Sen. Kay Hagan (NC-D) - Have John Paulson and the CRL done anything for YOU lately?

The Center for Responsible Lending recently worked hand-in-hand with North Carolina Senator Kay Hagan (D) to “help craft” the Payday Lending Limitation Act of 2010, reports the Payday Loan Industry Blog. The major purpose of this new bill, it would seem, is to change the parameters of the Truth in Lending Act (TILA). While the specifics of the bill text will not be available to the general public until it is presented to the Senate in the upcoming weeks, it appears that the Payday Lending Limitation Act of 2010 is ostensibly another attempt to blame America’s financial crisis on the payday loans industry. The bill would empower the federal government to replace state-by-state consumer lending regulation with their own highly stringent rules.

Payday Lending Limitation Act of 2010: Another CRL manifesto

The Center for Responsible Lending (CRL) is allegedly responsible for the thrust of the Payday Lending Limitation Act of 2010. For those unfamiliar, the CRL plays consumer advocacy group before the cameras and bright lights, but when it’s time to wipe of the grease paint, their truth hurts. Not only were they founded largely by Herb and Marion Sandler, who made a fortune in the sub-prime mortgage market that was largely responsible for bringing America’s economy to the brink of destruction, but there are other damning ties. Numerous connections exist between the Sandlers, the CRL, Self-Help, Inc. and affiliate Self-Help Credit Union (the latter two founded by Martin Eakes, who is also the chairman of the CRL).

In essence, affirmative action initiatives were used to strong-arm banks into writing adjustable-rate mortgages for people who were unlikely to be able to afford them. At the same time, groups like Goldman Sachs were contributing to the mortgage mess, claiming those sub-prime mortgages were a good investment to fool investors while betting against the success of those investments behind the scenes. And guess what? Hedge fund billionaire John Paulson, who is intimately involved in the recent mortgage investment scandal, was a major financial contributor to Goldman Sachs AND was one of the major founders of the Center for Responsible Lending! How credible are the Center for Responsible Lending’s claims that they want to protect the little man, in light of those heavy connections?

Skip the Payday Lending Limitation Act of 2010, Congress

Instead, investigate the Center for Responsible Lending at the same time that you go after Paulson, Goldman Sachs and everyone else associated with this greedy mortgage investment game. There is at a bare minimum suspicion by association, and there is a documented money trail. Payday lending, when used properly, is a useful venture for short-term consumer funding. Adjustable rate mortgages and unscrupulous investment companies that are betting on deceived investors to fill their coffers have no proper place in a legal, functional economy. Their avarice is a blight, and Sen. Hagan would have been better-served if she’d asked Scrooge McDuck to write the Payday Lending Limitation Act of 2010. He has more heart and care for the common man.

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ACORN CEO Bertha Lewis kissing then-New York Governor Michael Bloomberg. Image from pumabydesign001.

There was a time when ACORN – the Association of Community Organizations for Reform Now – lived by its ideals and had a bright future in the reform arena. But recent controversies which may have led to falling revenue, and hence a need for short term personal loans, will prompt ACORN to disband effective April 1. While some media critics simply view this as a rebranding of the organization, others view this as a long overdue end of a troubled era.

ACORN’s era of subprime manipulation ends

Jerry Chautin writes for The Huffington Post that ACORN may have played a significant role in the subprime mortgage mess that nearly sank America’s economy. In particular, it “pushed for more lenient benchmarks that would include all applicants. Their contention was that everyone deserves to own a home regardless of their income level or credit history.” That’s a noble sentiment, but lack of regulation and borrowers with eyes bigger than their budgets created a financial quagmire. That’s why the Wall Street Journal once claimed that ACORN and the Community Reinvestment Act “laid the foundation for the house of cards built out of subprime loans.”

