Kerry Promises Protection for Consumers

[conjur]

http://www.nytimes.com/aponline/national/AP-Kerry.html

SAN FRANCISCO (AP) -- With promises to curb credit card fees and protect home buyers and military families from unfair lending practices, Democratic candidate John Kerry is making a pitch aimed squarely at voters' checkbooks.

``By putting in place strong consumer protections that hold lenders accountable, we can put billions of dollars back into the pockets of middle-class families struggling to make ends meet, help families climb out of debt and build a better life for their children,'' Kerry said in remarks prepared for delivery Friday in Daly City, Calif.

Kerry's proposals ask financial companies to disclose more information to customers, including requiring that credit card bills display the number of months it would take a customer to pay off the balance by making the minimum monthly payments.

Other proposals would block credit card companies from changing the interest rates on purchases retroactively and require them to notify customers before raising their interest rates.

Kerry said President Bush gets too many campaign contributions from the financial industry to make the changes that consumers need. ``For four years, George Bush has put narrow interests first while hardworking families pay the price,'' he said.

The Bush-Cheney campaign countered that Kerry's campaign benefits, too, from financial donations.

``For John Kerry to attack over support from bankers when he is the No. 1 Senate recipient of banker donations over the past 15 years just demonstrates his willingness to say one thing and do another,'' spokesman Matt McDonald said.

The Center for Responsive Politics, which tracks campaign donations, shows that President Bush has received $586,225 from the financial industry during this election season, compared with the $92,751 donated to Kerry.

To curb credit card fees, Kerry wants to bar lenders from allowing consumers to charge over their limit and then charging a fee without approval from the customer.

The Democratic candidate also wants to put some limits on subprime loans, which help customers who don't qualify for prime credit rates get loans. The new curbs would limit penalties for paying down the loan faster than scheduled, along with fees and points charged for financing arrangements.

Two financial products would be virtually banned -- loans that let the customer pay only interest up front, on the grounds that they pay off the entire principle at the end of the term, and insurance that requires homeowners to pay upfront instead of monthly installments.

Kerry drew on research by Harvard law professor Elizabeth Warren, whose recent book, ``The Two Income Trap,'' lays out proposals for limiting financial industry practices that squeeze the middle class.

``Without a strong middle class, we are not a strong country. Without a strong middle class, we're not a strong democracy,'' she said.

Sounds like some great ideas, to me. Esp. the disclosure of time to payoff via making minimum payments. Maybe it will wake people up to the real costs of using credit cards.

 

[Chadder007]

<Looks at watch....waiting for the Flip Flop>

j/k I like those ideas though.

 

[KarenMarie]

Why do we need the government to protect people from their own spending habits?... if they are too stupid to read the fine print, and insist on spending money they don't have and cannot afford, that is down to themselves.

 

[PatboyX]

Originally posted by: KarenMarie
Why do we need the government to protect people from their own spending habits?... if they are too stupid to read the fine print, and insist on spending money they don't have and cannot afford, that is down to themselves.

i agree in part. i am tired of the lack of responsibility that people seem to be fostering. but perhaps putting things in simpler terms or making them more blatant is in order.

 

[NJDevil]

Originally posted by: PatboyX

Originally posted by: KarenMarie
Why do we need the government to protect people from their own spending habits?... if they are too stupid to read the fine print, and insist on spending money they don't have and cannot afford, that is down to themselves.

i agree in part. i am tired of the lack of responsibility that people seem to be fostering. but perhaps putting things in simpler terms or making them more blatant is in order.

Personal responsibility is important, but how is what Kerry plans to do bad?

I agree that people should be able to figure out on their own how much to spend, but will this hurt anybody? There may be a slight decrease in spending because of this but it will probably be too small to notice (if it occurs at all).

 

[Todd33]

Why do we need child labor laws, if the kid has bad parents, let them work and die in a coal mine at age nine.

 

[conjur]

Originally posted by: KarenMarie
Why do we need the government to protect people from their own spending habits?... if they are too stupid to read the fine print, and insist on spending money they don't have and cannot afford, that is down to themselves.

It's also about people getting screwed.

