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New Efforts to Curb the 'Debt Trap' of Payday Lending

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(NNPA) The small-dollar loans that generate long-lasting debt for consumers and cost them billions of dollars each year are drawing the active attention of legislators and regulators alike. On April 24, the Consumer Financial Protection Bureau (CFPB) released a white paper on payday loans made by storefronts and by banks. Despite years of bank efforts to portray themselves as anything but payday lenders, the CFPB strips them of that cover.

According to CFPB Director Richard Cordray, “What we found is there is not much difference from the consumer’s perspective, between payday loans and deposit advance loans. They have similar purposes and, as it turns out, similar usage by consumers.”

At the same time, three members of Congress – Congressional Black Caucus Members Elijah Cummings D-(MD) and John Conyers (D-Mich.) were joined by Oregon’s Rep. Suzanne Bonamici in urging federal regulators to take actions on bank payday loans.

“We urge you to take meaningful joint regulatory action to ensure that no bank, regardless of its prudential regulator, traps borrowers in high-cost payday loans,” the members said in a statement. “Our constituents, and consumers everywhere, deserve better from our nation’s financial institutions.”

The following day, two regulators, the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) announced new regulatory actions to address potential consumer risks associated with the products as well as the safety and soundness of operations. The two regulators’ actions are very similar, focusing on a borrower’s ability to repay while meeting ongoing expenses, safe and sound underwriting, and limiting the numbers of loans.

According to Thomas J. Curry, OCC Comptroller, “We have significant concerns regarding the misuse of deposit advance products.”

OCC supervises all national banks and federal savings associations with combined assets of $10.1 trillion, representing 71 percent of total U.S. commercial banking assets, according to its most recent annual report.

Similarly, FDIC Chairman Martin J. Gruenberg said, “The proposed supervisory guidance released today reflects the serious risks that certain deposit advance products may pose to financial institutions and their customers.”

FDIC insures deposits in more than 7,000 banks and savings associations.

According to CFPB’s findings these actions could benefit about 12 million households that borrow payday loans each year, a potential reduction in the $7 billion in annual fees that are generated by more than 18,200 payday storefronts across the country.

CFPB’s report examined 15 million payday loans made during a 12-month period, covering more than 90 percent of the market. Both storefront and bank versions exposed consumers to the risk of being caught in a revolving door of debt. What was sold as a short-term bridge became an expensive, long-term loan. Risky loan structure, loose lending standards, sustained usage and accompanying high costs were cited as characteristics of both products.

According to the report, 75 percent of storefront payday lending revenue is derived from borrowers taking out 10 or more loans a year. For 68 percent of these borrowers, their annual income is $30,000 or less.

Among the findings:

 

  • Nearly one-in-four borrowers received government assistance or benefits such as Social Security, disability, unemployment or welfare benefits;
  • The average borrower took 11 loans in the 12-month period, paying $574 in fees for $392 in credit; and
  • Despite lender attempts to reject the use of an annual percentage rate (APR), a two-week loan with a $15 fee per $100 borrowed is actually a 391 percent APR.

 

On banks’ deposit advance loans, CFPB also found that:

 

  • Borrowers usually had much lower average balances than other bank customers, suggesting a smaller financial cushion to cover unexpected shortfalls;
  • Nearly two-thirds of consumers also incurred additional fees such as overdraft or non-sufficient funds;
  • The annual percentage rate (APR) of interest was 304 percent; and
  • Most borrowers remained in debt for at least 149 days.
  • Commenting on these findings, Director Cordray said, “We want to make sure that consumers can get the credit they need without jeopardizing or undermining their finances. Debt traps should not be part of their financial futures.”

 

Earlier this month and in an effort to heighten Capitol Hill awareness of payday lending’s debt trap, Congressman Conyers convened a briefing that included representatives from the NAACP, Native Community Finance, Consumer Federation of America, Pew Charitable Trusts, and the Center for Responsible Lending.

