Story posted Wednesday, January 27, 2010
Here's How You Can Help, Congress
By JOHN CRAWFORD Contributing Columnist
Now that Senate Republicans have the 41st vote to block health care reform, what can Congress do to make life better for taxpayers outside the Washington Beltway? The most serious problems appear to be unemployment and home foreclosures.
The Stimulus Bill passed in February 2009 provided $787 billion to fund projects, which would immediately put people back to work. It has provided many jobs, but not as many as expected. The development of new industries, such as using wind power or solar energy to reduce our dependence on foreign oil while creating jobs, are excellent ideas, but do not promise any quick results in adding new jobs. Some economists are now saying we should have provided more money in the stimulus bill. The U.S. Conference of Mayors, in a meeting at the White House last Thursday, also stressed the need for more stimulus money. However, the chances of bipartisan cooperation on a second stimulus bill are slim, with the Republicans slamming the Democrats for too much spending. Mayor Daley's recommendation of tax breaks for companies that hire new workers might meet with some Republican support.
The number of home foreclosures does not seem to be falling, despite the $75 billion set aside by the Administration last March for a Home Affordable Modification Program, to provide incentives for mortgage holders to restructure mortgages for homeowners facing foreclosures. President Obama hoped this program would prevent 7 to 9 million foreclosures by the end of 2012. But less than a million loan modifications have been granted. The banks and mortgage servicers have granted only a small percentage of reductions in the principal; the rate reductions have been slow, and usually for a trial period of three to five months instead of permanent reductions. The program to subsidize short sales by providing monetary incentives to the homeowner, the mortgage holder and even second lien holders has been ineffective because of the reluctance of investors and second mortgage holders to sacrifice any of their investment. The procedures have been slowed down in all cases by careful documentation to avoid the loose and slipshod (or even no-document) credit checks that created subprime mortgages for people who could not afford them. The Administration is going to have to be more generous with their incentives or subsidies for the homeowners and for the banks or mortgage holders to make these programs work, which means more government spending, which means more opposition from the Republicans and conservative Democrats.
However, one area in which Congress can help us without spending a lot more money is in stopping the deceptive practices and the abusive interest rates and fees charged by lenders and the credit card industry, which affect millions of consumers, and have contributed to a sharp increase in the number of personal bankruptcies. There is no need to recite all the abuses. Payday loans, which keep low-income borrowers forever in debt, exorbitant penalties for late payments, overdraft fees costing consumers $25 billion a year, have been adequately publicized. At the federal level, the problem is not too much regulation of consumer credit, but too many regulators and lax regulation. In addition to the Federal Reserve Board, which has issued many regulations concerning consumer loans by banks, there are many other federal agencies, which regulate some aspect some aspect of consumer credit. The Federal Deposit Insurance Corporation, the Federal Trade Commission, and the Treasury Department's Comptroller of the Currency and Office of Thrift Supervision have issued regulations concerning consumer credit. The Department of Labor has issued regulations concerning wage garnishments, and the Department of Defense has placed restrictions on payday loans and vehicle title loans to servicemen and their families.
With all of these agencies, concern for the consumer is not their major concern. Enforcement of their consumer credit responsibilities has been weakened by lobbyists for the banks and the financial industry. Some of them seem to have been affected by the Patti Hearst syndrome in reverse; the regulators sympathize with the regulated. The Office of the Comptroller of Currency, which is in charge of the administration of national banks, opposed the provisions of the Credit Card Act of 2009, which prohibits retroactive rate increases on the balances of loans taken out at a lower rate.
Congress is considering the establishment of an independent consumer credit agency, to oversee the enforcement of existing regulations. American Express and the big banks (Chase, Citi, Bank of America, etc.) are fiercely opposed to a single agency. They were successful in holding off the effective date of the restrictions in the Credit Card Act of 2009 until mid-2010, and they do not want to deal with an independent single agency. Republicans and conservative Democrats are going to have to decide whether they are on the side of the consumer or on the side of the banks and the credit card issuers, and they cannot hide behind their usual excuse that they oppose this proposal because they want to save money for the taxpayers.
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