There are many cases where peoples' interest rates have been increased dramatically, as high as 25%, when the lender does a soft-pull on a person's credit report and finds their credit score has dropped below a certain level. If a person is in good standing w/the lender, that move is completely unjustified.

 

[Darkhawk28]

Originally posted by: conjur

Originally posted by: KarenMarie
Why do we need the government to protect people from their own spending habits?... if they are too stupid to read the fine print, and insist on spending money they don't have and cannot afford, that is down to themselves.

It's also about people getting screwed.

There are many cases where peoples' interest rates have been increased dramatically, as high as 25%, when the lender does a soft-pull on a person's credit report and finds their credit score has dropped below a certain level. If a person is in good standing w/the lender, that move is completely unjustified.

Exactly, it happened to me... I had a credit card account have its interest rate raise by more than 8% on the basis of one disputed medical bill which my insurance should've covered.

:|

 

[KarenMarie]

Originally posted by: conjur

Originally posted by: KarenMarie
Why do we need the government to protect people from their own spending habits?... if they are too stupid to read the fine print, and insist on spending money they don't have and cannot afford, that is down to themselves.

It's also about people getting screwed.

There are many cases where peoples' interest rates have been increased dramatically, as high as 25%, when the lender does a soft-pull on a person's credit report and finds their credit score has dropped below a certain level. If a person is in good standing w/the lender, that move is completely unjustified.

When they sign the credit agreement, is this practice stated anywhere? Is there a dispute resolution process that can reverse the increase in credit charges?

 

[conjur]

Originally posted by: KarenMarie

Originally posted by: conjur

Originally posted by: KarenMarie
Why do we need the government to protect people from their own spending habits?... if they are too stupid to read the fine print, and insist on spending money they don't have and cannot afford, that is down to themselves.

It's also about people getting screwed.

There are many cases where peoples' interest rates have been increased dramatically, as high as 25%, when the lender does a soft-pull on a person's credit report and finds their credit score has dropped below a certain level. If a person is in good standing w/the lender, that move is completely unjustified.

When they sign the credit agreement, is this practice stated anywhere? Is there a dispute resolution process that can reverse the increase in credit charges?

No.

 

[glenn1]

While these are all fine proposals, I think as a man running for President that Kerry should tackle something a bit more substantial than what disclosures go on a credit card statement.

 

[ElFenix]

i'll agree to that :thumbsup:

actually i think this is the first time i've ever heard kerry say something substantive.

 

[conjur]

Originally posted by: glenn1
While these are all fine proposals, I think as a man running for President that Kerry should tackle something a bit more substantial than what disclosures go on a credit card statement.

I find it very substantial and many consumers would agree.

Lenders own the upper hand and have for quite some time. Also, the Consumer Reporting Agencies need to be given some smackdown to bring the credit scoring game into the realm of being understood by consumers. Experian is about to be brought into court over a change they've made in their reporting that greatly affects peoples' score when they dispute a negative item on their report and it comes back verified (Experian is re-aging the negative item...even if it was 5-6 years old...so it looks like a newly-added negative item.) Also, Experian has been shown to not actually investigate a dispute and refuses to reveal to a consumer what steps were taken to verify the item on the report.

 

[cKGunslinger]

Originally posted by: KarenMarie
Why do we need the government to protect people from their own spending habits?... if they are too stupid to read the fine print, and insist on spending money they don't have and cannot afford, that is down to themselves.

:thumbsup: Personal responsibility is key. We don't need a nanny government to watch over us for every little detail. Protect us from war and criminals, don't specify and dictate every nuance of our everyday lives.

The problem with this is that there will probably be a committe, with several sub-committees and perhaps an overseeing committee all with opposing views about how this will be accomplished. In the end, they will have wasted millions of tax dollars to dictate that all lenders wil have to include a disclaimer in underlined and bolded 13.75pt Times New Roman font, with some legally exact, and arcane verbage that few people will understand. Nothing will change. People who don't care won't pay any attention. Savy consumers will just have to put up with more paperwork and probably high rates, as the lenders will have to increase thier rates to comply with this federal mandate.

Boo big government!

 

[conjur]

Originally posted by: cKGunslinger

Originally posted by: KarenMarie
Why do we need the government to protect people from their own spending habits?... if they are too stupid to read the fine print, and insist on spending money they don't have and cannot afford, that is down to themselves.

