Commentary A Vision for Reforming Student Loans
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Senate Passes Bill to Aid Long-Term Unemployed
The Senate voted yesterday to restore emergency financial benefits for the long-term unemployed, the first in a series of moves planned by both parties in coming weeks to court core voters this fall, the Wall Street Journal reported today. The jobless-aid bill — which passed on a bipartisan 59-38 vote — is just one plank of what Democrats call their fairness agenda, which also includes a measure to promote equal pay for women, up for a vote likely on Wednesday, and another to raise the minimum wage to $10.10 an hour, after the spring recess that begins next week. None of these measures are likely to pass the Republican-controlled House.
Bank of America in Settlement Talks over Credit Card Practices
Bank of America Corp. is in discussions to pay more than $800 million to settle allegations it pushed customers into signing up for extra credit card products, the Wall Street Journal reported today. The agreement with the Consumer Financial Protection Bureau, which could be announced in coming days, would mark the largest federal settlement with a credit card provider over so-called add-on products. It would be the agency's fifth such agreement with a credit-card provider over products such as identity-theft protection and debt cancellation in the event of a job loss. The CFPB, along with other agencies, has been cracking down on credit card companies for misleading consumers about the value of add-on products. Credit card companies marketed these products aggressively to consumers, saying that they would protect the cardholders from identity theft or cancel debt in the event of a job loss. Federal officials say the products provide little financial benefit to consumers and were often marketed in a deceptive manner.
Overdraft Fees at Banks Hit a High Despite Curbs
Squeezed by falling revenue on deposit accounts, banks are turning to a familiar source of income: overdraft fees, the Wall Street Journal reported today. The median fee for withdrawing more from a checking account than a customer has on deposit increased to an estimated $30 in 2013 — a record — up from $29 in 2012 and $26 in 2009, based on a survey of 2,890 banks and credit unions by Moebs Services Inc., an economic-research firm in Lake Bluff, Ill. Banks' fee revenue from checking, savings and other deposit accounts has been sliding since several regulations took effect. The Federal Reserve in 2010 stopped banks from automatically charging customers overdraft fees on debit card and automated-teller-machine transactions. In addition, the Dodd-Frank financial-overhaul law included an amendment that went into effect in 2011 lowering a debit card fee large financial institutions charge merchants.
HSBC Sued by Illinois Cook County over Minority Lending
HSBC Holdings Plc was accused of targeting minority borrowers in Chicago with high-cost mortgage loans as Cook County, Ill., followed other local governments in trying to hold subprime lenders liable for urban blight, Bloomberg News reported yesterday. Cook County, second in size only to Los Angeles County, seeks unspecified compensatory and punitive damages for its alleged costs to police and maintain deteriorating neighborhoods and from lost tax revenue on vacant properties, according to the complaint filed March 21 against HSBC North America Holdings. The county’s lawsuit against HSBC, Europe’s largest bank, mirrors claims brought by Baltimore, Cleveland, and Memphis, Tennessee, targeting banks under the Fair Housing Act for making loans to minority borrowers who didn’t qualify for them, or for giving high-interest subprime mortgages to minority borrowers who could have qualified for prime loans.
Wells Fargo Foreclosure Manual Under Fire
Wells Fargo created an elaborate guide for how to produce missing documents to foreclose on homeowners, according to a lawsuit that has caught the attention of state and federal regulators, the Washington Post reported yesterday. The bank denies wrongdoing, but the allegations rekindle claims that lenders, including Wells Fargo, used forged and shoddy paperwork during the recession to quickly foreclose on struggling homeowners, a practice known as “robo-signing.” Those charges led to a $25 billion national mortgage settlement that was supposed to put an end to such abusive practices, but bankruptcy lawyer Linda Tirelli says nothing has changed. In the course of defending a New York homeowner facing foreclosure, Tirelli said that she found a 150-page manual instructing Wells Fargo lawyers how to process foreclosures when a key document, known as an endorsement, is missing. Lenders need endorsements to prove that they own the mortgage, before they can foreclose on a homeowner.
Costly Loans Are Drawing Attention from States
State regulators are redoubling efforts to shield vulnerable Americans from short-term loans with interest rates that can exceed 300 percent, the New York Times reported today. The crackdown gained momentum on Tuesday when the Illinois attorney general, Lisa Madigan, accused All Credit Lenders of misleading borrowers into taking out expensive loans that come with insurance products that they do not need or cannot use. In a lawsuit against All Credit Lenders, Madigan contends the company, which has storefronts in Illinois, South Carolina and Wisconsin, deceived borrowers into buying a product pitched as a way to protect them from falling behind on payments in the event of a job loss. But those protections never materialize, the lawsuit said. In fact, the fee is actually a way to raise interest rates that circumvent the state’s usury cap of 36 percent.
Administration Plan Would Rein In For-Profit Colleges
The Obama administration is striking at for-profit colleges and other career-training schools, proceeding with a plan to strip federal funding from institutions whose former students default on their loans at excessive rates, The Wall Street Journal reported yesterday. The move, set to be unveiled Friday, targets schools that fail at their mission of preparing students for what the administration calls "gainful employment" and instead leaves them deep in debt and with weak job prospects. The Education Department's new rules would apply to most for-profit schools and any public-sector institutions. The Education Department proposal reflects one of the administration's boldest moves to tackle soaring student debt, which has nearly doubled since 2007 to about $1.1 trillion. The administration says a disproportionate share of students are coming from for-profit schools that it labels "predatory," luring students to hand over federal aid dollars while failing to deliver meaningful education. The proposal threatens to undermine revenues at major education firms including Education Management Corp., Apollo Education Group Inc., DevRy Education Group Inc. and Corinthian Colleges Inc. Under the plan, programs would no longer be able to accept title IV funds if they fail to meet several metrics. For-profit schools have long denied the charges, saying that they serve many students that other schools would not take.
Obama Will Seek Broad Expansion of Overtime Pay
President Obama this week will seek to force American businesses to pay more overtime to millions of workers, the latest move by his administration to confront corporations that have had soaring profits even as wages have stagnated, the New York Times reported today. On Thursday, the president will direct the Labor Department to revamp its regulations to require overtime pay for several million additional fast-food managers, loan officers, computer technicians and others whom many businesses currently classify as “executive or professional” employees to avoid paying them overtime, according to White House officials briefed on the announcement. Obama’s decision to use his executive authority to change the nation’s overtime rules is likely to be seen as a challenge to Republicans in Congress, who have already blocked most of the president’s economic agenda and have said they intend to fight his proposal to raise the federal minimum wage to $10.10 per hour from $7.25.
Consumer Credit in U.S. Increased 13.7 Billion in January
Consumer borrowing in the U.S. rose at a slower pace in January as Americans cut back on their credit-card purchases, Bloomberg News reported on Friday. The $13.7 billion gain followed a revised $15.9 billion advance the previous month that was smaller than initially reported, the Federal Reserve said on Friday. The median forecast of economists called for a $14 billion advance in January. Non-revolving debt, which includes financing for cars and college tuition, rose by the most in four months. The Fed’s figures showed revolving debt, which includes credit card purchases, fell by $225.6 million in January, after a $3.1 billion gain a month earlier. The slowdown corroborates a report last month that showed retail sales declined in January by the most since June 2012. Non-revolving credit, such as that for college loans and the purchase of vehicles and mobile homes, climbed by $13.9 billion, after a $12.8 billion increase the month before. Auto lending increased $8.9 billion in the fourth quarter from the prior three months.