John Edwards for President: ARCHIVAL MIRROR-Building One America: Taking On Abusive Lenders And Helping Families Save

Building One America: Taking On Abusive Lenders And Helping Families Save

Jun 21, 2007 1:07 AM

"The engine of our economy is not Washington, D.C., or Wall Street. It is the tens of millions of men and women in offices, factories, and fields across America who go to work every day. When we stand up for them, our middle class grows and our economy grows." – John Edwards

American families are working harder to get by. Despite living in the land of opportunity, most families' incomes have stagnated for the past generation. Meanwhile, George Bush's Washington has let corporate interests grow stronger than ever. The result is Two Americas, one struggling to get by and another that has everything it could want. As president, John Edwards will put our government and our economy back in line with our values. Today, he announced his plan to take on abusive lenders, create a new Family Savings and Credit Commission on the side of families who are investing and borrowing, and give families alternatives to high-cost debt.

Middle Class Debt In The Two Americas

Debt is now a central fact of middle-class life. In Washington, the financial services sector gives more money to politicians and spends more money lobbying than any other sector of the economy. With no limits on interest or fees, loans have become more costly and deceptive. Consumer debt has increased eightfold and foreclosures have skyrocketed in recent years. [Open Secrets, 2006; Federal Reserve Board, 2007]

Regular Families Are Borrowing to Make Ends Meet: Half of Americans say they live paycheck to paycheck. For most families, wages have not kept up with rising costs for middle-class essentials like health care, housing and child care. More than half of middle-class families do not have enough savings to survive a job loss at 75 percent of their income for even one month. [MetLife, 2003; Warren, 2007; Demos, 2007]
Credit Card Rates Are Skyrocketing: Interest rates and fees have skyrocketed since rates were deregulated in 1978 and fees in 1996. Penalty interest rates now top 39 percent. One in three accounts is assessed a late fee a year, averaging $35. Deceptive tactics include bait-and-switch marketing on interest rates, penalty rates triggered by unrelated debt under "universal default" clauses, and mailing statements later in an effort to induce more late fees. Credit card debt helped drive increasing numbers of families to the bankruptcy courts. One in 53 households filed for bankruptcy in 2005, more families than got divorced or graduated from college. [NCLC, 2005; Cardweb, 2005]
High-Cost Financial Services Exploit Low-Income Families: Financial services companies collect high fees in urban and working-class neighborhoods where there are few mainstream bank branches. Payday loans -- short-term unsecured loans that carry high interest rates -- have ballooned to a $28 billion industry. Annual rates on payday loans typically exceed 400 percent a year. Families pay check-cashing stores as much as $500 a year for services that banks offer for $60. Interest on car title loans quickly exceed the amount borrowed. Low-income tax filers pay more than $1.2 billion a year for the "refund anticipation loans" that are aggressively marketed by tax preparers, even though they could get their refunds from the I.R.S. for free within ten days. [CRL, 2004; Fannie Mae Foundation, 2006; CFA, 2005; NCLC and CFA, 2006]
Predatory Mortgages Have Led to Millions of Foreclosures: While subprime mortgages are a valuable option for families with poor credit, predatory mortgages have abusive terms that deceive and exploit borrowers. Americans own a smaller share of their homes today than they did a generation ago -- down from 68 percent to 55 percent -- despite the housing boom. Some banks and mortgage companies refinance mortgages with high rates and often deceptive terms. Repeated refinancings create millions in fees for lenders while hurting homeowners. Today's homeowners are more than three times more likely to lose their homes than they were a generation ago. [Demos, 2007; Warren, 2003]

There Are Two Economies: The number of Washington lobbyists has tripled in the past decade. Drug and insurance companies write our health care laws, oil and power companies write our energy laws, and banks write our lending laws. It is no coincidence that regular families are finding it harder to get ahead. Working families face less income mobility, more inequality, and more risk.