Also this month, CRL and National People’s Action delivered to regulators more than 150,000 petitions urging the officials to crack down on high-cost payday lending. Also part of the petition drive were CREDO and Green America and Americans for Financial Reform.

For more than a decade, payday lending has been a centerpiece of the Center for Responsible Lending’s policy efforts. The new CFPB findings strengthen earlier independent research by CRL.

Commenting on CFPB’s findings, Uriah King, CRL’s vice-president of state policy, said, “This white paper affirms our long-standing critique of payday lending. The debt trap of payday loans is now official.”

Charlene Crowell is a communications manager with the Center for Responsible Lending. She can be reached at Charlene.crowell@responsiblelending.org.

Understanding the NRA's 'Logic'

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(NNPA) Every time the National Rifle Association (NRA) or its political allies block any form of gun control, people throw up their hands in complete frustration trying to figure out why the NRA will, seemingly, never agree to any sort of reasonable gun control. The answer is quite simple: the NRA believes that any degree of gun control is a slippery slope which will inevitably lead to more restrictions on the use of fire arms. Once you appreciate the NRA’s “logic,” their positions—as backward and anti-social as they are—take on a different meaning.

What is critical that one appreciates is that the NRA is not so much focused on this or that piece of gun control legislation. I would wager that they probably care little about whether a clip has three bullets or 300. What they care about is that restrictions on any ammo clip will result, over time, in greater restrictions on guns.

It is, therefore, important that those of us who believe that it is not a great idea for mentally disturbed individuals to have access to firearms, to never assume that passionate pleas to the NRA or its political allies will work. The NRA has inoculated itself against passionate pleas. The ghosts of the children killed at the daycare center in Newtown, Conn. could appear in front of the headquarters of the NRA and it would make no difference.

In appreciating what motivates the NRA one must, therefore, understand that winning reasonable gun control, e.g., universal background checks, will not happen through television commercials or the tears of victims of gun violence. Such legislation will result from raw power and intense organizing among the public. The NRA is a very well-funded and well-organized lobby that has the capacity to put the fear of God into many elected officials. The only way to counter that is not through attempts at compromise but rather by developing a sufficient counter-force that will cause elected officials to pause before they give away the store to the NRA.

A country built on racial slavery and genocide finds it difficult to accept that there need to be controls over the use of firearms. That history of rampant, frequently uncontrolled – yet directed – violence is the toxin which is in the political system that periodically produces moments of complete insanity. This toxin leads too many people to believe that having nearly unfettered access to firearms is paramount regardless of how many innocent individuals lose their lives.

It is not the 2nd Amendment that fundamentally motivates uncompromising firearms fanatics, but the fear that was engendered through the scars resulting from the violent history of this country. Given that history, the NRA is successfully able to play a tune to which so many will dance. In the bizarre universe which the NRA has constructed, built upon and within a very real and violent history, it all starts to make sense…and is equally sickening.

Bill Fletcher, Jr. is a Senior Scholar with the Institute for Policy Studies, the immediate past president of TransAfrica Forum, and the author of “They’re Bankrupting Us” – And Twenty Other Myths about Unions. Follow him at www.billfletcherjr.com.

Message to Congress: Show Courage on Gun Safety

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“Sometimes I close my eyes and all I can remember is that awful day…But other times, I feel Ben’s presence filling me with courage for what I have to do…” - Francine Wheeler, mother of 6-year-old Ben Wheeler, one of the 26 victims of the December 14 Sandy Hook tragedy.

(NNPA) I recently took my children to see the newly released movie, “42,” the story of Jackie Robinson’s courageous struggle to become the first African American Major League Baseball player. The movie also highlights the courage it took for Branch Rickey, the owner of the Brooklyn Dodgers, to sign Robinson to a major league contract in 1947, marking the end of more than 50 years of all-White teams.