ACORN admitted mistakes were made

And CEO Bertha Lewis knew that damage repair was necessary: “We will go to whatever lengths necessary to reestablish the public trust.” Lewis said this to the media when the subprime crisis was at its peak, Reuters reports. But in September of 2009: the ACORN prostitute video made its viral rounds. While James O’Keefe and company may have edited footage just enough to make the ACORN members seem guiltier than they were, the negative publicity never went away completely. The organization seemed to lack credibility.

Most of the 20 ACORN chapters have already disbanded

Add voter fraud into the already boiling mix and you can see that ACORN had problems. Despite numerous denials from ACORN, Congress voted to cut off federal funding to the community activist group and the U.S. Census Bureau terminated its partnership with ACORN. Reuters notes that a federal judge overturned the total funding prohibition, but the damage was already done.

It is unclear whether ACORN will file for bankruptcy or simply reorganize with private emergency money at this time.

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Hannah Giles and James O'Keefe, when they aren't following ACORN's advice. (Photo: giovanniworld.wordpress.com)

Back in September of 2009, Hannah Giles and James O’Keefe hit ACORN where it hurts by capturing Baltimore office and New York City office employees on film encouraging people who were clearly transacting in child prostitution to lie to the IRS. Now videographer James O’Keefe is in deep trouble with the FBI. He’s been taken into custody because of his involvement in an attempted shakedown that involved bugging the telephone lines of Louisiana Senator Mary Landrieu. James O’Keefe and three others have been charged with entering a federal property under false pretenses with intent to commit a felony. Your payday loans blogger can find no justification for such action.

His ACORN video made him a darling among talking-head conservatives

This of course means that liberal talking heads were quick to play the entrapment card. There were also claims that the videos were heavily edited to make ACORN appear as guilty as possible, but none of what appeared in the video has been disproven. ACORN filed a civil rights suit against Hannah Giles and James O’Keefe. That suit brought up evidence that they’d been in ACORN offices before and been kicked out… but that doesn’t make a rotten ACORN fresh necessarily, does it?

Sean Hannity defended them

In between bites of Ruth’s Chris porterhouse and self-initiated pats on the back, the vitriolic Sean Hannity offered a sensible defense for James O’Keefe and Hannah Giles. He said he’d “break them out of jail” if they were convicted, according to the Examiner. Other conservative media outlets did the same. But let’s see how they react to James O’Keefe’s latest escapade. My guess would be that they’ll air footage of a Joy Behar/Elizabeth Hasselbeck wrestling match before they’d touch James O’Keefe again. If you’re putting money on the Brooklyn girl, you probably won’t need payday loans to recoup your losses. But then again, I’d never encourage gambling.

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Capping payday loan rates too low will kill competition and hurt consumers – in Brisbane, Queensland or anywhere else.

Legislators from various nations have proposed that control over consumer credit become centralized, i.e. placed under control of the national government rather than continue to reside with states and principalities. Their reasoning is that if they can provide the traditional banking sector with enough incentive to offer small loans like payday loans at competitive rates, the venture would be profitable and consumers would be protected from predatory lending schemes.

Australia appears to think this is a good idea, as upcoming legislation will enact such payday lending control. Lecturer Nicola Howell of the Queensland University of Technology theorizes in her 2009 paper “National Consumer Credit Laws, Financial Exclusion and Interest Rate Caps: the Case for Diversity Within a Centralised Framework” that centralized credit regulation could be a good thing, but doesn’t fail to notice the potential for major problems that throttle consumer choice when it comes to small loan access.

What Will Happen in Australia, Exactly?

Australia will transfer consumer credit control from State and Territory Governments over to the Commonwealth. The goal is for a uniform system to regulate consumer credit and form a “seamless national regime.” The assumption is that the change in regulatory power will result in greater responsiveness to the dynamic market, which was greatly desired after experience with the “slow pace of change in the current State and Territory-based regime.”

