than Payday Loans – Popular …

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Above photo: New York City post office. By John Donges.

The U.S. post office on Martin Luther King, Jr. Blvd. is a bastion on its Harlem block. Entrenched beside a pawnshop, a cash-for-gold business, and a commercial bank many in the neighborhood are unable to use, the facility is essentially a fortress. Complete with heavy brick walls, steel screens, vaults, ATMs, and armored trucks, the premises evoke one word: Security. If you’ve followed recent news, they also suggest a second word: Bank.

Post offices are built like banks.

And that’s just one reason why postal banking, a hot idea in economic policy debates, is viable. Physical and operational structures already exist that could help USPS offer basic financial services: prepaid debit cards, mobile transactions, new check cashing services, savings accounts, and even simple, small-dollar loans.

“There’s a post office every five blocks in Manhattan—there’s accessibility in every zip code,” explained Frankie Wright, 32, a USPS Supervisor of Customer Services in East Harlem. “On an operational level, we’re already capable.”

The idea, popularized by journalist David Dayen and law professor Mehrsa Baradaran, would create a public option for credit and help insulate Main Street in the likely event of another financial crisis.

For example, a borrower without access to a commercial bank might typically accept a small loan at an unreasonably high interest rate from a payday lender. If a postal banking system were in place, that customer could instead walk into the local USPS branch and take out a simple loan as a government-provided public service. Due to the restricted nature of postal banking, customers’ access to funds would be comparatively safe from vultures and the whirlwinds of the broader, deeper financial system.

Although the idea seems new here and now, a successful U.S. Postal Saving System already existed from 1911-1967, and similar schemes operate overseas today, including in Germany, Japan, Switzerland, and the UK.

Though the proposal is not without its critics, there are surprisingly few legal and political hurdles to implementation. Senator Elizabeth Warren recently penned a U.S. News op-ed in earnest support, and just three weeks ago, she joined the Pew Charitable Trusts for a conference in Washington, D.C., where speakers debated common concerns: Postal banking advocates deplored the struggles of the financially insecure, while opponents expressed skepticism regarding the operational capacity of USPS to offer financial services, and questioned the effects of those new services on the federal budget.

It’s expensive to be poor

In the U.S, 38 percent of the population—88 million people—either have no bank accounts (the “unbanked”) or are at least partially dependent upon high-cost services like payday lending (the “underbanked”). These households pay dearly for basics.

In 2012, the income for the average underbanked household was about $25,500, but it spent an average of nearly $2,500 solely on interest and fees for alternative financial services (AFS) like payday lending. That’s almost 10 percent of their annual income—about as much as they spent on food.

Unbanked and underbanked people are a mix of working and middle-class families, students, the unemployed, and others living paycheck-to-paycheck. Yet financial exclusion is disproportionately rampant among people of color and immigrants, and especially women within those groups. According to the last comprehensive government study, published in September 2012, more than half of African-American households were either unbanked or underbanked, with similar numbers for Hispanic and unmarried, female-led households.

There are many reasons for this maldistribution—most of them structural and based in discrimination. Regardless, the disparate impact of financial insecurity is unacceptable. Former Harlem resident and public banking advocate Alexander Hamilton did not envision such an exclusive system. Providing broad access to money and credit is why the government charters, insures, and regulates financial institutions in the first place.

The brick-and-mortar network

“People have faith in the post office,” said Wright. “USPS is a structured, silent organization. We operate discreetly. Every stamp, every dollar is accounted for. People know this.”

Wright, who started as a letter carrier at 20 and now works in management, has expertise in distribution, delivery, and labor relations—and he’s overwhelmingly supportive of postal banking and confident USPS can make the transition. “We’ve handled the invention of email and the shift from letters to parcels. We can handle this.”

USPS is the country’s most most well-liked federal agency and one of the most trusted institutions of any kind when it comes to privacy. As Wright mentioned, much of USPS management, as well as its lawyers and regulators, insist the country’s second-largest employer can and should provide basic financial services.

Indeed, the USPS Inspector General has written a white paper detailing steps for implementation. The American Postal Workers Union (AFL-CIO) is also supportive. At the Pew conference, representative Phil Tabbita argued USPS is well-suited to the task. USPS employees are already trained to handle simple financial transactions in the form of money orders and remittances. Conservatives like Rep. Darrell Issa (R-Calif.) might suggest that the workforce—a quarter of whom are military veterans—will suddenly become utterly incompetent if saddled with an expanded job description. But these cries often stem from a poorly disguised—and poorly informed—anti-labor ideology.

