JPMorgan Chase paid out $27 million in fines and reimbursements for allegations relating to its auto loan sales tactics. Image: DragonFlyEye/Flickr/CC BY-SA

JPMorgan Chase bank has agreed to pay a $2 million fine to settle claims that it used false statements and high-pressure sales tactics in some of its auto loan products. The company has also previously paid out about $25 million to reimburse customers who bought the loans.

Fines levied by the OCC

The $2 million fine against JPMorgan Chase was levied on Wednesday after a probe conducted by the Office of the Comptroller of the Currency (OCC), the Treasury Department agency that oversees national banks. In addition to its auto loan sale methods, JPMorgan Chase was also compelled to review its sales practices for mortgages and credit cards. The OCC claims to have found other questionable practices there as well.

Auto loans sold between 2008 and 2009

The OCC’s case involves allegations that from January of 2008 until May of 2009, JPMorgan sold auto loan products that would allow customers to cancel or suspend payments in the case of certain unfortunate unforeseeable events, such as the loss of a job or untimely death. Borrowers were charged a monthly fee for the contract.

Sales script provided by the bank

The sales staff of the bank allegedly made false statements when selling the products, often working from a script provided by JPMorgan Chase. The script included rebuttals to objections that potential buyers might raise.

JPMorgan does not admit or deny wrongdoing

The bank stopped marketing the products in 2009. As part of the settlement agreement, JP Morgan Chase will neither admit or deny any wrongdoing. JPMorgan Chase said in a statement that the company is pleased to to settle the matter. It has reimbursed the purchasers of the product and revised its sales practices.

Second largest bank in the U.S.

The banking giant became the nation’s second largest in September of 2008 when the Federal Deposit Insurance Corp. seized Washington Mutual (WaMu) and sold its banking assets to JPMorgan Chase.

Sources

Huffington Post
CNBC
Reuters

The Obama administration has released a long-awaited proposal for getting government out of the mortgage business. Image: TheTruthAbout/Flickr

The Obama administration submitted its plan for the future of Fannie Mae and Freddie Mac Friday. The report is a series of options to consider for getting the government out of the mortgage lending business. The Obama Fannie-Freddie plan proposes higher fees and down payments that could make it harder to get the 30-year fixed mortgage Americans have relied on for decades.

The Obama Fannie-Freddie plan

The Treasury Department offers three mortgage scenarios in which the government is involved on different levels. The Obama administration favors option number three — replacing Fannie and Freddie with private companies to offer mortgage insurance. The private companies would be required to buy reinsurance for the mortgages they guarantee. The government reinsurance would only pay out if the private company is in danger of going under, not if any particular mortgage goes bust. The administration said this option would preserve low-cost access to mortgage credit. However, the administration warned that lax oversight in this system would leave the housing market vulnerable to another crisis.

Fannie and Freddie, plans B and C

Other options in the Obama Fannie Freddie Plan include privatizing the system or replacing Fannie and Freddie with a system for low-income, rural and veteran homebuyers that could expand in the event of a crisis. Privatizing housing finance would get taxpayers off the hook, but would likely boost fees, down payments and interest rates to levels that would put a 30-year mortgage out of reach for many who can get one under the current system. The low-income-rural-veteran option would make private mortgage lenders accountable for risk but was described as problematic because it would have to be designed so that it could expand during a crisis and contract again afterward.

Fixing Fannie and Freddie without jeopardizing housing recovery

The administration has acknowledge that the government provided too much support for housing with too many incentives for investment in housing — primarily in the form of mortgage-backed securities. A huge part of the mortgage business had no regulation or oversight.The administration said that a strategy for the future can’t cut back on government support too much too fast, or the housing market will take even longer to recover. Treasury Secretary Tim Geithner said replacing Fannie and Freddie and fixing the mortgage lending system could take five to seven years.

Sources

Washington Post

Bloomberg

TIME

The IRS is offerng tax refund debit cards to save money and allow unbanked households to get their money faster. Image: CC Neil T/Flickr

The IRS will start sending tax refunds to unbanked taxpayers on debit cards in 2011. Tax refund debit cards will cut the expense of mailing paper checks and allow unbanked taxpayers to get their money faster. The IRS will send a letter next week to taxpayers eligible for a pilot program testing the tax refund debit card program.

