Tag Archives: lending

Steven Mnuchin Just Doesn’t Understand

by RenatoHanger Posted on January 20, 2017

Mother Jones

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This is adorable:

When Steven Mnuchin, Donald Trump’s pick for secretary of the Treasury, was asked about tax reform in his confirmation hearing on Wednesday, he took things in a surprising direction: He suggested that the IRS needed a larger staff.

“I was particularly surprised, looking at the IRS numbers, that the IRS headcount has gone down quite dramatically, almost 30 percent over the last number of years,” Mnuchin said in response to a question from Sen. Orrin Hatch, a Utah Republican….“Now perhaps the IRS just started with way too many people,” Mnuchin added. But he suggested that “staffing of the IRS is an important part of fixing the tax gap.”

That’s, um, surprising, all right. Yessir, Mr. Mnuchin. Very surprising indeed.

For those of you who don’t get the joke, this is sort of like Mnuchin testifying in front of a bunch of mafia dons and expressing surprise that they charge such high interest rates in their lending operation. Maybe with lower rates you gentlemen could expand into the suburban market and gain a share of the home equity business? Lotta kitchen remodels out there.

Basically, Mnuchin looked at the IRS numbers like a normal person and was surprised to see that they weren’t trying to maximize tax collections. He apparently didn’t realize that the Republicans he was testifying in front of have been very deliberately slashing the IRS budget for years precisely so they can’t maximize tax collections. The last thing Republicans want is an IRS that audits rich people more closely.

Mnuchin will learn. After all, Donald Trump did. Remember when Trump suggested that women who get abortions should be punished? He had no idea what he was talking about, and just assumed that since Republicans consider abortion bad, the maximal anti-abortion position must be good. He didn’t realize that jailing middle-class teenagers is a position unpopular enough to jeopardize GOP reelection prospects, and as a result Republicans have long insisted that even if they manage to make abortion illegal, they will always consider women who get abortions to be “victims” of unscrupulous butchers, not lawbreakers. That’s the party line, anyway, and everyone is expected to know it.

Before long, I’m sure Mnuchin will learn to listen respectfully to harangues about the gold standard and fiat money and ending the Fed. It’s a small price to pay for the opportunity to occupy the position once held by Alexander Hamilton.

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Steven Mnuchin Just Doesn’t Understand

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Newt Gingrich Says Elizabeth Warren’s Signature Program Is "Dictatorial." This Is What It Really Has Done.

by TyreeKruse Posted on December 28, 2015

Mother Jones

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“Today, the Consumer Financial Protection Bureau is so far outside the historic American model of constitutionally limited government and the rule of law that it is the perfect case study of the pathologies that infect our bureaucracies at the federal level,” former House Speaker Newt Gingrich solemnly intoned in his opening statement as an expert witness at a congressional hearing on December 16. “It is dictatorial. It is unaccountable. It is practically unrestrained in expanding on its already expansive mandate from Congress. And it is contemptuous of the rights, values, and preferences of ordinary Americans.”

Republicans and outside conservative groups spent much of 2015 attacking the Consumer Financial Protection Bureau (CFPB)—the federal financial regulator that opened in 2011, conceived and launched by Sen. Elizabeth Warren (D-Mass.) after it was included in the 2010 Dodd-Frank Wall Street reform law.

This month’s hearing, where conservatives on the House Financial Services Oversight and Investigations Subcommittee lambasted the CFPB for collecting data on credit card usage, was just the latest in a string of attacks against the consumer agency. Gingrich is a paid adviser to a corporate-funded group, the US Consumer Coalition, that doesn’t disclose the identities of its donors and was founded by a PR firm to attack the agency. In November, a conservative group ran an ad during Republican debates attacking the CFPB and Warren as Soviet operators trying to shut down regular borrowers. Republicans in Congress have consistently introduced bills that would hamper the CFPB’s ability to function by restricting its budget or weighing down its decision-making process with extra bureaucratic layers. Ted Cruz, the senator from Texas and Republican presidential candidate, has gone even further, introducing legislation to eradicate the agency.

But amid the attacks, it’s been easy to lose sight of what the CFPB has actually been up to. Earlier this month, the CFPB released a report examining how one part of its financial regulation has unfolded. The CARD Act, passed in 2010 and overseen by the CFPB, aimed to clean up the credit card industry by eliminating hidden fees that hurt consumers.

According to the CFPB, the CARD Act’s changes saved consumers from $16 billion in these sorts of hidden fees between 2011 and 2014. Most of those savings have been paid for with higher upfront interest rates. Still, the total cost of credit cards declined in the first few years after the law’s enactment and has held steady since then at about 2 percent less than before the CARD Act.