But Financial Exclusion is Not Addressed

Some in Australia welcome this change, but Howell argues that the change will not sufficiently address the issue of financial exclusion. Howell defines financial exclusion as “the lack of access by certain consumers to appropriate low cost, fair and safe financial products and services from mainstream providers.” This means small loans and payday loans. Centralized consumer credit regulation, Howell fears, could create interest rates that make it impossible for many payday lenders to operate. This in turn would limit consumer credit options. “There is an absence of any consideration of regulatory initiatives that might encourage the availability of low cost, fair and safe small loan products,” writes Howell.

But Howell Feels a Cap is Necessary

Ample evidence exists that using rate caps as a regulatory tool affects consumers negatively. Here’s one of many examples. Howell admits that “total centralization of consumer regulation does pose some risks for consumers, by way of potentially reduced standards, and reduced opportunities for regulatory experimentation and local responsiveness,” so the potential for danger is recognized. Perhaps that’s why “permitting regulatory diversity on interest rate caps” in case consensus cannot be reached on where to set the rate cap bar is on the author’s mind.

No to Financial Exclusion of Essential Products

The authors states (and is definitely not alone in this regard) that the products consumer credit markets offer for cash emergencies – such as payday loans and other small loans – are as essential to well being as utility services like electricity and water. Thus, efforts should be taken to maintain their availability to the public. Keep payday loans available and affordable; don’t cap them to the point that payday lending businesses have to close their doors, costing communities jobs as well as options for credit.

Promoting Competition?

If designed properly, a rate cap could indeed regulate prices without squelching choice. But the kind of APRs most legislators talk about (whether it is Australia or America) can typically only be swallowed by large institutions, i.e. traditional banks. Thirty to 40 percent APRs work for companies already rich with capital, but not for smaller payday lenders. Consumers go to such lenders because they can’t crack the surface with traditional lenders like banks, frequently because of credit issues. If their main credit option for emergencies and smoothing consumption shocks is taken away, what are consumers left with? That would be loan sharks and similar dangerous options.

In their efforts to stay alive when faced with shortsighted regulation, some payday lending companies have found ways to circumvent unfair rate caps. Since payday loan companies are not raking in excessive profits to begin with and it’s been proven that small loans can’t work under restrictive rate caps, Australia should take notice. Unless they don’t mind hurting their citizens, that is.

Learn from America’s CRA Disaster, Australia

Howell compares Australia’s Commonwealth coaxing banks to enter the payday loan market to what the Community Reinvestment Act (CRA) did for the housing market in the United States. While the CRA was designed to “encourage depository institutions to meet the credit needs of their communities, including the needs of lower-income consumers and neighborhoods,” writes Howell, the reality is that their strong-arming efforts helped produce the subprime mortgage mess that nearly destroyed America’s economy. Along with ACORN, the Community Reinvestment Act (CRA) sought to curb redlining, but what they achieved is that they convinced lenders to relax their lending standards so much that they began lending and granting mortgages to people who couldn’t possible repay. As the Wall Street Journal put it, ACORN and the CRA “laid the foundation for the house of cards built out of subprime loans.”

Will the Commonwealth Sweat Banks Under the Hot Lights?

The CRA “required banks to increase lending in low-income neighborhoods.” Enforcement terms were vague, but in practice it meant that ACORN and the CRA could pressure banks into subprime lending because doing so somehow fought against racism. American lenders that didn’t comply were threatened with me branch expansion, mergers and acquisitions being blocked. ACORN and the CRA could effectively shut a bank down if they didn’t comply. Is that what Australia really wants to do to its banking system and its consumer base? I’m surprised Howell missed this notorious piece of American financial history, being a professional researcher.

