Write to the Congressional and Senate candidates in your district today and ask them to endorse AFFIL’s Principles of Fairness in Lending.

If you hear back from either an incumbent or candidate running for the Senate or Congress, tell us by leaving a comment here!  Your news can help inform citizens’ decisions around the country.

(Photo: Theresa Thompson)

Mortgages.  Read about mortgage reforms in the new law here. The CFPB must make the mortgage market safe for all participants to prevent another economic and family crisis. The Bureau must:

• Develop clear rules to ensure that all lenders adequately consider ability to repay;
• Stop brokers and mortgage lenders from steering homeowners into loans more costly than those for which they qualify;
• Require mortgage servicers to consider loan modifications where appropriate prior to foreclosing and restrict them from imposing unwarranted servicing fees and force placed insurance;
• Create a strong system to supervise nonbank mortgage lenders.

Credit cards. Congress adopted important protections in 2009, but the work is not done.  The CFPB will need to:

• Monitor the credit card market to address violations and evasions of the Credit CARD Act;
• Prohibit complicated terms and hidden traps in credit cards so that consumers can shop for the best card without being hit with back-end surprises;
• Stop predatory marketing of credit cards to struggling consumers;
• Require credit card companies to disclose an APR that reflects the true cost of a credit card, including all fees.

Overdraft loans. New rules now requiring consumers to “opt in” to overdraft fees on their ATM and debit cards are only the first step. To address the overdraft abuses that remain, the CFPB must:

• Ban aggressive and deceptive tactics to induce opt-ins to overdraft fees;
• Limit excessive fees (in number and amount) that far exceed the costs of overdrafts;
• Prohibit bank tactics to increase overdraft fees, such as reordering transactions to cause overdrafts earlier in the day;
• Require banks to inform consumers of less expensive overdraft protection options.

Payday and auto title loans. Read how the new law addresses payday lenders here. Payday and auto title lenders, including some banks and credit unions, make loans at 400% or more until the next payday. The CFPB cannot set usury caps.  But to address other pernicious aspects of high cost lending, it should:

• Ban dangerous forms of security, including check holding, electronic access to the consumer’s account, and holding car titles;
• Stop the evasion of usury caps through junk fees and other ruses;
• Crack down on reckless lending that, due to high price, short repayment time, or failure to consider ability to pay, is unaffordable for a high proportion of borrowers;
• Protect Social Security, unemployment insurance, and other exempt funds from these lenders.

Auto loans. The CFPB will have jurisdiction over most auto lenders and some car dealers, with the FTC handling the remainder. To bring fairness and transparency to the auto lending market, the CFPB and the FTC together must:

• Prohibit kick-backs to dealers who put consumers in more expensive loans;
• Prohibit bait and switch tactics through “yo-yo” clauses that give dealers a unilateral right to cancel the sale or loan;
• Ensure that the condition of used cars is accurately represented to borrowers and lenders by requiring independent inspections and disclosure of known defects.

Private student loans. Federal student loans have a variety of protections, but private student loans can be much more dangerous. The CFPB must:

• Prohibit lenders from pushing students to take on more expensive and riskier private loans without first exhausting their federal aid;
• Work with private lenders to develop flexible, income-based repayment, loan modifications, and other debt management tools;
• Stop predatory lending by proprietary schools and protect students from
• responsibility for loans used at schools that close or defraud students.

Prepaid debit cards. Consumers fed up with bank accounts, and unbanked public benefit recipients and workers, are increasingly using prepaid cards. Though the cards have many benefits, the CFPB needs to beef up spotty legal protections in order to:

• Ban inappropriate fees, such as fees to check the card’s balance, overdraft fees, and denied transaction fees;
• Give consumers full protection from loss, theft or unauthorized charges;
• Ensure that consumers can get statements and other convenient forms of transaction information;
• Prohibit prepaid cards that hold wages or public benefits from using those funds to secure predatory payday loans.

Credit reports. A consumer’s credit report impacts not only the price and availability of credit but also auto and homeowner’s insurance and employment. The CFPB must:

• Force creditors and credit bureaus to clean up a system that produces reports prone to mistakes such as incorrect and outdated information, fraudulent accounts due to identity theft, and mixed up files of different consumers;
• Reform the credit bureaus’ travesty of an automated system for addressing consumer disputes with credit reports;
• Address racial disparities in credit reports, which impact not only credit pricing and availability but also employment and homeowners and auto insurance;
• Make credit scoring fairer and less opaque to consumers and policymakers;
• Restrain credit bureaus from sweeping new data, such as utility payments, into the credit reporting system if the benefits are outweighed by the harm to vulnerable consumers.