The banking industry has argued that further regulations along these lines would constrict the availability of credit, since companies might decide it is no longer worth offering cards when they won’t reap as much profit off their customers. But the CFPB found that, in fact, approval rates for credit cards are rising, with lines of credit growing as well.

The CFPB plays a broad watchdog role, keeping an eye on financial institutions to see if they’re ripping off consumers. When the for-profit school group Corinthian Colleges closed this year, the CFPB set up $480 million in loan forgiveness for indebted students. In March, the agency issued a set of proposed rules to place new checks on payday lending. (The rules have yet to be finalized.) The agency has also been looking to tackle subprime auto loans and the prevalence of arbitration clauses in contracts in order to make it easier for consumers to file class action lawsuits.

Are these actions against the “preferences of ordinary Americans,” as Gingrich said? It’s hard to say, since most people have little knowledge of the CFPB. When two liberal-leaning groups—Americans for Financial Reform and the Center for Responsible Lending—explained what the CFPB was up to while polling people, they found that 75 percent of respondents supported the agency. Even when the US Consumer Coalition, the industry group Gingrich advises, ran a poll on the CFPB, it found that people generally have a favorable view. Only 19 percent of respondents could identify the CFPB, but of those who were familiar with it, 31 percent had a favorable view, compared with 14 percent who viewed it negatively.

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Newt Gingrich Says Elizabeth Warren’s Signature Program Is "Dictatorial." This Is What It Really Has Done.

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Once Again, We Are Unlearning the Lesson of the Great Debt Bubble

by LynetteNettleto Posted on April 1, 2015

Mother Jones

Is this good news?

Millions of Americans unable to obtain credit cards, mortgages and auto loans from banks will receive a boost with the launch of a new credit score aimed at consumers regarded as too risky by lenders.

Here’s more:

The new score is largely a response to banks’ desire to boost lending volumes by increasing loan originations to borrowers who otherwise wouldn’t qualify, many of whom tend to be charged more for loans….The new score, which isn’t yet named, will be calculated based on consumers’ payment history with their cable, cellphone, electric and gas bills, as well as how often they change addresses and other factors.

….The new score could help applicants who don’t use credit often but are responsible with their monthly payments to get approved for financing….But many borrowers who don’t have a traditional FICO score are very risky.

….Besides increasing their pool of borrowers and loan originations, banks stand to earn more in interest revenue from riskier borrowers. Lenders charge higher interest rates and in some cases extra fees to borrowers who present a higher risk of falling behind on debt payments.

Color me deeply skeptical. Helping people who are denied credit simply because they don’t currently use any credit sounds great. And assessing them by their reliability in paying normal monthly bills sounds perfectly reasonable.

But I very much doubt this is really the target of this initiative. After all, people with no previous credit history already have access to credit. They just have to start slowly, with low credit limits and so forth. This new scoring system probably won’t change that.

What it will do is give banks an excuse to extend high-cost credit to risky borrowers—exactly the same thing they did during the housing bubble. As you may recall, that didn’t turn out well, and there was a simple reason: risky borrowers are risky for a reason. When banks start to get too loose with their lending standards they end up dealing with default rates much higher than they expected.

This won’t happen right away, of course. Banks will be relatively cautious at first. They always are. But just wait a few years and it will be a different story. Then the standards will be lowered just a little too far, the rocket scientists will do their thing, and we’ll be headed toward yet another debt crisis.

This is almost certainly a bad idea. We’d all like to see everyone get a chance, but there are good reasons to restrict credit to borrowers who are likely to repay. We should remember that.

UPDATE: Megan McArdle has a different take here. I’m skeptical, but it’s worth reading.

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Once Again, We Are Unlearning the Lesson of the Great Debt Bubble

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Watch John Oliver Explain How Payday Loans Are Awful

by DarioMottfr Posted on August 11, 2014

Mother Jones

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Payday lenders are awful, horrible scum who prey on the desperation of the working class. Payday loans are awful, horrible deals wherein a borrower gets a small amount of cash at an exceedingly high interest rate and agrees to pay it back in a short amount of time, typically two weeks. If a borrower can’t pay it back then they’re hit with an avalanche of fees and end up having to borrow more and then its a vicious cycle all the way down. According to the Center for Responsible Lending, the average borrower ends up paying $1,105 to borrow just $305.

On Sunday’s Last Week Tonight, John Oliver made these points and more in a way that will make you eventually run your head into a brick wall because you have no more tears left to shed.

Watch:

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Watch John Oliver Explain How Payday Loans Are Awful

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Relearning the Past: Yes, Rising Inequality is Bad for Economic Growth

by LynetteF1 Posted on February 27, 2014

Mother Jones

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Does high income inequality lead to lower economic growth? There are two main reasons to think it might. The first is simple: rich people spend a smaller percentage of their income than the non-rich. Thus, as more and more income accrues to the rich, we get less net consumption and thus slower growth.