Empowering the Consumer

Here’s a more reasonable line of thought that Howell touches upon: “Rather than imposing price regulation,” she writes, “competition between lenders should be encouraged, and consumers should be empowered to choose the most appropriate products for their needs.” Yes, on this we can agree, as well as on the fact that “centralization and uniformity in law is not necessarily always beneficial” for said consumers. Who is to say that uniformity would automatically lead to the greatest standards? Europe can weigh in on this, as Bourgoignie and Trubek state in their 1986 study “Consumer Law, Common Markets and Federalism in Europe and the United States” that

Once again, it must be stressed that uniformity does not necessarily advance consumer interests… There is a possibility that uniformity will be used to cut back consumer rights.

Cut back consumer rights? Is this necessary for Australia? Is it necessary anywhere? Consumers aren’t forced to use payday loans, but they do because of a speed and convenience that traditional banks and credit unions can’t match.

“There Are Potential Risks,” Says Howell

“In the context of interest rate caps,” she writes, “these risks, together with the fact that it is likely to difficult to find a consensus approach, or to conduct a comprehensive analysis of the relative merits of the different approaches within the reform timeframe, suggest that there may be some merit in permitting diversity on interest rate caps to remain, at least for an interim period.” This, Howell postulates, could help minimize financial exclusion. Since the Australian Commonwealth’s current proposal doesn’t address this potential harm to consumers, it is advisable that rash action not be taken to cap interest rates too low. This is where Howell’s diversity comes into play around the APR cap. Australian consumers who are more vulnerable to financial shocks should have the option to use payday loans if the traditional banking system fails them.

The Senate says "no" to payday cash for ACORN (Photo: therealbarackobama.wordpress.com)

Is it any surprise? We’ve known for some time that ACORN is a questionable organization. The latest pimp and prostitute video is just the icing on the cake, comments the Hot Air blog. Now the Department of Housing and Urban Development (HUD) is halfway toward being blocked from continuing to give ACORN (Association  of Community Development Organizations for Reform Now) grants for such programs as mortgage counseling services. The Senate voted overwhelmingly – 83 to 7 – to cut funding. All that has to happen now is for the House or Representatives to agree in their vote and for President Obama to sign off. Considering that he may have had connections to ACORN during his community planning days in Illinois, it will be interesting to see how the president reacts when the bill to shut off the lights hits his desk.

ACORN will need private funding to continue operating

Perhaps a bit of payday cash? Seriously, who would consider it a good investment to fund an organization that encourages tax fraud, insurance fraud, voter fraud, defying the police with foreclosed property break-ins and subprime lending? ACORN founder Wade Rathke and cohort Martin Eakes from Self-Help Inc/Self-Help Credit Union couldn’t be pleased with the vote. Perhaps they should have thought about that before they played such a huge role in driving America’s economy into the ground with their strong-arm tactics at the dawn of the subprime mortgage lending debacle.

The Los Angeles Times reports at http://www.latimes.com/news/nationworld/nation/la-na-acorn15-2009sep15,0,3037782.story?track=rss that in addition to the pimp and prostitute video that recently came out of the Baltimore ACORN office, FOX News supposedly has aired videos depicting similar shenanigans in Brooklyn and Washington, D.C. The L.A. Times also indicates that the Census Bureau has washed their hands of ACORN and will not enlist the organization’s assistance in tabulating the 2010 Census. Considering that ACORN’s voter registration efforts have signed up such normal, everyday citizens as Mickey Mouse, can you blame the Census Bureau for running the other way?

The New York Times didn’t even think to assign a reporter

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I don’t care if it directs negative publicity in Barack Obama’s direction, this ACORN senate vote story deserves serious attention. As it stands, the New York Times linked to the AP report of the story online – but they didn’t even mention it in their print edition. Any wonder that print journalism is dying? Segregating such a story to its blogs section is a clear sign that the New York Times is just as partisan as any other fish wrap that lines birdcages across this nation. Biased reporting, the availability of free online news (at least for a while longer) and the costs of newspaper production all make for a grim picture. Scores of journalists who have been given the boot need payday cash. They may even need housing assistance, but it doesn’t appear that ACORN will be able to help them any longer.

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