:thumbsup: Personal responsibility is key. We don't need a nanny government to watch over us for every little detail. Protect us from war and criminals, don't specify and dictate every nuance of our everyday lives.

So, someone who, say, loses a job and gets another one at a much lower income and then has trouble paying a bill or two for a bit should be punished by having their credit card companies shoot up their interest rate?

Or, perhaps someone who has a medical bill go to collections and, thus, lowering their credit score, because of some mixup with insurance payments is supposed to be punished by a credit card company with a hike in interest rates?

 

[KarenMarie]

I don't know if I would like government interference in this, but I do think that Conjur has a point. It is wrong, and it totally sucks, if people do not have redress to credit companies hiking the intrest rates whenever they want.

My personal experience is that I had a judgement against me in the state of NJ, while I was living in the UK. It was over a parking ticket on a car that I had sold 10yrs earlier, and gave in the plates to. It took me three years to prove to the DMV, and I did not even learn about it until I moved back to the USA and tried to get a credit card.

I think that there should be some redress in for credit companies that play dirty. I am just not too keen on getting the government to regulate it. As far as I would concede allowing government interferrence, is to make it manditory that credit companies disclose the information that they might do this... before people decide whether or not to sign on the bottom line. But once a consumer agrees to and signs the contract, the government should not get involved.

that's my $0.02

 

[Vic]

I cannot agree with Kerry on this.

There is no such thing as predatory lending. That's a media created myth designed by community lending interests that are opposed to the nationally standardized system of lending that has arose in the last 20 years and has increased homeownership rates dramatically.
You either have good credit and qualifications and can get the best deal, or you don't and you can't. It's that simple, and protecting the interests of bad credit borrowers is NOT in the best interest of those who have good credit. Bad credit customers cost lenders more because of higher collection and servicing costs (bad credit customers miss more payments, duh) and because of higher default rates (on average, 4-5 times higher). Under the current system, those borrowers with poor credit pay for their additional costs themselves, by means of higher interest rates, points, fees, and (in some circumstances) prepayment penalties. While it may not be obvious to those people who are not familiar with how our current lending system works, what Kerry is proposing is shifting those costs from the subprime borrowers who incur them to the premier borrowers who do not and deserve better. When we all pay the same rate, that rate will be higher for most people.
Either that, or his plan will make subprime lending so unattractive to lenders that subprime loans will disappear, which would significantly reduce the number of potential home buyers in the market, and would cause home values to flatten or even go down.

Current disclosure practices as required by RESPA and HOEPA already work to make sure that every borrower is familiar with terms of their loan (not just at signing but at application, which is usually weeks before signing), and HOEPA sets clear caps on fees, points, and penalties. If, as a good credit borrower, you signed documents designed for a poor credit borrower, then you obviously neglected to educate yourself and shop for the best deal. Caveat Emptor. Mortgage documents are very easy to read. I'm sorry to say, but IMO if you claim to be unable to read them, it's because you're either illiterate or in denial. If can't read them and sign them anyway, it's because you lack basic common sense, as my grandfather taught me never to sign something I didn't understand.

Please note that the above was in regard to home mortgages. I will agree that the credit card industry is in need of some reform and better disclosure practices, and that those companies who play dirty do need to be punished. But it should be noted consistently carrying credit card balances means that the borrower is living beyond their means, and that even prime credit cards are a form of high-risk lending.

 

[Vic]

Originally posted by: conjur
So, someone who, say, loses a job and gets another one at a much lower income and then has trouble paying a bill or two for a bit should be punished by having their credit card companies shoot up their interest rate?

Or, perhaps someone who has a medical bill go to collections and, thus, lowering their credit score, because of some mixup with insurance payments is supposed to be punished by a credit card company with a hike in interest rates?

These provisions are located in your credit card agreement. You signed for them when you got the card. As a mortgage banker who frequently sees otherwise prime borrowers carrying a large amount of credit card debt, I constantly warn people about these provisions but am rarely listened to. Caveat Emptor.