Deficit hysteria

There is rampant misunderstanding regarding the laws and accounting that would govern postal banking. Opponents claim that new financial services would financially tank USPS and subsequently create an unsustainable fiscal burden for the federal government.

But these concerns don’t add up. First of all, the post office is not directly funded by tax revenues. The Postal Reorganization Act of 1970 has legally forced USPS to become self-sufficient, to generate its revenue from its own services, whatever draconian cuts Congress has since imposed. Furthermore, the analysis by the Inspector General suggests USPS itself is likely to turn a profit off of new financial services through modest fees and interest.

Even so, regardless of the post office’s own financial situation, the federal government’s balance sheet does not include USPS assets and liabilities. Indeed, the separation is so complete that there’s a uniquely foolish law mandating USPS set aside money today for all future retiree health benefits—without subsidy from the Treasury. This unique burden, which is not imposed upon any other government enterprise, is the chief cause of USPS’ financial woes.

Even if USPS finances were included in the broader federal budget—as they arguably should be—Deficit Hawk policies like the pre-funding requirement would make even less sense. As Deficit Owls, like former Deputy Treasury Secretary Frank Newman, assert, asking a federal agency directly funded by the U.S. government to save for a far distant future, is like forcing us to wear sweaters in July so we can store warmth for January. Uncle Sam can always create money out of thin air, subject only to inflationary constraints; setting aside dollars for 2058, instead of using them for growth now, is foolish.

Of all the services USPS could offer, small-dollar loans have come under the most scrutiny. Yet they deserve the least concern from the perspective of U.S. government fiscal sustainability. Opponents like Issa have whipped up public skepticism by conjuring an image of hard-working taxpayers “subsidizing” lending for the poor. In this scenario, postal goblins would hoard tax revenues in a vault and dish it out to poor people, who would presumably never pay it back, sending the country hurtling toward the apocalypse.

Issa’s statements at the Pew conference reveal ignorance about how bank lending works in the modern era. When you go to a bank and ask for a loan, the banker does not check the bank’s deposits or reserves before she lends you money.

As some economists have observed for decades and the Bank of England recently detailed, financial institutions do not lend pre-existing funds at all, but instead create “money” out of thin air as they lend. When you receive a loan, the bank also places your funds in an account, simultaneously expanding both the asset and liability sides of its own balance sheet. That’s how banking works.

As such, as long as postal banks are granted the same legal license as private banks—notably access to the federal discount window and interbank lending—the financial stability of postal lending would not depend on some hoarded Scrooge McDuck vault of taxpayer money.

The fire next time

When the next financial crisis hits, a postal bank might need a bailout—but it’s less horrifying than your typical private bank bailout.

During the last crisis, arguments were made that Wall Street firms had to be rescued in order to save Main Street. If preventing Main Street from falling into the flames along with Wall Street is indeed a national concern, then a stable postal banking system—a safe place for most people’s money—could be our best defense.

Although some advocate for a public-private partnership with existing commercial banks, postal banks could instead become an integral piece of a new financial architecture insulating the public and Main Street businesses from the storms of high finance.

For example, imagine the economy busts and people start to lose their jobs. The Federal Reserve could directly credit post office accounts, either with flat transfers, or preferably wages for federally funded jobs. This policy would inject money into Main Street and stabilize prices and wages.

And if you don’t like that idea, as even conservative commentator Reihan Salam at The National Review has recognized, a strong postal banking system could eliminate the need for federal deposit insurance and create more room for the private financial sector to innovate as it pleases. As a corollary, if trauma to Main Street could be avoided via the postal banking system, the case for bailing out Wall Street would lose steam.

To put it bluntly, there’s a strong case for the more affluent clients of commercial banks and the broader public to go their separate ways.

Fighting for basic security

Some progressives and populists might prefer a policy more cooperative or decentralized, but this is the immediately viable alternative to the status quo. The U.S. Conference of Mayors just endorsed the idea and Rep. Cedric Richmond (D–La.) just introduced legislation in the House of Representatives. Although Postmaster General Donahoe is against postal banking, many of his workers, managers, union leaders, regulators, and lawyers support it.

