Payday loan regulation passed by Texas Senate. / Image: swanksalot/Flickr/CC BY-SA

Two measures designed to regulate the payday lending industry were passed by the Texas Senate for the first time on Monday. Reactions to the legislation have been mixed; supporters call it is a good start, and critics say it does not go far enough.

Bills are both passed by large margins

Both bills, 2592 and 2594, were the result of negotiations between the payday loan industry and consumer groups.  The bills passed the Senate vote by a large margins.  Bill 2592 passed 27-3 and 2594 passed 28-4.

New bills require fee disclosure

The legislation, proposed by Sen. John Carona, R-Dallas, requires short-term lenders to obtain a state license and to disclose information about their fees to their customers.

Fees remain unregulated

Those fees, however, will remain unregulated. “What we present to you today,” said Sen. Corona, “is the limit of what we could do. I leave this session disappointed that we’re not able to do more.”

Critics want the ‘cycle of debt’ to be addressed

Some say the bills are merely token efforts, claiming that the proposed legislation does not address what has been called “the cycle of debt.”  This refers to borrowers who extend their short-term loans multiple times, leading to heavier fees.

Previous bill

A previous bill written by Sen. Wendy Davis, D-Fort Worth, and by Sen. Royce West, D-Dallas, called for much tougher regulation.  That bill required a cap on fees, but never made it to the floor for debate.

Federal law requires fee caps at 36 percent a year for military families.  That limit, however, has not been enforced in Texas.

Davis calls legislation ‘disappointing’

Davis claims the legislation was diluted by lobbyist for the payday loan industry.  “It’s very disappointing,” she said. “It makes you lose your faith in democracy.”

House still needs to approve the bills

The House must approve Senate changes before the measures can go to the governor.

Sources

American-Statesman

Financial Blog

Seek4News

Lindsey Graham has pulled his support of a climate bill - over an immigration dispute. Image from Flickr.

This morning, a coalition of Democratic senators, Republican Lindsey Graham, business leaders, religious leaders and military officials were scheduled to debut their “grand compromise” climate bill. However, this weekend dueling press releases and political positioning led Lindsey Graham to pull his support for the climate bill. The climate bill has been in Senate negotiations for months, and was set to ask government and companies to take payday cash advances to improve their environmental impact and promote green technology. The bill is not entirely dead, and Lindsey Graham may still return to the list of sponsors.

Lindsey Graham pulls climate bill support

When Senate leaders began drafting a compromise climate bill, Lindsey Graham was one of the very few Republican senators that showed a willingness to negotiate. John Kerry, Joseph Lieberman, and Lindsey Graham were crafting the legislation to address climate change and energy policy within the United States. A comprehensive climate bill is one of the stated Obama administration priories. Without Lindsey Graham’s support, the climate bill is in question, though the White House has said it will still “work to secure bipartisan agreement.”

Immigration reform at issue for climate bill

Lindsey Graham did not pull support for the climate bill because of any particular provision of that legislation. Instead, in his statement removing his support of the climate Bill, Graham calls out the White House and Democratic leaders for their insistence on an immigration reform bill. An immigration reform bill has been on the docket to be discussed for a long while, though the White House and Democrats have pushed for forward motion on the issue much sooner. Lindsey Graham has stated that this “bait-and-switch” of issues is akin to instant payday loans no faxing – taking one issue now at the possible cost of another later. Graham believes that highly-charged Senate debate on illegal immigration would make it very difficult, if not impossible, to discuss and pass a climate bill.

Lindsey Graham’s work on climate and immigration

Lindsey Graham has been under significant pressure from Republican leaders to not work with Democratic senators on crafting a climate bill. Graham has been the bridge in the heavily divided Senate, providing much-needed bipartisan support for contentious legislation. However, Graham has stated that by including immigration and climate in the same Senate session, leaders will not be able to make progress on both issues. In his statement removing support, Graham explained his actions by saying:

“But I will not allow him to play one issue off of another, and neither will the American people. They expect us to do both, and they will not accept the notion that trying to act on one is an excuse for not acting on the other.”