And if you don't carry a balance, your credit card interest is always 0%. Always. As I already posted, for a borrower with otherwise perfect credit to consistently carry a credit card balance shows that they live beyond their means or otherwise show poor financial management, and it represents a form of high-risk lending.

 

[conjur]

Originally posted by: Vic

Please note that the above was in regard to home mortgages. I will agree that the credit card industry is in need of some reform and better disclosure practices, and that those companies who play dirty do need to be punished. But it should be noted consistently carrying credit card balances means that the borrower is living beyond their means, and that even prime credit cards are a form of high-risk lending.

That's what this is mostly about.

Kerry Sees Credit Card Abuses, and Promises Steps to End Them
http://www.nytimes.com/2004/08/27/politics/campaign/27lend.html

Senator John Kerry added a plank to his platform yesterday, promising to push for legislation that would curb what his campaign describes as abusive practices in credit card and mortgage lending.

The proposals coincided with the announcement of new Census Bureau data showing that family and household income, adjusted for inflation, had fallen over the first three years of the Bush administration. The decline came as consumer debt rose, and the new plank promised relief for wage earners in straitened circumstances.

"Abusive lending practices can take a huge bite out of the incomes of families who are working and can barely pay their credit card bills,'' Robert Gordon, Mr. Kerry's director of domestic policy, said.

Companies that issue credit cards, mainly banks, often double the interest rates if a cardholder is late with a monthly payment or the holder's creditworthiness is challenged. Mr. Kerry would require notice before each rate increase and limit the increase to a few percentage points.

"There is no proportionality now in these increases,'' Gene Sperling, an economic adviser to Mr. Kerry, said. "They can go from 8 to 28 percent.''

A Kerry administration "would ask Congress to legislate standards and to direct the Federal Trade Commission and bank regulators to impose regulations consistent with those standards,'' Mr. Sperling said. Much of this would be achieved through amendments to the Truth in Lending Act, he and Mr. Gordon said.

Credit card lenders would also be required to disclose, in prominent type on bills, how long it would take to pay off a debt, and the cost in interest if the card holder made only minimum monthly payments.

A California law imposed this standard, but credit card issuers challenged it in court in 2002, and the Bush administration's Office of the Comptroller of the Currency sided with the issuers. The comptroller argued that only federal regulators could impose such a restriction on nationally chartered banks and that his office did not plan to do so. The state lost the case.

Mr. Gordon said that some minimum payments were so low that they barely kept up with interest costs or fell behind them, in which case the balance could never be repaid.

Other changes proposed by the Kerry campaign would require lenders to forgo penalty charges when they allowed card holders to go beyond their borrowing caps. A cardholder with a $5,000 credit limit, for example, can face a penalty for reaching $5,200 even if the card company approved the charge that put the total over $5,000.

Mr. Kerry's principal mortgage proposal would prohibit lenders from using balloon mortgages in most subprime loans, which often go to low-income people at higher rates.

 

[Orsorum]

Originally posted by: Chadder007
<Looks at watch....waiting for the Flip Flop>

j/k I like those ideas though.

 

[Vic]

Conjur:

Two financial products would be virtually banned -- loans that let the customer pay only interest up front, on the grounds that they pay off the entire principle at the end of the term, and insurance that requires homeowners to pay upfront instead of monthly installments.

Interest-only and Negatively-amortized loans are ones I only give to people who ask for them. I never sell them. There are many people who actually want and demand these loans, most of whom are higher income, have multiple investment properties, and are financially savvy and looking to increase cashflow. I agree that they are terrible loans for lower income or less financially savvy borrowers, but eliminating them entirely would be a disservice to those who actually want them.

"Super-single" mortgage insurance is a very popular program, as paying upfront (if one can afford) is less expensive than paying monthly over the long term. I think though that Kerry is referring to the credit life insurance programs that the dredge finance companies (i.e. Household, Citifinancial, American General) sell, but the article is not clear.

Mr. Kerry's principal mortgage proposal would prohibit lenders from using balloon mortgages in most subprime loans, which often go to low-income people at higher rates.

