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Postal banking

Image: www.campaignforpostalbanking.org

The idea of the United States re-instituting postal banking has, happily, received some attention from presidential candidate Bernie Sanders in recent months. The simple and straightforward idea: provide Americans (especially low-income Americans) with an alternative to the bottom feeding payday lenders, finance companies, check cashing outfits and pawn shops that have filled the gap in the market in recent decades after the demise of community banks and savings and loans.

Today, in an excellent essay for The Nation, University of Georgia Law Professor Mehrsa Baradaran (the author of the 2015 book “How the Other Half Banks: Exclusion, Exploitation, and the Threat to Democracy”) strongly endorses the idea and places it in its historical context. This is from the essay:

“So it’s time to consider a large and national solution to the problem of the unbanked.

Almost every other developed country in the world has found the answer in their post office. What very few people seem to remember is that the United States did it too. In fact, our postal banking system, first proposed in 1871, began in 1910 and banked millions of Americans until 1966, when it was phased out, because this was the heyday of community banking and there was no need for the postal banks….

Postal banking was the most successful experiment in financial inclusion in the United States—a problem in front of us once again. Postal banking brought millions of new immigrants and rural dwellers into the United States banking system.

We are again facing the realization that our banking industry is unstable, but also, more crucially, that it is unfair. Read More

Commentary

Payday debt trapFederal regulators at the Consumer Financial Protection Bureau are moving ahead with the development of rules to regulate the predatory payday lending industry and this is excellent news for vulnerable consumers in dozens of states. One sizable potential problem with the effort, however, involves states like North Carolina that have already had the good sense to ban the predators outright.

According to consumer advocates, if the feds aren’t careful in how they draft the new rules, they might conceivably legalize payday loans in places like North Carolina even as they’re cracking down on it in other states. Recently, dozens of the advocates in the states where payday loans  are already illegal (including several here in North Carolina) wrote the CFPB Director Richard Cordray urging him to carefully tailor any new rules to avoid  this problem.

In the letter, advocates urged the CFPB “to issue final rules that build on, rather than undermine, strong state protections and that enhance our ability to enforce them.”

The groups continued: “Indeed, it would be unacceptable for the CFPB to issue weak payday lending rules, which would likely usher in a new wave of predatory lending in non-authorizing states and throughout the country.”

Let’s hope the agency sees the obvious wisdom of allowing states to enact and keep consumer protection laws that are stronger than the soon-to-be implemented rules and of keeping the federal standards as a basic consumer protection floor, rather than a ceiling.

Click here to read the letter.

And for more information on stopping the payday lending debt trap, click here.

 

Commentary

Opposition to abusive lending cuts across the political spectrum. In fact, it has been uniting people for thousands of years.

In North Carolina, we have a proud bipartisan tradition of protecting consumers. As Rob Schofield wrote recently,  a 2009 consumer protection law that is one of the strongest in the country prevents some of the worst types of debt buying practices.

But there are efforts to undermine this common-sense law.

A News & Observer editorial from yesterday offers a good capsule summary:

In North Carolina and elsewhere, some of those debt buyers got aggressive and deceptive in their collection techniques, including filing lawsuits that could keep consumers in court forever.

In response to such abuses, the North Carolina General Assembly in 2009 passed a consumer protection law that held the debt collectors to reasonable standards of behavior. For example, as of now those collectors have to present detailed information about the delinquent debt they’re trying to collect, including when and where it originated and the amount of fees and interest that were agreed upon by the consumer. The disclosure requirement and other consumer protections came in response to a surge in lawsuits from debt collectors targeting people who didn’t owe a debt or had resolved it.

Now a peculiar bill proposed by Sen. Mike Lee, R-New Hanover would do away with some of standards for collectors, making it easier for them to push ahead with suits. The collectors wouldn’t need to have that detailed information, for example.

The N&O describes this, accurately, as “sticking it to the average citizen.” We have a choice between protecting the people suffering from a tough economic situation, or changing the law in favor of the companies trying to extract capital from them.

The protections now in place are good ones. They help average people. They don’t change the obligation to pay true debts, or provide free passes away from legal action.

The rules simply require debt collectors to prove their demands are legitimate. That’s a fair standard and it should stay.

North Carolina’s simple but effective consumer protections are hard-won and effective. Let’s let them keep working by leaving them in place.