The evidence on this score turns out to be pretty hazy. It seems logical, but if you look at consumption trends over time you just don’t see it. But there’s a second theory that’s more interesting: as inequality rises, the rich increasingly need to find good places to invest all the money they’re accumulating. Eventually concrete business opportunities start to become scarce, so they look around for other places to put their money to work. In practice, this means the rich become net lenders to the middle class. They can hardly be loaning money to each other, after all, since they all have more of it than they can use for current consumption.

So the rich lend money to the middle class, which is an eager recipient because their incomes are stagnant. But as the debt load of the middle class increases, this lending becomes ever more Byzantine and ever more risky. Eventually, the middle class simply can’t take on more debt and the whole system comes to a screeching halt. The result is an economic recession as consumers try to work themselves out from under the mountain of debt they’ve run up.

There’s an intriguing amount of evidence to back up this theory, and in a new report released yesterday a team of IMF researchers provides another reason to believe it. They find that high inequality is indeed associated with slower growth, but the mechanism for that slower growth comes in reduced growth spells. That is, it’s not that countries with high inequality have steady growth rates that happen to be a little lower than countries with low inequality. Rather, they have shorter spells of economic expansion. In particular, the authors find that a 1-point increase in a country’s GINI score (a measure of inequality) is associated with a decrease of about 7 percent in the length of its growth spells.

In other words, countries with high inequality simply can’t maintain economic booms as long as countries with lower inequality. This is consistent with the idea that growth in these countries is driven partly by the rich loaning money to the middle class, which is obviously less sustainable than growth driven by an increase in middle-class wages. In high-inequality countries, growth is too dependent on financialization and leverage. When the merry-go-round stops, as it inevitably must, the boom times are over.

The IMF team also found that—within reason—redistribution doesn’t seem to harm growth. In fact, just the opposite: “The combined direct and indirect effects of redistribution—including the growth effects of the resulting lower inequality—are on average pro-growth.”

To pick up on the theme of the previous post, this is something we all understood back in the era when unions were powerful advocates for the middle class. Of course rising middle-class wages are a prerequisite for sustainable growth in a mixed consumer economy like ours. And the more stagnant those wages are—and the aughts were by far the worst decade for stagnant wages since World War II—the more fragile economic growth is.

Now we have an IMF report to add to the technical evidence that middle-class wage stagnation is bad for the economy. But who has the raw political power to force the business community to listen to it?

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Relearning the Past: Yes, Rising Inequality is Bad for Economic Growth

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The Obama Administration Wants to End Racial Discrimination by Car Dealers. Why Are 35 Dems Getting in the Way?

by Jana9324cuf Posted on January 21, 2014

Mother Jones

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Dozens of Democrats are pushing back against an Obama administration effort to curb racial discrimination by car dealerships.

In late March, the Consumer Financial Protection Bureau—the consumer watchdog agency dreamt up by Sen. Elizabeth Warren (D-Mass.)—issued new, voluntary guidelines aimed at ensuring car dealerships are not illegally ripping off minorities. Since then, 13 Senate Democrats, including Sens. Heidi Heitkamp (D-N.D.) and Mary Landrieu (D-La.); and 22 House Dems, including Reps. Debbie Wasserman-Schultz (D-Florida) and Terri Sewell (D-Ala.), have joined 19 House and Senate Republicans in signing letters to the agency objecting to the anti-discrimination measure. Consumer advocates and congressional aides say the lawmakers’ backlash against the anti-discrimination rules is unjustified, and that Dems have backtracked on civil rights in this instance because of the colossal power of the car dealership lobby, which has spent millions lobbying Congress in the months since the CFPB issued these new guidelines.

Auto dealers “wield enormous amounts of power,” one Democratic aide explains. “There’s one in every district. They give a lot of money to charity. They’re on a bunch of boards. They sponsor Little Leagues.”

When a dealership makes a car loan, it often sells the loan to a bank or credit union, which, in return, allows the dealership to mark up the interest rate. Here’s the problem: Some dealerships have been accused of charging higher rates to black and Hispanic customers, potentially costing consumers millions of dollars in overcharges. The CFPB’s anti-discrimination guidance reminds lenders that they are liable under federal law if car dealerships they work with charge higher interest rates to minority borrowers. The guidance suggests that lenders help prevent discrimination by educating dealers, increasing oversight, and either capping dealership interest rates or requiring dealers to charge a flat fee.