And soon the Postmaster’s endorsement won’t matter. President Obama is filling vacancies on the USPS Board of Governors: There are now 4 Democrats and 4 Republicans and the remaining seat will likely go to a Democrat—at which point the Board can override the Postmaster General.

There might be a confrontation in the courts, but under the Supreme Court ruling in Chevron v. NRDC, agencies are granted wide latitude to interpret their governing statutes. So USPS would likely survive a challenge to providing basic financial services.

Postal banking should be part of every social justice rallying cry. According to the Pew survey results, 31 percent of the unbanked said they would open an account at their local branch. Eighty-one percent of the underbanked said they would use USPS to cash checks, 79 percent percent to pay bills, and 71 percent would choose postal loans over payday loans. That’s 71 percent who could pay for food, childcare, and transportation instead of exorbitant fees on small loans.

These numbers are monumental and they reveal a widespread desire for a public option for basic financial services.

USPS has a duty of public service and can at least be held more accountable than potential servicers like WalMart, which has been moving into the AFS market. Instead of bringing megastores and megabanks to communities lacking credit, we could be asking the federal government to do its job and provide economic security and opportunity.

It’s time to push the envelope.

Raúl Carrillo wrote this article for YES! Magazine, a national, nonprofit media organization that fuses powerful ideas and practical actions. Raúl is a student at Columbia Law and a graduate of Harvard College. He is a co-organizer for The Modern Money Network (MMN), an interdisciplinary educational initiative for understanding money, finance, law, and the economy. Follow him at @ramencents.

[…]

Payday loans worry consumers, regulators and lawmakers alike …

It seems that Richard Cordray, the director of Consumer Financial Protection Bureau, CFPB, just couldn’t catch a break this week.

As he’s been trying to get people talking about mobile banking technology, his speeches have been overrun by feisty debates and challenges on the issue of payday loans.

Payday loans are short-term loans, often available in lower-income areas, that feature punishingly high interest rates and put users on a cycle of heavy indebtedness. In 2010, more than 12 million Americans relied on payday lenders for access to credit. According to the Pew Charitable Trust, they took out almost $30bn in loans that year alone.

Despite the loans’ high interest rates and fees, the payday loan industry appeals to poorer Americans who have limited access to the US financial services and banks. Often, one payday loan often leads to another and another and soon the borrower is stuck in a cycle of debt, which was most recently depicted in the documentary ‘Spent.’

On Thursday, while appearing in New Orleans to speak about mobile financial services, Cordray ended up fielding requests for regulation of the payday loan industry across the nation. The debate surrounding the issue of payday loans has been heated in Louisiana, where efforts to reform the industry failed in the recent state legislature session.

Senator Mike Crapo was Cordray’s tormentor-in-chief when Cordray appeared before the Senate Banking committee on Wednesday. Cordray suggested that payday lending is infecting the legitimate alleyways of the financial system.

“There is now the further issue that’s been raised: what about illegal lending that operates by piggybacking on the existing banking payments systems? That’s not something that banks like, it’s not a risk they want to be exposed to.”

When asked by Crapo if the agencies were making a conscious effort to prevent payday lenders from being able to operate, Cordray answered that he did not know.

Unfortunately, there will be some time yet before CFPB is ready to enact any new regulations related with payday loans. During the hearing, Cordray argued for more time.

It’s well worth the additional time in order to make sure that what we do won’t be made a mockery of by the people circumventing [the rules] just by transforming their product slightly.”

More time could also strengthen the opposition. Cordray has several lawmakers lined up to thwart him. Senator Darrell Issa has previously requested that Department of Justice release all of the documents related to its effort to cut off illegal payday lenders and other fraudulent business from access to the US banking system. This effort, known as Operation Chokepoint, has come up under scrutiny as claims that it pressures banks to end relationships with legal businesses such as payday lenders emerged.

A group of payday lenders represented by the Community Financial Services Association recently filed a lawsuit against some of these regulatory agencies, alleging that they were unfairly targeted by Operation Chokepoint which painted them as risky associates for banks. The agencies named in the lawsuit were the Federal Reserve, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency. The CFPB was not named.