A Generation without Progress: Middle-class families' incomes have grown slowly in recent years and are largely the result of more hours worked, particularly by women. Men in their thirties today earn less in real terms than men of their fathers' generation did 30 years ago. Only 30 percent of Americans think life will be better for the next generation. [Pew, 2007; Edison Media Research, 2006]
An Economy Only Growing at the Top: Over the last 20 years, American incomes have grown apart: 40 percent of the income growth in the 1980s and 1990s went the top 1 percent. The top 300,000 individuals now make more than the bottom 150 million. If all Americans were sharing in economic progress as they were nearly thirty years ago, families in the bottom 80 percent would be earning $7,000 more a year. [EPI, 2006; Saez, 2007; Summers, Furman and Bordhoff, 2007]
More Risk for Regular Families: Families' hold on the middle class is more precarious than ever. Families in their forties are almost three times more likely to fall into poverty than they were a generation ago. The chances that an average person will experience a 50 percent or larger drop in income more than doubled since the 1970s. [Hacker, 2007]

Taking On Abusive And Predatory Lenders

Washington has stood by as the financial industry has ripped off millions of families with deceptive and unnecessarily expensive loans. To stand up for regular families, Edwards will:

Protect Families from Abusive Financial Products: Families need someone on their side to help them get a fair deal from lenders and investment companies. The current crazy-quilt of five federal regulatory agencies share oversight responsibility but overlook consumer protection in favor of bank profitability. Federal law prevents states from effectively regulating financial products offered to their own citizens from out-of-state banks. Edwards will create a new Family Savings and Credit Commission to protect consumers. It will review all financial services products marketed to families, from six-figure exotic mortgages to $30 bank overdraft charges. It will ensure that terms are reasonable and fairly disclosed and oversee all types of financial institutions, whether chartered under federal or state law. To reduce excess regulatory bureaucracy, Edwards will eliminate the Office of Thrift Supervision. [Warren, 2007]
Prohibit the Most Abusive Practices: Edwards will enact strong national legislation to protect families from the most abusive practices in the credit card, payday loan, and mortgage industries:
- Limiting Abusive Credit Card Practices: Edwards will restore balance in the credit card market through a Borrower's Security Act. The strong new law will require credit card companies to: (1) disclose the true cost of making only minimum payments, (2) restore a 10-day grace period before imposing late fees and penalty rates, (3) apply interest rate increases to future balances only, and (4) end the practice of universal default, where a creditor can change borrowers' terms based on their debt and payments to other creditors. [Demos, 2003; GAO, 2006]
- Banning the Most Abusive Payday Loans: After the Pentagon concluded that exploitive payday loans undermined military readiness, Congress capped interest rates on payday and other loans to military families at 36 percent, a cutoff that many states use to prevent loan sharking. Edwards will extend this cap to all payday loans. [Center for Responsible Lending, 2006]
- Protecting Homeowners against Predatory Mortgages: Edwards will pass a strong national law to prohibit the worst abuses in the mortgage market, such as steep prepayment penalties, mandatory arbitration clauses, balloon loans, loan flipping, and excessive fees. The law will strengthen underwriting standards to ensure that borrowers receive affordable loans suited to their means and reach non-bank lenders and mortgage brokers. To help the estimated 2.2 million families already facing foreclosure, Edwards will create a Home Rescue Fund to help families get into more affordable mortgages and let families shed excess mortgage debt that exceeds their home's value through bankruptcy. [Center for Responsible Lending, 2007; New America Foundation, 2007]
Create Alternative to Abusive Lenders: Edwards believes we must help families gain independence from high-cost debt:
- Supporting Alternatives to High-Cost Credit: Because commercial banks rarely make personal loans anymore, high-interest credit cards and payday loans are often the only option for families with unexpected expenses. Edwards will help non-profits and states administer low- or no-interest emergency loans directly to taxpayers. States could choose to use state tax refunds as collateral. Because neighbors have a stake in one another, Edwards will help community groups establish up local revolving loan funds. [Center for Financial Services Innovation, 2006]
- Helping Families Save and Get Ahead: Savings are how families cushion themselves against bumps in the road. Edwards will create new "Work Bonds" to help low-income workers save up to $500 a year. He will subsidize banks to offer free savings accounts to the nearly 28 million Americans without them, giving them a way to save and avoid exorbitant check-cashing fees. Finally, he will give taxpayers the option of directly depositing their tax refunds into a retirement account. [Federal Reserve, 2007]
- Modernizing the Community Reinvestment Act: For decades the CRA has led financial institutions to serve millions more families, helping them save. However, lower-income families, people of color, and rural Americans are still underserved and President Bush has weakened the law's requirements. Edwards will modernize this important law by expanding its reach to non-bank finance and mortgage companies, securities firms, insurers, and services in areas without bank branches. The new CRA will reward financial institutions for marketing financial products at fair terms to underserved consumers and collect the data we need to ensure that all Americans have equitable access to financial services. [Woodstock Institute, 2006; NCRC, 2007]