Auto dealers are up in arms. If lenders follow the CFPB’s advice, dealership profits could fall by hundreds of dollars per car sold, according to the Department of Justice. Car dealer trade groups claim that the CFPB has not adequately proved that discrimination is a problem in the industry. Dealerships have spent millions lobbying Congress over the past year, including on this very issue. Many Democrats have the auto dealers’ back. In their letters to the CFPB, Dems claim that they appreciate the CFPB’s goal of curbing discrimination by car dealerships. But they echo the dealers’ arguments, and demand that the CFPB provide the detailed methodology it uses to determine that some dealers may be discriminating.

The CFPB maintains that the way it detects discrimination in the auto industry should be no mystery to Congress. These methods, which are similar to those used by the DOJ and other federal banking regulators, have been used in voting rights cases, discrimination cases, and jury selection cases for decades, a CFPB spokeswoman notes. Here’s how it works: Because customer race and ethnicity data is not available for auto loans, the CFPB uses proxies, including geography and surname, to see if lenders are allowing dealerships to charge higher interest rates to minorities. The CFPB has responded to lawmakers’ requests for this methodology in letters, at a public forum on the issue, and on its website.

If lawmakers don’t trust the feds’ definition of discrimination, they can also look to the courts. In December, the DOJ and the CFPB reached a $98 million settlement with Ally Financial and Ally Bank over claims that Ally’s markup policies resulted in illegal discrimination against over 235,000 minority borrowers. At least seven class-action lawsuits have been filed over the past 14 years that allege auto-dealers unfairly overcharged minorities. And “nothing has really changed in the marketplace” to force auto lenders and dealerships to change their practices, says Chris Kukla, the senior counsel for government affairs at the Center for Responsible Lending, a nonprofit consumer rights group.

Car dealers have also complained that regulating the interest rates dealerships can charge will increase costs for consumers. Consumer advocates disagree: “I don’t believe…dealers’ ability to mark up prices…in any way benefits consumers,” says Stuart Rossman, director of litigation the National Consumer Law Center, an advocacy group. Jeff Sovern, a law professor and expert in consumer law at St. John’s University in New York, adds that the low prices some customers have been paying may have been subsidized by the higher prices paid by minorities. “It’s not usually considered a defense that the beneficiaries of racism should keep the lower prices that other groups pay for,” he says.

So why the outcry amongst Democrats? Congressional aides and consumer advocates say that the auto dealer industry’s lobbying efforts are intense. “Dealers are a powerful lobby,” Kukla says. “These people sell things for a living. They’re good at advocating.”

“I’m not surprised that any politician” would cave to the dealerships, Rossman adds. The National Automobile Dealers Association (NADA), an industry trade group, has spent $3.1 million on lobbying in 2013, according to lobbying disclosure forms. “The dealerships made a very concerted push to get members of Congress to sign those letters” criticizing the guidance, Kukla says.

None of the 35 Democrats responded to requests for comment for this story, nor did the National Association of Minority Automobile Dealers, another industry trade group. NADA declined to comment.

The oddest aspect of Democrats’ push back on the CFPB anti-discrimination measures, advocates say, is that in issuing the guidance, the CFPB didn’t actually create any new regulation or law. “The funny thing is that… the CFPB is getting hit…because someone is actually enforcing rules already on the books,” says the Dem aide.

“It’s not that controversial,” Rossman adds.

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The Obama Administration Wants to End Racial Discrimination by Car Dealers. Why Are 35 Dems Getting in the Way?

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California might borrow $500 million from its climate fund

by jex34c67 Posted on May 16, 2013

California might borrow $500 million from its climate fund

By John Upton

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One of the great features of California’s cap-and-trade program is that all the money that the state raises by selling carbon allowances to polluters is supposed to be plowed back into initiatives that help cool the climate. So not only does the program limit and reduce carbon emissions; it also forces polluters to pay to undo some of the harm that they cause.

But with such a big stack of green sitting there, staring the notoriously cash-poor state of California in its desperate face, how can a government resist?

And so it’s starting to look as though $500 million raised by selling carbon allowances could be funneled away from green programs and loaned instead to the state’s general fund. The L.A. Times reports:

Gov. Jerry Brown sparked controversy Tuesday when he proposed to shift $500 million out of the state’s Greenhouse Gas Reduction Fund and loan it to the state general fund as part of the effort to balance the budget. …

Lending that money would be “extraordinarily disappointing,” said Kathryn Phillips, director of Sierra Club California. “The governor will be delaying opportunities to use those funds to actually get critical reductions in global warming pollution,” she said.

If the state delays using the funds for reforestation and energy efficiency projects, that will delay the positive environmental effects of those efforts, she added.

Taking money away from global warming projects is so … uncool.

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California might borrow $500 million from its climate fund

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