[…]

Payday loan bill advances (AUDIO) – Missourinet

A proposed law that could keep some customers of payday loans from becoming victims of payday loans is close to approval by the state senate.

The legislature has been trying to put some limits on payday loan companies for years. This time, the industry is not fighting the effort. Rogersville Senator Mike Cunningham is not trying to shut down the industry. He’s trying to limit opportunities for customers to get into trouble.

Cunningham says payday loan companies are needed because banks don’t want to make small loans of the kind a customer sought one day while he was visiting one of those stores–a few dollars to buy a new washing machine because hers had broken..

A key feature of his bill prohibits borrowers from having more than one loan at a time. And it prohibits rollover loans. Cunningham admits his bill is flawed on that point. But the alternative to the flaw is worse. “How you would enforce it, I don’t know, and when you do try that you drive people to the internet to borrow money, where you lose all control,” he says.

The bill lets people have an extended payment plan with no interest charged during that time, but not a loan to pay off a loan.

The bill can go to the House with one more favorable vote.

AUDIO: debate segment 30:19

Share this:

[…]

We Party Patriots » Plan to Put Payday Lending in USPS Hands …

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A plan outlined by the Inspector General of the United States Postal Service to expand their services to include non-bank financial services to underserved communities has gained the endorsement of Massachusetts Senator Elizabeth Warren. In short, the plan would seek to replace the payday lending system with a fairer version using the infrastructure of the USPS. This would help the poor, supporters says, as well as the USPS, and the economy. It is expected to face vehement opposition and lobbying by payday lenders and traditional financial institutions.

Think Progress explains that the interest rates on payday loans, often near 100 percent, suck billions of dollars out of the economy. The average customer pays $520 to borrow $375. With the industry facing a looming crackdown from the Consumer Financial Protection Bureau (established by Warren), the USPS could step in and provide services at a fair rate due to their presence in the communities where payday lending is most common. The USPS could make an additional $9 billion a year, supporters of the idea estimate.

In a weekend op-ed for the Huffington Post, Warren wrote:

According to a report put out this week by the Office of the Inspector General (OIG) of the U.S. Postal Service, about 68 million Americans — more than a quarter of all households — have no checking or savings account and are underserved by the banking system. Collectively, these households spent about $89 billion in 2012 on interest and fees for non-bank financial services like payday loans and check cashing, which works out to an average of $2,412 per household. That means the average underserved household spends roughly 10 percent of its annual income on interest and fees — about the same amount they spend on food.

Think about that: about 10 percent of a family’s income just to manage getting checks cashed, bills paid, and, sometimes, a short-term loan to tide them over. That’s more than a full month’s income just to try to navigate the basics.
The poor pay more, and that’s one of the reasons people get trapped at the bottom of the economic ladder.

But it doesn’t have to be this way. In the same remarkable report this week, the OIG explored the possibility of the USPS offering basic banking services — bill paying, check cashing, small loans — to its customers. With post offices and postal workers already on the ground, USPS could partner with banks to make a critical difference for millions of Americans who don’t have basic banking services because there are almost no banks or bank branches in their neighborhoods.

The idea is as refreshing as it is practical. Non-bank financial services are a necessity given the nature of the American population. However, the indiscriminate fleecing of the poor that results from their inability to cash checks and pay bills is unacceptable and crippling to the economy. It is a system in which the poor will always stay poor because they will never be able to save enough money to move up the economic ladder.

Including the USPS in the solution helps multiple problems with one simple policy shift. While progress could be slow, the eventual addition of financial services could be a permanent solution to multiple problems facing America. Because of this Sen. Warren has made achieving this a main goal of her Senate career:

The Postal Service is huge — employing more than a half million people — and its history is long and complicated. Any change will take time. But this is an issue I am going to spend a lot of time working on — and I hope my colleagues join me. We need innovative ways to create pathways for struggling families to build economic security, and this is an idea that falls in that category.

A further explanation and endorsement of the USPS plan comes from David Dayen, who said in a New Republic piece:

As America becomes more of a cashless society, more reliant on some level of financial services (try renting a car without a credit card), the 68 million underbanked are essentially forced into working with predatory businesses, without the kind of low-cost alternative the post office could provide. Banks don’t want these customers; if they did, they would actually make a play for their business. Large banks have closed branches in the very low-income communities with the largest percentages of unbanked Americans. In fact, banks find it more profitable to fund payday lenders that charge junk fees and outrageous interest—currently the subject of a Justice Department investigation—than actually take market share away from them.