Debit card tax refund could help millions

Issuing debit cards for tax refunds is another step in the effort to eventually make the IRS a 100 percent digital agency. Filing tax returns electronically began in 1990. In 20 years the IRS has processed 892 million e-filed tax returns and expects to hit 1 billion in 2011. In 2010, 70 percent of taxpayers filed their tax returns electronically. About 63 percent had their tax refund deposited directly into their bank account electronically. According to the latest U.S. census, there are nearly 9 million unbanked households — 17 million adults who don’t have a savings or checking account.

Who is eligible for tax refund debit card?

A notice for the debit card tax refund pilot program will be sent out to 600,000 households next week by the Treasury Department. The tax refund debit cards will also be offered to more than 1.7 million workers in the U.S. who get their paycheck in the form of payroll cards. The Treasury Department will be offering different debit cards with different features and fees in an experiment to identify the best approaches when the pilot program is expanded. Debit cardholders won’t feel compelled to get a loan or be charged service fees if they withdraw fast cash from ATMs in the MoneyPass network. ATMs outside the MoneyPass network will charge regular service fees.

Paper checks don’t pencil out anymore

Last year the Treasury Department said $40 million was spent mailing about $45 million in tax refund checks. The fastest way to get a tax refund is with e-filing and direct deposit, which puts tax refunds in bank accounts in as little as 10 days. People who owe taxes can make payments to the IRS online as well.

Sources

Los Angeles Times

CBS News

Mybanktracker.com

IRS.gov

With the federal government in hock up to its eyeballs, the debt ceiling must be raised soon to prevent further economic catastrophe. Image: CC Sugar Pond/Flickr

Government spending will hit the federal debt ceiling soon if Congress doesn’t vote to raise it. A political fight lies ahead as newly-empowered Republicans vowing to cut spending threaten to vote against raising the debt ceiling. However, if the debt ceiling is hit, the U.S. government goes into default and the global economy could be crippled.

Inside the federal debt ceiling

The federal debt ceiling, the amount of money the government is legally permitted to borrow, is $14.3 trillion. Government debt has reached about $13.9 trillion and it’s growing every day. With the debt ceiling “only” $335 billion away, the Treasury Department estimates that limit will be reached somewhere between March 31 and May 16. The debt ceiling applies to debt owed the public in the form of U.S. bonds and debt owed to government trust funds such as those funding Social Security and Medicare.

Consequences of hitting the debt ceiling

Regardless of Republican rhetoric about spending cuts, raising the debt ceiling has nothing to do with spending more money. The debt ceiling needs to be raised now because of legislative decisions already made, primarily during the Bush administration. On Thursday Treasury Secretary Timothy F. Geithner warned lawmakers that if they would not raise the debt ceiling, borrowing costs would rise for federal, state and local governments, as well as for businesses and consumers. Millions of jobs would be lost and stock prices, home values and retirement savings would plummet.

A golden opportunity to score political points

House Speaker John Boehner said Congress can’t raise the debt ceiling without more spending cuts. House Republicans have said they would blackmail the Senate and the White House by only voting for a higher debt ceiling in exchange for returning the federal budget to 2008 levels. But refusing to raise the debt ceiling is like refusing to pay one’s bills. Most analysts expect House Republicans to experience a brief flash of common sense when its time to vote. An economist told Bloomberg that raising the debt ceiling, however painful the vote, is merely a chance to score political points.

Sources

Bloomberg

CNN

Fox News

The Treasury Department is seeking public comment about a proposed set of financial education guidelines that will help Americans avoid personal financial meltdowns. Thinkstock photo.

The Treasury Department wants to distill the basics of financial literacy into a “food pyramid” for personal finance that makes money management as easy to understand as eating right. Even though a little more than one-third of adult Americans are considered obese despite the food pyramid, the Treasury Department is forging ahead. Public comments are being requested on a set of “financial education core competencies” the Treasury Department is proposing for use in financial education programs across the country.