In his first year with the Dodgers, Robinson was subjected to racial taunts and threats from White fans and opposing teams, as well as hostility from some of his own teammates, who objected to sharing the field and locker room with a Black ballplayer. But Jackie Robinson exhibited a rare brand of courage, refusing to lash out as he piled up hits and blazed the base paths on his way to becoming Major League Baseball’s first Rookie of the Year. Robinson went on to have a Hall of Fame career, and until his death in 1972, he was also an all-star champion of civil rights. Dr. Martin Luther King, Jr. once described Jackie as, “… a pilgrim that walked in the lonesome byways toward the high road of Freedom. He was a sit-inner before sit-ins, a freedom rider before freedom.”

The life of Jackie Robinson is a profile in courage that has inspired generations of Americans, including millions of young children. I thought about that this past weekend as I watched the tearful plea of a mother who lost her child on December 14 at Sandy Hook Elementary School in Newtown, Conn. Just four months after the loss of her son, Ben, Francine Wheeler found the courage to deliver President Obama’s weekly address to the nation. Visibly shaken, she used the opportunity to passionately implore Congress to “come together and pass commonsense gun responsibility reforms that will make our communities safer and prevent more tragedies like the one we thought would never happen to us.”

After the Senate failed last week to display similar courage by passing bipartisan measure to expand background checks for online gun purchasers and gun show sales, it is clear that Congress could use some courage.

As the movie “42” makes clear, change occurs when people choose to show courage in the face of adversity. The film demonstrates that it takes the courage of more than one to bring about change and that courage means doing what’s right, regardless of the odds. Jackie Robinson broke the color barrier in baseball years before Thurgood Marshall argued Brown v. Board of Education and Rosa Parks took her seat on the bus. There was no blueprint for him to follow. But Congress has a blueprint to guide them as they are challenged to enact meaningful legislation to make America safer. It’s time to put the politics aside, and pick up some courage.

Marc H. Morial, former mayor of New Orleans, is president and CEO of the National Urban League.

The Shifting Sands of Sequestration

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(NNPA) Sequestration is like the sand in an hour glass. When the sand starts falling, it does not seem to amount to much. The full section of the hour glass seems not to change, at least at first. Yet at a certain moment it becomes clear that the sand is disappearing and that what was once full is now approaching empty.

When sequestration began, it began with a whimper. Discussions took place for months about the dangers of sequestration. We were led to believe that it was not very likely that it would actually happen because, after all, neither side really wanted to court such a potential disaster. We were wrong on a number of counts.

The first danger that we have to acknowledge is that sequestration actually is to the advantage of the Republicans. They are the ones looking for cuts. Yes, some of them are complaining about this or that cut, but the reality is that they are seeking cuts. In that sense, they can live with sequestration, or at least they think that they can. There is, as a result, no pressure on their side to end this.

The second danger is precisely the hour glass problem. In the beginning, there seemed to be little damage. Federal workers, of course, were upset, but many people are prepared to write off federal workers. In fact, too many people have thought about sequestration as punishing federal workers for any number of alleged evils. So, large segments of the public have been willing to let it happen.

The third danger is that no one seems to have a clear sense as to how to arrive at a budget that would actually end sequestration. That is the punch line: there are vastly different views on what government should look like and what it should fund.

Yet, with sequestration some strange things started to happen. An excellent example has been the closing of airport control towers around the country. In one story from the Midwest, pro-sequestration citizens were shocked to discover that sequestration meant that the airport control tower in their home town was going to be shuttered. Ooops! Was that supposed to happen?

Sequestration, as with other austerity measures, is a response to an imaginary crisis. The notion that the main problem facing the U.S.A. is debt is irrational. The main challenge is job creation and income. With job creation and income one gains tax revenue. Continuous cutting means fewer people on the payrolls and deeper levels of debt and poverty. One does not need to be an economist to see that reality.

Sequestration and other austerity plans are aimed at strangling the government and forcing an end to various programs that have been won over the last century. This is precisely what is meant when the right-wing suggests that it wants to return government to the size that it was under President McKinley (1898), i.e., to return government to the size that it was prior to regulations to protect our food, prior to unemployment insurance, prior to programs for the homeless, etc.