Debt collection. The Federal Trade Commission receives more complaints about debt collectors than any other industry, more than 120,000 in 2009. The responsibility to address these problems now passes to the CFPB, which needs to:

• Stop the widespread use of illegal threats and harassment, and practices that often lead to collection of the wrong amount or from the wrong person;
• Bar collection of “zombie debt” that never dies but is sold and resold to the next debt buyer even if the consumer disputes it or it is too old to be legally collectible;
• Prohibit abuses of the justice system, including failure to give the consumer notice, spreadsheet justice without evidence of the debt, and laundering of timebarred debts with new judgments.

Forced arbitration. Consumers who obtain financial products or services are routinely required to give up their access to justice if the company violates the law. Forced arbitration pushes consumers into a secretive, biased and lawless system before private judges paid by industry. All of the laws in the world do not matter if companies can ignore them with impunity. The CFPB should:

• Exercise its authority to ban forced arbitration clauses in agreements for consumer financial services and products.

Arbitration, the private dispute resolution system where companies essentially get to pick the judges who have total power to make binding decisions, just got a little more consumer friendly.

We are now one step closer to a lending system that restores consumers’ access to the civil justice system. Forced arbitration clauses are all around us in the form of credit card contracts, nursing home contracts, employment contracts, and more. Click here to learn more about the issue and sign a petition in support of Fair Arbitration Now.

Here are the nuts and bolts. The recently passed financial reform bill (also called the Dodd-Frank Act) bans forced arbitration in mortgages. It also gives the new Consumer Financial Protection Bureau authority to restrict or prohibit forced arbitration clauses in consumer financial product and service contracts, following a CFPB study of the issue. Finally, the law provides that the SEC may prohibit or impose conditions or limitations on forced arbitration agreements between broker-dealers and their clients if the SEC finds it “in the public interest and for the protection of investors.”

The Arbitration Fairness Act is moving along as well, and should be voted on by the full House Judiciary Committee this fall. If passed, the Arbitration Fairness Act of 2009 (HR 1020) would end the predatory practice of forcing workers and consumers to sign over their rights by making pre-dispute binding mandatory arbitration (“forced arbitration”) clauses unenforceable.

Click here to follow AT&T Mobility LLC v. Vincent and Liza Concepcion, an arbitration case unfolding in the Supreme Court.

(Photo: tiffa130)

• FACT:  Only 6% of subprime mortgage loans were covered by the CRA.

• FACT:  The other 94% of subprime mortgage lending was not covered by the CRA.

• FACT:  Federal regulators are considering expanding CRA to cover more loans in the future.

Even if you’ve never heard of CRA, expanding it will be good for you, unless you plan to open a mortgage company and issue toxic mortgage loans to poor people once credit starts flowing again.  Otherwise, an expanded CRA will help you because it will prevent foreclosures and another foreclosure-prompted economic crisis.

Fortunately, federal regulators are considering expanding and modernizing CRA.  They’re holding hearings around the country and taking comments from the public about how to do it.   You can submit a comment here.  Tell federal regulators how the economic crisis has impacted you – now is the moment to weigh in.

For detailed information about CRA, visit the Woodstock Institute.

Professor Warren has been fighting on behalf of consumers for decades, and her dedication to the cause coupled with her experience, her independence, and her efficiency make her the best person to lead the CFPB.

The big banks are dipping into their wallets once again to fuel the fight against her nomination as CFPB director.  They know that with Elizabeth Warren in charge, the CFPB will be strong, and will actually fight to protect consumers.  This just serves as further proof as to why we have to make sure Professor Warren becomes the first CFPB director.

Consumer advocacy groups are coming together to ask President Obama to nominate Elizabeth Warren as soon as possible.  To raise your voice about this issue, sign our petition here or write to the President and your Senators here.

Support for Elizabeth Warren comes in many forms, including this Western-themed rap from our friends at the Main Street Brigade.  Enjoy, share, and pass it on: We need Sheriff Warren in DC!

You can read a big picture overview of what the bill accomplishes in this previous post, find more details about the great new mortgage reforms here, and read info about the unfortunate and unfair car dealer exemption here.

Next up:  payday loans.  These are nasty, short-term loans designed to trap borrowers in a long-term cycle of debt.  They have traditionally been regulated at the state level.  Fifteen states plus DC currently outlaw them, but other states haven’t taken enough action to protect their citizens from these usurious debt traps.  (A special shout out to Illinois and Wisconsin, which recently passed new legislation limiting payday lending in their states.)

Now, the CFPB will have jurisdiction over payday lenders – hooray!  Payday lenders are “nonbank” lenders, so the CFPB will be able to write and enforce regulations over all of them, no matter what size.  It will be the first federal regulator able to tackle these ultra-predatory lenders.  Many consumer groups, such as Consumer Union and the National Consumer Law Center (pdf), are calling upon the Bureau to make regulating payday lending a top priority.