Personal finance meltdowns a national issue

If there’s a lesson to be learned from the Great Recession, it’s that when it comes to personal finance, too many Americans are financially illiterate. A fundamental lack of knowledge about budgeting, investing, credit, lending and saving was exposed by meltdowns in finance, housing and credit. Investment Advisor reports that the Treasury Department’s Financial Literacy and Education Commission is conducting an annual review of its national strategy to promote basic financial literacy and education as mandated by the Fair and Accurate Credit Transactions Act of 2003. Using the “food pyramid” as an example, the Commission is trying to define the basics of financial literacy education for the public in ways that can be readily understood.

Financial education basics

The Treasury Department is accepting comments on or before Sept. 12. According to a Federal Register notice released Aug. 26, the Commission has identified five proposed personal finance concepts – or “financial education core competencies” – that it says “every American should have command of.” They include:

Earning:  Understanding the difference between gross pay and net pay, employee benefits and taxes and the importance of education.

Spending: The difference between needs and wants, learning how to create a budget, tracking spending and living within one’s means.

Saving: Understanding how saved money grows, how to meet long-term goals and wealth building, learning about bank accounts, understanding financial assets, such as savings accounts and investments.

Borrowing: Understanding the cost of borrowing and the role of credit scores.

Protecting: Learning how to protect assets, choosing the right insurance coverage and knowing how to guard against identity theft.

Seeking consensus on financial education

The financial education field lacks common ground on what it aims to achieve, the Treasury Department said in the Federal Register. It wants to facilitate agreement on appropriate basic content for financial literacy and education. Ted Beck of the National Endowment for Financial Education, who helped develop the core competencies, told the Dallas Morning News that in schools “there’s a wide variance in different kinds of programs, the quality of programs,” he said. “The idea of having a very straightforward checklist about the basics is something we think is very important.” A Texas education official told the newspaper that the core competencies listed by Treasury are a “good start” but the list is incomplete. For example, students should be taught the pros and cons of credit cards, mortgages, payday loans and other forms of borrowing.

Tax refund checks and refund anticipation loans could be rendered obsolete by tax refund debit cards from the IRS. substack/Flickr photo.

Tax refunds for people without bank accounts are becoming a problem in the era of electronic banking and tax filing. The Treasury Department thinks tax refund debit cards could be the solution. People without bank accounts, the so-called “unbanked” or “underbanked,” don’t benefit from the electronic funds transfer of a tax refund to a bank account from the IRS. Tax refund checks can take weeks to arrive. Unbanked people often resort to costly “refund anticipation loans” to get their money quickly. Plus, the overhead of printing and mailing checks costs millions of taxpayer dollars.

Tax refund debit cards bring speedy returns

The biggest advantage offered by tax refund debit cards is speed. The Associated Press reports that while direct deposits show up in bank accounts in eight to 15 days, tax refund checks can take six weeks to arrive in the mail. People without bank accounts are likely to borrow against their tax refunds, paying steep fees for a refund anticipation loan. Starting next year, a pilot tax refund debit card program will be offered to several hundred thousand taxpayers. The tax refund debit cards will work like checking accounts — without the checks or the bank. The cards will be insured like bank deposits and will include consumer protections from unauthorized purchases if they are lost or stolen. The cards may also be able to store other income and include bill-paying services.

Taxpayers encouraged to get bank accounts

The Center for Economic Progress estimates up to 26 million taxpayers could benefit from tax refund debit cards. That number was reached by subtracting direct deposit refunds from the 2010 tax season– 70.3 million — from total tax refunds of 96.3 million. Automated Trader reports that the Obama administration is exploring ways to encourage more people to get bank accounts. A $50 million request has been submitted to Congress for the 2011 budget to create “Bank on USA,” a program to help support state and local efforts to get more low-to-moderate income taxpayers into mainstream banking. An FDIC 2009 survey showed roughly 9 million households were without bank accounts.

Nipping refund anticipation loans in the bud

The tax refund debit card initiative is part of a broader program by the Obama administration to curtail federal policies that lead to risky financial decisions and provide people with better financial alternatives. The Wall Street Journal reports that the most recent policy change was announced last month. beginning in the 2011 tax season, the IRS will no longer provide tax return companies with “debt indicators” used by banks to process refund anticipation loans. The move makes it harder for banks to make the short-term loans, which come with high fees that pencil out to annual percentage rates from 50 percent up to 500 percent.