So what do you think? Can the heavily divided Senate address immigration reform and a climate bill in the same session?

New York Times
Guardian

Legislation passed last year on new credit card laws goes into effect today, and banks are none too happy about it. “JPMorgan Chase, the nation’s largest credit card issuer, warned it expected its credit card business to lose as much as $750 million this year as a result of the new legislation,” says CNN.

That’s quite the hit, but credit card users will benefit — if they remain credit card users. Reuters reports that the new credit card laws will squeeze credit, meaning less of it will be available. Pretty soon, even more people will be turning to no fax payday loans when they need credit instead of traditional banks.

Better billing

For those who are still fortunate enough to have functioning credit cards, the new credit card laws of 2010 mandate less confusing billing practices, says Christian Science Monitor. Bills must be due on the same day each month, and card users must be informed of the amount due 21 days before the due date.

“Nearly all interest-rate increases on outstanding balances will be prohibited,” says CSM. Also prohibited are rate increases during the first year of service. Card issuers must inform customers 45 days before a rate increase.

Special care for 18-21

The new credit card laws state that people between 18 and 21 years old must either prove they have the means to pay credit card bills or have a cosigner before they can be issued a card. The laws also limit marketing to college students.

Rather than automatically having overdraft fees set in place that will be assessed any time a borrower goes over the limit, people must choose to be included in the overdraft program. If a card user who has not chosen to opt-in to the overdraft program makes a charge that goes over the limit the card will simply be declined.

Capitol Building image from Flickr.

Everything from simple payday loans to the most complex high-finance trades are set to fall under strict new rules by the government. Recently, the House passed new legislation set to police the financial industry. The goal of the move is to avoid repeating the same mistakes Wall Street made a year ago when it sent the nation into the recession.

Part of the new legislation would give the government control over companies that are perceived as a threat to the financial well-being of the nation. In addition, it would create an agency to oversee all consumer banking transactions. The change was made on a party-line vote, 223-202, with no Republican support.

The Obama administration

The move was a win for the current Obama administration, but it did alter some of the president’s suggested cures. Much of the burden of policing the industry falls on the Senate. President Obama heralded the House’s action and called on Congress to act quickly to get the bill to the White House for his approval. He said, “The crisis from which we are still recovering was born not only of failure on Wall Street, but also in Washington. We have a responsibility to learn from it and to put in place reforms that will promote sound investment, encourage real competition and innovation and prevent such a crisis from ever happening again.”

Democrats are hoping that the legislation will help address all the issues that led up to the recession. Representative Barney Frank said, “Let’s put it to the American people: Do you prefer the Republican position of doing literally nothing to rein in these abuses or should we try to rein them in?”

Much of the disagreement between both parties centers on the issue of thoroughly policing the financial industry, versus leaving it alone. Republicans believe that the move would “burden” the business world. Republican leader John Boehner said, “This house has been on a spending spree, a bailout spree and a regulatory spree that I could never have imagined in any of my prior 18 years here in Congress.”

Now that the legislation is moving, financial institutions can expect governance. The big news is that any financial institution falls under the rules—from providers of small payday loans to high-end trade firms. The only ones to be exempt would be companies so small their actions would not have a defining impact on the economy as a whole.

Who would govern?

The bill calls for the creation of a Financial Services Oversight Council, which would be composed of the Treasure secretary, Federal Reserve chairman and the heads of regulatory agencies to monitor the financial markets. Their job would be to watch impending threats to the nation’s economic constitution and immediately act. It would identify companies and actions that require strict standards. The Council would have the authority to take apart even strong companies if they were thought to be a risk to the economy. A $150 billion resolution fund would be created and funded by companies with large assets and hedge funds worth at least $10 billion.

The future of the bill

The future of the bill is still up for debate among party members. Should the vast expanse from payday loans to high-yielding trades be policed under the same body and function under the same rules? The parties involved are sharply divided on the issue, but for now the new legislation is headed to the President for approval.