Instead of partnering with predatory lenders, banks could partner with the USPS on a public option, not beholden to shareholder demands, which would treat customers more fairly. As the report says, “the Postal Service could greatly complement banks’ offerings,” and in turn help drive out of business some of the most crooked companies in America, while promoting savings and expanding credit for the poor.

The report suggests three types of potential products. First, it proposes a “Postal Card” that could make in-store purchases, access cash at ATMs, pay bills online, or transfer money internationally. Customers with paper checks could cash them at the post office or deposit them through their cell phones, loading them onto their Postal Card. Second, the USPS could offer an interest-bearing savings account, again through the Postal Card, encouraging savings from communities with little in the way of a personal safety net. Finally, the Postal Service could offer small-dollar loans, effectively an alternative to costly payday lending. The fees on all these services would be drastically lower than anything in the marketplace today.

The ire of big banks and lobbyists aside, President Obama could take a chance on implementing a true, progressive change for the working class if he gets behind this idea. For Obama, Democrats, and the political system on the whole, this may be the light bulb that goes off, delivering change that regains the public’s trust. Of course, if rejected it could become the nail in the coffin that shows once and for all the government does not work for the people. As noted by Dayen:

Sure, the banks will squawk: the chief counsel of the American Bankers Association has already pronounced himself “deeply concerned”—but as the IG report shows, they have no interest in serving this community. So surely that won’t stop the President from urging the USPS to take advantage of this lucrative and worthwhile option. Unless he values payday lenders and greedy middlemen more than the financial security of the Postal Service and millions of poor Americans.

About the Author: Chaz Bolte

Chaz Bolte is a native of Pittsburgh, PA where he attended Slippery Rock University. He currently contributes to WePartyPatriots, Addicting Info, Secret Party Room, and Football Nation. You can follow him on Twitter @ChazBolte

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Wells Fargo and three other banks discontinue payday loans | North …

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NNPA Columnist Charlene Crowell

By Charlene Crowell

(NNPA) More good news keeps coming for consumers in early 2014. On the heels of new mortgage rules that took effect January 10, the following week four banks making payday loans pulled their products from the market. Announcing a halt to their triple-digit interest rates were Wells Fargo, Regions, Fifth Third and US Bank. Together, these lenders have combined assets of $2.1 trillion, serving customers through 30,000 branches and more than 21,500 ATMs across the country.

Sometimes known as advance deposit loans, or trademarked names such as US Bank’s Checking Account Advance or Wells Fargo’s Direct Deposit Advance, the loans operate in the same manner as payday loans hawked by stores. Customers borrow a few hundred dollars and then the bank repays itself from the borrower’s next direct deposit, assessing a fee plus the entire loan amount.

Research by the Center for Responsible Lending (CRL) has found that the typical bank payday borrower:

Is charged a fee of $10 per $100 borrowed, amounting to an annual percentage rate (APR) of 300 percent; Has a one in four chance of also being a Social Security recipient; Is twice more likely to incur overdraft fees than bank customers as a whole and Often remains in debt for six months of a year.

Consumer advocates and civil rights leaders have been shining a bright light on banks that chose to engage in this kind of lending over the past two years. Below are a few examples of that consumer activism.

In early 2012, 250 organizations and individuals sent a letter to federal banking regulators expressing concerns. A year later in 2013, more than 1,000 consumers and organizations told the Consumer Financial Protection Bureau about elder financial abuse, including bank payday lending. CRL in coordination with CREDO, an organization that funds progressive nonprofits, delivered a petition with 150,000 signatures in an appeal to federal regulators.

By April 2013, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency proposed regulatory guidance on bank payday loan criteria. Weeks later amid still-growing consumer concerns, Florida’s U.S. Senator Bill Nelson and Sen. Elizabeth Warren of Massachusetts in May 2013 sent a joint letter to the Office of the Comptroller of the Currency (OCC).