While the CFPB won’t be able to impose usury caps, it will be able to ban certain forms of collateral – like a paycheck or access to bank account.  Such a ban would effectively end payday lending.  A ban on a car title as collateral could similarly end car title lending, another highly abusive type of loan.

The bad news on the payday lending front is that small payday lenders will have special access to the rule-writing process at the CFPB.  Before proposed rules are made public, they will be able to read and possibly influence them, which can delay the process for months and potentially weaken the rules.  It will be up to the regulators to resist pressure from payday lenders, even though they are given this special access.  This is just one more reason why it is crucial that the Bureau have a strong director, committed to real consumer protection:  it’s one more reason that President Obama should nominate Elizabeth Warren for this position.

Payday lenders’ special access came about as a result of the Snowe-Pryor amendment to the Senate bill, which you can read more about here.

On July 21, 2010, President Obama signed the Financial Reform and Consumer Protection Act of 2010 into law, and we were there to witness it.

This bill includes many provisions that AFFIL, AFR, and our allies have been fighting for for years.  Among other things, it will:

• Create a Consumer Financial Protection Bureau. Finally, we will have a regulator with the sole task of protecting consumers and preventing tricks and traps related to mortgages, payday loans, checking accounts, and more.  Read more.
• Shine light on shadow markets. It will require that the derivatives market operates in the open, that participants have the money to cover their bets, and that hedge funds and private equity funds are registered with the SEC so they can have regulators watching over them.  Read more.
• Prevent taxpayer-funded bailouts. The government will have the authority and the tools to step in and safely shut down any failing financial firm instead of propping them up with taxpayer money, and will watch the market to prevent this from being necessary in the first place.  Read more.
• Protect consumers when buying homes. For the first time, lenders will be prohibited from making loans that borrowers cannot repay, and banned from receiving kickbacks for steering people into high rate loans when they qualify for lower rates.  Consumers will also be protected from abusive loan fees and penalties for prepayment.
• Hold credit rating agencies Accountable. Credit rating agencies will no longer have a vested financial interest in giving high ratings to risky investments. Better controls will hold rating agencies accountable for the reliability of their reporting.  Investors will be able to sue credit rating agencies who slap a high rating on a risky investment.   Read more.

The final product isn’t perfect.  Auto dealers will be exempt from CFPB regulations even though they are consistently the top source of complaints filed through the Better Business Bureau and state and local consumer protection agencies.  We wish we had gotten even closer to breaking up the big banks and dealing with “too big to fail” institutions, but we at least made advances in these areas.

There is always more work to be done – and new tricks to deal with – but this legislation goes a long way to establish the important protections that consumers need and deserve.  Thanks for all your help getting here – we couldn’t have done it without you.

AFFIL staff Sarah Byrnes and Sally Brzozowski attended the signing ceremony today at the Ronald Reagan Building in Washington, DC.

This is a huge, hard-fought victory for consumers.  We’ll finally have an agency fully devoted to us, to make sure mortgages, credit cards, and other loans aren’t full of tricks and traps in the fine print.  You can read AFR’s full statement about this victory here.

We’ll be posting more about the CFPB — what it will and won’t be able to do — in future days.  Stay tuned!

Cathy has been practicing consumer law for two decades, and her op-ed powerfully explains why we need financial reform.  Here are some excerpts.

I have been practicing, teaching and writing about consumer protection law for two decades. I am one of the many people who did see a crisis coming a decade ago, and tried to get Washington’s attention.

My colleagues and I authored studies and law review articles exposing the practices of the subprime mortgage lending industry and urging Congress to protect consumers from the worst aspects of this market. We testified before Congress and federal agencies, and brought victims of and participants in the subprime mortgage market with us. We proved over and over again that the market was having a disproportionate negative impact on borrowers of color.

Despite our warnings, Congress did nothing to rein in the lending abuses rife in the subprime market. The subprime mortgage market flourished, and even migrated into other parts of the mortgage market, producing default and foreclosure rates the likes of which we have not seen since the Great Depression.

The urgent calls for reform and regulation made by a myriad of academics, consumer law practitioners, consumers and consumer protection organizations went unheeded. The sky is falling, we cried. But our elected officials did not answer the call for protection – until now.

Now, finally, after almost a year of careful work, Congress has produced the Dodd-Frank Wall Street Reform and Consumer Protection Act. This legislation answers the call.

This bill will finally give consumers, investors and markets the protection and transparency that were so desperately needed and so obviously absent for so many years. For example, the legislation establishes a new, independent consumer financial protection bureau to be housed in the Federal Reserve. Market participants will finally be held accountable for lending and investment decisions with self-serving, short-term gain and long-term consequences for consumers, investors and the financial markets.

Most important, consumers will finally be assured that, just as the government’s Consumer Product Safety Commission protects them from exploding toasters, the government will now also protect them from dangerous financial products.