Apply for payday loans HERE

With this debit transaction cost $35 more than you think?

The Associated Press reports that some senior congressional Democrats want to draw up legislation that would limit how much banks can charge customers in overdraft fees. Personally, I have been slapped with $105 in overdraft charges before for transactions that equaled a lot less than that, so I certainly would feel better knowing that banks are no longer allowed to charge $35 per purchase

Of course, I could have saved a lot of money if I had gotten a payday cash loan. The average fee for a $100 payday loan is $15, so if I would have been smart and taken the initiative, I’d be $90 richer.

Picking on payday loans

Of course, banks do not want this legislation to become a reality. And, of course, as banks always do when when people point out their unethical practices, they are trying to shift focus onto a different institution. The common strategy is that when people say “banks are bad” the banks say “payday lenders are worse!” Even though this is totally untrue. The Associated Press reports:

Michael Menzies, president of Maryland’s Easton Bank and Trust Company, said eliminating overdraft protection for many customers will mean denying charges and embarrassing customers or forcing them to rely on high-cost payday lenders.

Clearly, Menzies has no idea what he is talking about. The numbers I have already presented you with prove that overdrawing your bank account is more expensive than getting a payday loan, even if you’re only charged once. How can a guy whose bank charges $35 when someone goes $1 over their balance point fingers at payday lenders, who charge $15 for a $100 loan?

Overdraft fee legislation

The idea behind the overdraft fee legislation is to require banks to ask customers whether they want overdraft protection or not. Banks insist that their customers would rather be charged an overdraft fee than have their debit card denied, but I am pretty sure that is universally untrue.

How many people do you think have kicked themselves because they bought some cheap thing they didn’t really need and ended up paying an additional $35 for it? Another idea for the overdraft legislation is that banks would only be able to charge customers overdraft fees once a month and no more than six times per year. I think that regulation would really help out customers and it definitely makes sense. I think it is atrocious that banks can charge such high fees over and over, each time you make a purchase after your account is overdrawn. I think it makes a lot more sense to charge the fee only once.

Proportional charges

The senators also say the legislation should require that banks base the overdraft charge on the amount by which the account is overdrawn. As it is now, most banks charge $35, whether the customers overdraws the account by $2 or $200.

Essentially, an overdraft charge is the bank’s way of lending  you money for your purchase — with or without your consent — and charging you for that loan. A $35 fee for a $2 loan is a little ridiculous, but $35 for $200 is understandable.

People younger than 21 can no longer get credit cards on their own.

When a new piece of legislation takes effect in February, anyone younger than 21 will need a cosigner older than 21 to get a credit card. I believe this is a very positive step that will keep a lot of people from getting deep into debt.

If I hadn’t gotten a credit card when I was 18, I know I’d be a lot better off. I racked up so much debt on my credit card by the time I was 21 it seemed it was already too late to get out. Years later, I am still paying off purchases I made while I was in college.

Start of a credit catastrophe

It’s this type of mentality that keeps people going deeper and deeper into debt. I figured I already owed thousands of dollars on my card, what’s a few hundred more? Many college students and graduates feel the same way, so they keep their cards maxed out and eventually need credit counseling to figure out how they will ever overcome their debt.

I think if I’d had a few years after I moved out of my parents house to learn to live without a credit card, it would have been much easier to go without one or to use one responsibly. But alas, an 18-year-old with a credit card who is on her own for the first time is a dangerous thing with possibly lifelong implications. I am glad legislators see this and passed the new law.

Implications to credit card industry

If my prediction that not allowing people to get credit cards until they are 21 will cause a lot less debt and much more responsible use of credit in general, it could have huge implications for credit card companies. Personally, if I had not been allowed to get a credit card until I was 21 I might have never gotten one at all.

I think and I hope that this will be the case for many young people, who will realize they can survive without using credit and spending thousands on interest alone. I think this new law could greatly reduce the use of credit cards, which is great news for society but could potentially bankrupt the credit card industry.

I guess creditors should start looking for new jobs now.

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