“As Chairman and member of the Senate Special Committee on Aging, we take very seriously our responsibilities to seniors and elderly consumers who expect and deserve fair and transparent financial services,” said the Senators. “Social Security was created to provide seniors with financial support to help them cover basic living expenses not for banks seeking new sources of revenue by exploiting retirees with limited means. Therefore it is critical that banks be discouraged from using government benefits as proof of income, and we would hope such a provision would be included in the final guidance.”

By November 2013, FDIC and OCC finalized regulations and advised banks that a borrower’s ability to repay a loan must be considered when issuing these loans.

In December 2013, the Leadership Conference on Civil and Human Rights (LCCR), representing more than 200 diverse national organizations, unanimously adopted a resolution urging states, Congress and federal agencies to increase regulatory oversight and enforcement of all payday lenders.

“Low-income people and people of color have long been targeted by slick advertising and aggressive marketing campaigns to trap consumers into outrageously high interest loans,” said Wade Henderson, LCCR president and CEO. “We’re simply advocating for reasonable regulatory oversight that ensures that low-income people won’t be swindled out of the little money they do have at their disposal.”

Reactions to the bank decisions resulted in cheers from consumer advocates. For example, Dory Rand, president of the Chicago-based Woodstock Institute, said, “We applaud these decisions to stop offering these dangerous products. For too long, these products – like storefront payday loan products – have wreaked havoc on borrowers’ finances and trapped them in a cycle of debt.”

In short, it was the constant call for consumer protections that ultimately led to banks foregoing payday loans. By combining efforts on a single issue, advocates accomplished together what none might have done alone.

I am hoping the rest of 2014 will be energized by the success of these early 2014 consumer victories. Perhaps federal regulators will soon put an end to all consumer debt traps. As we celebrate this key consumer victory, let us strive towards more financial reforms.

Charlene Crowell is a communications manager with the Center for Responsible Lending. She can be reached at Charlene.crowell@responsiblelending.org.

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Service Members Left Vulnerable to Payday Loans | New Jersey …

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Ivan Pierre Aguirre for The New York Times A business offering short-term loans near Fort Bliss in El Paso, Tex. Interest rates on such loans can reach as much as 80 percent.

Petty Officer First Class Vernaye Kelly winces when roughly $350 is automatically deducted from her Navy paycheck twice a month.

Month after month, the money goes to cover payments on loans with annual interest rates of nearly 40 percent. The monthly scramble — the scrimping, saving and going without — is a familiar one to her. More than a decade ago, she received her first payday loan to pay for moving expenses while her husband, a staff sergeant in the Marines, was deployed in Iraq.

Alarmed that payday lenders were preying on military members, Congress in 2006 passed a law intended to shield servicemen and women from the loans tied to a borrower’s next paycheck, which come with double-digit interest rates and can plunge customers into debt. But the law failed to help Ms. Kelly, 30, this year.

Nearly seven years since the Military Lending Act came into effect, government authorities say the law has gaps that threaten to leave hundreds of thousands of service members across the country vulnerable to potentially predatory loans — from credit pitched by retailers to pay for electronics or furniture, to auto-title loans to payday-style loans. The law, the authorities say, has not kept pace with high-interest lenders that focus on servicemen and women, both online and near bases.

“Somebody has to start caring,” said Ms. Kelly, who took out another payday loan with double-digit interest rates when her car broke down in 2005 and a couple more loans this summer to cover her existing payments. “I’m worried about the sailors who are coming up behind me.”

The short-term loans not covered under the law’s interest rate cap of 36 percent include loans for more than $2,000, loans that last for more than 91 days and auto-title loans with terms longer than 181 days.

While it is difficult to determine how many members of the military are struggling with loans not covered by the law, interviews with military charities in five states and more than two dozen service members — many of whom declined to be named for fear that disclosing their identity would cost them their security clearances — indicate that the problem is spreading.

“Service members just get trapped in an endless cycle of debt,” said Michael S. Archer, director of military legal assistance for the Marine Corps Installations East.

Shouldering the loans can catapult service members into foreclosure and imperil their jobs, as the military considers high personal indebtedness a threat to national security. The concern is that service members overwhelmed by debt might be more likely to accept financial inducements to commit espionage.

The Military Lending Act followed a series of articles in The New York Times in 2004 that documented problems in the sale of life insurance and other financial products. Those problems were also highlighted in congressional hearings and reports from the Government Accountability Office. The 2006 law was meant to stamp out the most dangerous products while ensuring that service members did not lose access to credit entirely.

