Financial reform a ‘victory for the little guy’

By Sally Greenberg, NCL Executive Director

President Obama’s speech at the Ronald Reagan Building yesterday, where he signed the financial reform legislation, hit on all the right points. “This is the strongest consumer financial protection bill in history,” the President stated. He said that firms should compete on “price and quality, not on tricks and traps.” He asked whether anyone had experienced signing a sheaf of papers while closing a mortgage or student loan, not ever sure of all the fees and penalties hidden inside the documents we sign. “That will all change because of this bill.”

Representing NCL at this historic even, I felt the buzz in the room as Senators and Representatives milled about, rubbing elbows with consumer advocates, housing, labor, and civil rights advocates on a momentous occasion. Congressman Barney Frank (D-MA) and Senator Chris Dodd (D-CT), chairs of the committees in the House and Senate, along with Harvard Law Professor Elizabeth Warren were instrumental in the bill’s passage.

My consumer colleagues are rightfully taking great pride in getting this bill over the finish line and signed into law. NCL joined the group Americans for Financial Reform, the powerful alliance that became a driving force in the bill’s ultimate passage. With only 60 votes in the Senate – so not one to spare to meet the minimum required for Senate passage - and only three Republican Senators joining the Democratic majority to pass the bill, the Senate bill was a squeaker! (The House passed the bill several months ago).

Average Americans will reap the benefits of this bill if it has the impact that we hope for: we will have a consumer financial protection agency whose main focus will be – for the first time – the rights and protections of consumers when dealing with financial transactions. This bill is a victory for the little guy over the big banks and credit card companies, a blow to those who would perpetrate mortgage fraud and impose outrageous fees and penalties on unsuspecting consumers. A new day has dawned for financial reform and consumers have cause, at last, to celebrate.

Bipartisan deal on Federal Reserve may not be best deal for consumers

By Sally Greenberg, NCL Executive Director

Yesterday’s papers indicate that one house of Congress – the Senate – has reached a bipartisan deal to give the Federal Reserve primary responsibility for protecting consumers from abusive and deceptive financial products. But it may not be the best deal for consumers. Representative Barney Frank (D-MA), the House Chairman of Financial Services, whose committee oversees the financial community, said he was “dumbfounded” by the idea: “When I first heard it, I thought it was a joke.”

In February of this year, a broad coalition, of which NCL is a member, sent a letter to Senate Banking Committee Chairman Chris Dodd (D-CT), thanking him for his strong efforts to enact an independent Consumer Financial Protection Agency (CFPA). The coalition, Americans for Financial Reform (AFR), argued that existing bank regulators had “utterly failed to protect consumers from abusive lending practices in the marketplace because they were not independent of the lenders they regulated and because they subordinated consumer protection concerns to a dangerously shortsighted focus on the near-term profitability of these institutions.”

So, this news coming from the Senate to give the Fed heightened consumer protection powers has been received with very mixed reviews, particularly from consumer advocates. The Fed has been accused of turning a deaf ear to consumer protection time and time again. The Fed has also at times appeared to be a federal agency far more concerned with the health of the business community and keeping interest rates low than with the protection of the little guy. However, others disagree. A former Fed governor, Mark Olson, believes the Fed has made a new commitment to carry out rigorous consumer protection and bank supervision.

We’ll see how this plays out in Congress. The point is that consumers need a tough, unyielding watchdog to reign in the abuses of the credit card company and banks. I’m willing to listen to the arguments, but I too am skeptical that the Fed and its thousands of staff could have become pro-consumer overnight.

Overdraft Fees Gouging Consumers

By Sally Greenberg, NCL Executive Director

NCL joined a number of civil rights, labor, and consumer organizations recently to support legislation to curb the abuses in overdraft charges that banks have employed in the last few years.

According to the Center for Responsible Lending,

• More than 50 million Americans overdrew their checking account at least once over a 12 month period, with 27 million accountholders incurring five or more overdraft or non-sufficient funds (NSF) fees.
• Banks and credit unions collected nearly $24 billion in overdraft fees in 2008.
• Overdraft fee income for banks and credit unions rose 35 percent from 2006 to 2008.
• Overdraft loans cost consumers nearly $24 billion each year and are typically charged without consumers even knowing that they will be dinged for extra fees. These fees hit lower-income consumers and communities of color especially hard. The most common triggers of overdraft fees are debit card transactions that could easily be denied for no fee; in fact, until recent years, they most often consumer cards were rejected at point of sale if funds in their accounts were insufficient to cover the charge.

Yes, it could be embarrassing when you’re trying to buy something and your card is rejected, but its a lot cheaper than getting hit with a $34 overdraft fee, or multiple fees. Today, banks and credit unions routinely approve debit card overdrafts with no warning, charging a fee averaging $34 for an overdraft averaging only $17. The sad fact is that they force low-income families especially into a cycle of snowballing fees that eat up a large portion of their paychecks.

Fee-based overdraft coverage is, by far, the most expensive way to have an overdraft covered. But financial institutions like to make enrollment in overdraft coverage “automatic,” meaning, as soon as you get your card you’re signed up for the “coverage,” for which you can be charged $34 for every transaction where you don’t have funds in your account to cover the charges. Financial institutions were also found to be manipulating the order in which they post transactions to maximize fees.

So lawmakers have come in to address these abuses. We have bills in the House (HR 3904, Congresswoman Maloney (D-NY)) and Senate (S. 1799, introduced by Senator Dodd (D-CT )) establishing the following key reforms, among others:

• requiring that all overdraft fees be reasonable and proportional to the cost to the institution of processing the transaction;
• limiting the number of overdraft fees institutions can charge per month and per year, without preventing them from offering a lower cost alternative if they want to continue charging for overdrafts;
• requiring institutions to obtain consumers’ affirmative consent to fee-based overdraft coverage for debit card and ATM transactions;
• clarifying that overdraft fees are a finance charge under the Truth in Lending Act;
• requiring a real-time warning at an ATM before a cash withdrawal would trigger an overdraft fee; and
• prohibiting institutions from reordering transactions to maximize fees.

It’s a shame Congressional action is needed, but it is. I always ask myself why such companies couldn’t simply try to be honest brokers with their own customers, letting them know when they overdraw by rejecting the charge instead of taking them for hundreds of dollars to cover some charges, often very minor ones. By the way, the Center for Responsible Lending has great information on its Web site on this issue. CRL has led the charge on overdraft abuses and has a knowledgeable staff and a lot of good information on this issue. NCL is proud to join with CRL, labor unions, and other groups in support of these important bills.