Commentary

Loan sharksState lawmakers have been taking a spring break this week and given the flood of disturbing bills introduced of late, it’s enough to make you wish they’d just stay away. Two new anti-consumer bills pushed by predatory industries make for classic cases in point.

As is detailed on the main NC Policy Watch site this morning by veteran bankruptcy attorney William Brewer, Number One is the proposal to introduce wage garnishment in North Carolina for general debts like credit card bills. As Brewer explains, this proposal would end a nearly 150 year-old rule in North Carolina that general creditors cannot seize money from people that is necessary to support their families.  It would also unleash a a bevy of predatory national profiteers that buy up old consumer debt for pennies on the dollar and, perhaps most disturbingly, spark a wave of bankruptcies. Here’s Brewer:

“As practical matter, the only refuge for such an unfortunate wage earner will be to file bankruptcy. But here’s the rest of the story: North Carolina has one of the lowest bankruptcy filing rates in the nation. For the first quarter of 2014, the national average for bankruptcies was 3.23 for every 1,000 people. North Carolina ranked 40th among the states with a rate of 1.82.

By contrast, the rates in our sister states in the southeast that allow with wage garnishment along the lines of Senator Brock’s proposal are the highest in the nation. Tennessee is first with a rate that’s 350% of North Carolina’s. Georgia and Alabama are second and third with three times the North Carolina rate. Virginia has a rate 70% higher than North Carolina. South Carolina, which has no wage garnishment, has a filing rate 13% lower.

The conclusion from all this is inescapable: if the General Assembly and Gov. McCrory enact a law that dramatically expands wage garnishment in our state, bankruptcy filings will soar by 200-300%.”

Sadly. debt buyer lobbyists aren’t the only ones pushing lawmakers to soak struggling consumers. The high-interest finance companies are back with yet another bill to jack up rates on small consumer loans — i.e. the ones they succeeded in raising just a couple years ago.

As Raleigh’s News & Observer explains this morning, the new bill would send effective interest rates on these loans into the stratosphere: Read More

Commentary

Payday loans.jpgThe federal Consumer Financial Protection Bureau is unveiling some long-awaited proposed rules targeting the predatory payday lending industry at a big hearing in Richmond, Virginia today and you can follow along on Twitter at the hashtag #StoptheDebtTrap. Generally, the proposed rules amount to a promising start. There are, however a few worrisome potential loopholes. The good people at the Center for Responsible Lending explain:

Consumer Financial Protection Bureau to Limit Payday Loan Debt Trap; Curb 400% Interest Rate Loans

The Consumer Financial Protection Bureau will offer a first look at where the agency’s efforts to rein in the abusive practices of payday and car title lenders are headed at a Thursday hearing in Richmond, VA. The consumer agency will release information outlining their deliberations and take testimony from a panel of consumer and civil rights advocates as well as industry representatives.

Mike Calhoun, President of the Center for Responsible Lending, will present testimony at the hearing.

Calhoun comments on the proposal:

“The proposal endorses the principle that payday lenders be expected to do what responsible mortgage and other lenders already do: check a borrower’s ability to repay the loan on the terms it is given. This is a significant step that is long overdue and a profound change from current practice. If made mandatory, the ability to repay standard will help millions of borrowers avoid dangerously high-cost payday and other abusive loans. The requirement would prevent debt traps, an all-too common practice where a lender flips loans over and over and the consumer ends up paying double the amount borrowed in interest and fees. And the Bureau appropriately applies the standard to both shorter and longer term loans, including vehicle title loans.

At the same time, we are deeply concerned about provisions in the proposal, the so-called “debt trap protection options,” which would in fact permit payday lenders to continue making both short- and longer-term loans without determining the borrower’s ability to repay. The industry has proven itself adept at exploiting loopholes in earlier attempts to rein in the debt trap. The consumer agency can look to necessary revisions to the Military Lending Act after widespread abuses were found, dragging active service members into debt so damaging that a Defense Department report found it undermined military readiness.

These “options” are an invitation to evasion. If adopted in the final rule, they will undermine the ability to repay standard and strong state laws, which give consumers the best hope for the development of a market that offers access to fair and affordable credit.

We urge the consumer bureau to adopt its strong ability to repay standard without making it optional.”

Let’s hope the regulators are listening.