“The law did wonders for the products that it covered, but there are simply many products that it doesn’t cover,” Holly K. Petraeus, the assistant director for service member affairs at the Consumer Financial Protection Bureau, said in an interview.

Short-term lenders argue that when used prudently, their loans can be a valuable tool for customers who might not otherwise have access to traditional banking services.

Yet government agencies are now scrutinizing some of these financial products, including installment loans, which have longer repayment periods — six to 36 months — than a typical payday loan.

There is a growing momentum in Washington to act. On Wednesday, the Senate Commerce Committee convened a hearing on abusive military lending. And the Defense Department has begun soliciting public feedback on whether the protections of the Military Lending Act should be expanded to include other types of loans.

“Federal protections are still insufficient” to protect the military, said Senator Jay Rockefeller, the West Virginia Democrat who is chairman of the Commerce Committee.

Interest rates on the loans offered by companies like Just Military Loans and Military Financial, can exceed 80 percent, according to an analysis by the Consumer Federation of America.

Pioneer Financial and Omni Military Loans, which dominated the military business before the passage of the 2006 law, now offer products that fall into its gaps. These two companies and others pitch loans for more than $2,000 — the amount of money covered under the law — or simply make loans beyond the 91-day period covered, according to a review by The Times of more than three dozen loan contracts held by the service members interviewed.

Omni and Military Financial did not respond to requests for comment.

Joe Freeman, Pioneer’s president, said in a statement that none of its loans had interest rates above 36 percent.

For short-term lenders, the military, made up of many young, financially inexperienced people, is an attractive customer base, especially because they have reliable paychecks, a rarity in lean economic times. And a fixture of military life makes it even easier for lenders to collect.

Under the so-called allotment system, service members can have the military siphon off money from their paychecks before the cash hits their accounts. Service members often agree to use the allotment system to cover their monthly payments.

Even lenders acknowledge that the allotment system helps keep service member defaults low.

“We have very good success because they are able to pay us back through their paycheck in the form of the allotment,” said Rick Rosen, who was a manager at a Pioneer Services branch that was situated near the main entrance to Fort Bliss, Tex., one of the nation’s largest bases. During an interview earlier this year outside the branch, which has since been closed, Mr. Rosen emphasized that soldiers could choose whether to pay through allotment.

Service members say, though, that they had no choice. Nikea Dawkins, a 23-year-old sergeant in the Army, said she had to agree to pay her $1,500 loan from Pioneer through allotment. “There was no way that they would give the loan to me unless I agreed,” she said.

Some lenders, military members say, use threats to ensure that they are repaid. The service members said they were told that if they fell behind, the lenders would go to their commanding officers.

The warning can be enough to induce military members to borrow more money to cover their existing loans. Since taking out her first loan with Pioneer in 2002, for example, Ms. Kelly said she and her husband had together taken out four more loans, from lenders including Military Financial and Patriot Loans.

Such official-sounding company names — along with advertisements featuring men and women in uniform — can lull service members into believing that the loans are friendlier for the military, according to Dave Faraldo, the director the Navy-Marine Corps Relief Society office in Jacksonville, Fla.

It’s a simple mistake to make.

“We know the military because we are former military,” Omni says on its website. “Most of our loan specialists are former military personnel who have been in your shoes.”

Others try to persuade military members to pitch the loans to their friends, offering a $25 referral fee or a Starbucks gift card, according to service members. Some lenders have thrown loan parties near bases, drawing people with the promise of free Buffalo wings, service members say.

The sheer availability of the loans can make it tough to abstain. Ana Hernandez, who oversees the so-called financial readiness program at Fort Bliss, says that soldiers on the base readily take out loans to buy things like electronic goods. “They are loans for wants, not for necessities at all,” she said.

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U.S. FHA to tap $1.7 billion in taxpayer funds

* FHA needs cash to maintain required capital cushion

* Shortfall stems from loans backed from 2007 to 2009

* Republicans: FHA was irresponsible in propping up market

* White House predicted $943 million draw in April

* Obama administration officials see finances improving

By Margaret Chadbourn

WASHINGTON, Sept 27 (Reuters) – The U.S. Federal Housing Administration said on Friday it will draw $1.7 billion in cash from the U.S. Treasury to help cover losses from troubled loans, marking the first time in its 79-year history that it has needed aid.