Balloons are not just in subprime mortgages. A 7 year loan balloon is a somewhat popular program for premier borrowers, and almost all HELOCs (Home Equity Lines of Credit, a popular 2nd mortgage option available only to premier borrowers) contain a balloon clause.
It is true that virtually all 30 year fixed subprime loans have a 15 year loan balloon, but the retention rate in subprime is very low, with most customers refinancing on average every 2 years. As one subprime lending executive told me once, "We'd be estatic to have a customer keep their loan for 5 years, much less 15." This is because the longer a borrower keeps their loan, the longer the opportunity for the lender to recoup their origination costs and actually profit from the loan. Which is also the reason for prepayment penalties. In those states that don't allow them, the interest rate for the same subprime product goes up more than half a percent.
And note how the article says that subprime loans "often go to low-income people at higher rates". This is because, despite what the media would have you believe, there is very little correlation between income and poor credit history among homeowners (this is not true among non-homeowners, where incomes tend to be well below the poverty line). I have seen a customer with terrible credit who made over a million a year, and I have seen customers with perfect credit who made less than $15k.


edit: cleaned up a couple of minor typos

 

[conjur]

Originally posted by: Vic
Conjur:

Two financial products would be virtually banned -- loans that let the customer pay only interest up front, on the grounds that they pay off the entire principle at the end of the term, and insurance that requires homeowners to pay upfront instead of monthly installments.

Interest-only and Negatively-amortized loans are ones I only give to people who ask for them. I never sell them. There are many people who actually want and demand these loans, most of whom are higher income, having multiple investment properties, and financially savvy and looking to increase cashflow. I agree that they are terrible loans for lower income or less financially savvy borrowers, but eliminating them entirely would be a disservice to those who actually want them.

Kerry's not proposing eliminating them entirely. The word "virtually" was used by the writer. That tells me there will be exceptions allowing those types of loans.

"Super-single" mortgage insurance is a very popular program, as paying upfront (if one can afford) is less expensive than paying monthly over the long term. I think though that Kerry is referring to the credit life insurance programs that the dredge finance companies (i.e. Household, Citifinancial, American General) sell, but the article is not clear.

I'm not sure on that, either. My first thought was homeowner's insurance but that wouldn't make sense.

Mr. Kerry's principal mortgage proposal would prohibit lenders from using balloon mortgages in most subprime loans, which often go to low-income people at higher rates.

Balloons are not just in subprime mortgages. A 7 year loan balloon is a somewhat popular program for premier borrowers, and almost all HELOCs (Home Equity Lines of Credit, a popular 2nd mortgage option available only to premier borrowers) contain a balloon clause.

The article doesn't state that balloons are only in subprime loans. It's talking about eliminating them in most subprime loans and doesn't mention eliminating them otherwise.

 

[Vic]

Hmm... who decides, I wonder?...

I'll end my contributions to this thread with this advice:
- You are not entitled to other peoples' money. Credit is a privilege that must be earned and maintained, not a right.
- If you educate yourself on the basic concepts and terms of lending, and make sure you understand what you are signing before you sign it, you won't need any of these reforms that Kerry proposes.
- If you manage your finances properly and live within your means, you won't need to borrow money on credit cards or consistently carry a balance, and then you will never have to worry about paying credit card interest, or whether or not your provider might jack your rate.

That is all.

 

[conjur]

Originally posted by: Vic
Hmm... who decides, I wonder?...

I'll end my contributions to this thread with this advice:
- You are not entitled to other peoples' money. Credit is a privilege that must be earned and maintained, not a right.
- If you educate yourself on the basic concepts and terms of lending, and make sure you understand what you are signing before you sign it, you won't need any of these reforms that Kerry proposes.
- If you manage your finances properly and live within your means, you won't need to borrow money on credit cards or consistently carry a balance, and then you will never have to worry about paying credit card interest, or whether or not your provider might jack your rate.

That is all.

Can't argue with that! :beer:



But...there are people who fall victim to certain circumstances in life (death of a spouse, divorce, loss of a job, etc.) that cause financial hardship. I don't think those people should be punished. And, the less educated or less diligent don't need to be punished for lack of awareness.

 

[shiner]

Originally posted by: KarenMarie
Why do we need the government to protect people from their own spending habits?... if they are too stupid to read the fine print, and insist on spending money they don't have and cannot afford, that is down to themselves.

Bravo!!! The last thing we need is more nannyism from the government.