The agency, which offers mortgage lenders guarantees against homeowner defaults, told Congress it does not have enough cash to cover projected losses on the loans it backs. It said it needs the subsidy to shore up its insurance fund to maintain a required capital cushion.

White House officials projected in April that the FHA would face a shortfall of $943 million in the fiscal year that ends on Monday, but rising mortgage rates cut its loan volume and curbed a hoped-for increase in revenues from higher loan premiums.

FHA Commissioner Carol Galante said her agency was required to draw money based on loan performance assumptions that were locked down in December, but she said those assumptions did not capture improvements that would have likely canceled out a need for aid.

“In the next few months, we expect updated data and economic forecasts to reflect what we already know to be true – the health of the (FHA insurance) fund has improved significantly,” she told lawmakers in a letter.

The cash infusion marks what could be considered a book end to the 2007-2009 financial crisis, which started with the U.S. subprime mortgage crisis.

Most of the damage to the FHA was caused by loans that were made during those years as the real estate market cratered and it expanded its book of business to support the mortgage market. Officials said those loans are projected to cost the agency $70 billion.

Loans originated in the past few years have performed much better. The number of loans seriously delinquent at the end of July was 15 percent below the level of a year earlier and at the lowest point in almost three years.

In addition, the amount of money the FHA is recovering on foreclosed properties is up sharply. “It is estimated that the improvement in recovery rates alone is worth more than $5 billion,” Galante said.

POLITICAL TENSIONS

While the FHA had been expected to draw from the Treasury, the size of the cash infusion, which Republicans have dubbed a bailout, will heighten the political tension over the government’s pervasive role in the mortgage market.

Taxpayers have already propped up mortgage finance giants Fannie Mae and Freddie Mac to the tune of $187.5 billion, although those government-controlled companies are now profitable and will have returned $146 billion in dividends to the Treasury by the end of the month.

Including Fannie Mae and Freddie Mac, federal housing agencies support about nine in 10 new U.S. mortgages.

Idaho Republican Senator Mike Crapo said the announcement reinforced the need for Congress to revamp the housing finance system to reduce the government’s footprint.

“Taxpayer liability could come to fruition if we do not act on serious reform now,” he said.

$30 BILLION ON HAND

The FHA said it has more than $30 billion in cash and investments on hand to pay potential claims, but that it does not have enough to meet a legally required 2 percent capital ratio, which is a measure of its ability to withstand losses.

The FHA has not met its capital ratio since 2009, but the ratio only sank below zero this budget year.

“Although this one-time transfer of funds from the Treasury is legally necessary, it’s important to note that FHA is far from bankrupt,” said Representative Maxine Waters, a California Democratic who supports programs that help low-income borrowers.

Since the cash draw from Treasury will not be disbursed by the FHA, it will not impact how quickly the government runs out of money to pay its bills under the nation’s $16.7 trillion debt ceiling. In addition, the Treasury has the authority to take the $1.7 billion back once the FHA rebuilds its reserves.

After an independent audit in November found that its insurance fund could face losses as high as $16.3 billion, the FHA raised the amount it charges borrowers to insure mortgages against default and tightened underwriting. The changes, coupled with rising home prices, helped shrink the projected gap.

The FHA has said its cash needs were mainly driven by losses from reverse mortgages, which allow homeowners age 62 or older to withdraw equity and repay it only when their homes are sold. The agency, which is expected to spend $2.8 billion this year insuring reverse mortgages, backs 90 percent of such loans.

It has already announced new guidelines for potential reverse mortgage borrowers, including lower limits on the amount seniors can withdraw, higher mortgage insurance fees and tougher vetting of applicants. Those changes, however, do not go into effect until Tuesday.

Republicans have argued the FHA needs to take more aggressive action to protect taxpayers, including reducing maximum loan limits and raising minimum down payments.

The Obama administration contends some of those steps would undermine the agency’s mission to provide credit to first-time home buyers and needy communities.

The FHA has played a critical role supporting the housing market by insuring mortgages for borrowers who make down payments of as little as 3.5 percent. The FHA insures about $1.1 trillion in mortgages and now backs about one third of all new loans used to purchase homes, up from about 5 percent in 2006.

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