While many people have watched and yawned as sequestration has unfolded, the reality is that the sand is dropping faster and faster, and soon enough we will all find that we have been touched by further unnecessary, and frankly immoral, cuts.

Bill Fletcher, Jr. is a Senior Scholar with the Institute for Policy Studies, the immediate past president of TransAfrica Forum and the author of “They’re Bankrupting Us” – And Twenty Other Myths about Unions. Follow him at www.billfletcherjr.com.

Time to Embrace Blackopoliticonomics

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By James Clingman
NNPA Columnist

(NNPA) As George Benson sang in Moody’s Mood, “There I go, there I go, there I go…” making up words again. I couldn’t resist this one in light of our penchant to choose sides when it comes to economics versus politics. It seems we cannot understand, nor act upon, the fact that by combining the two disciplines and leveraging the resulting power from such a sensible strategy we could build a stronger base and finally put an end to being ignored and taken for granted.

So I made up this word in an effort to indoctrinate us, to condition us, to program us, or whatever you want to call it, so that Black people can stop being sacrificial lambs led to the political and economic slaughter.

We do not have to choose between the two, but as I always say, if I had to choose I would definitely take economics over politics. Why? Isn’t it obvious that while politics runs most of our lives (because we have no real economic base) it certainly does not run the lives of those who are economically empowered?

Whatever Wall Street wants Wall Street gets. The stock market hits record highs; but Black people are sinking lower in net worth and income. Black people are too busy watching the Wives of … or Scandal, or all of those BET Award shows to recognize the subordinated consumer-oriented role we are playing in the economy. Like sister Sweet Brown said about the fire on YouTube, “Ain’t nobody got time for that!”

As the war machine cranks up once again, the moneychangers are rubbing their greedy hands together in anticipation of another windfall from supplying the tools of war, the food for the troops, the equipment, the uniforms, and all the accoutrements necessary to dispose of those pesky Koreans, Syrians, and Iranians.

This is the country of the Golden Rule – He who has the gold makes the rules. Blacks aren’t making any rules; we are just playing by them, and being used as grist for profit mill. Sadly, some of us are so entrenched in the political shenanigans in Washington, so enamored by the celebrity of our president and those with whom he socializes, that we either ignore the weightier things in life or simply refuse to listen, even though we know that the road we are on leads to destruction.

Just watch the dueling news channels, MSNBC and Fox, and you will get a steady dose of Obama love and Obama hate. He can hardly do any wrong on MSNBC and can seldom, if ever, do anything right on Fox. I often wonder if these newscasters have a life outside of the bashing they do of each other’s political parties. Even sadder is the fact that Black people, who have little or no skin in the game, take sides and starting fighting one another over emotional rhetoric centered on who likes or dislikes the POTUS and his policies.

It makes little sense for us to spend 90 percent of our capital and time on 10 percent of our problem, as Khalid Al-Mansour suggested in his book, Betrayal by any Other Name. When it comes to choosing instead of combining and leveraging, Al-Mansour says, “Blacks feel helpless because they hear so many conflicting voices and so much empty rhetoric. It’s easy to throw up one’s hands, get drunk, and have another baby. The African American has been hearing about the problem and the solution since he can remember and yet, his condition always continues to disintegrate.”

We get a daily dose of political rhetoric and hardly ever take any economic medicine; it’s no wonder that many Black people see no way out of our economic/political dilemma. We have chosen political rhetoric over practical tried-and-true economic initiatives to free us from psychological bondage – a prescription that has not and does not work.

The political hacks are doing what they do because they get paid to do it, not because they necessarily believe in everything they promote. Our problem is allowing these jokers to dominate our thinking and our actions, as though what they say, or who they support, or what ideology they promote will move Black people to a position of real power rather than mere influence. And if that happens at all, whatever influence we attain will have to be channeled through them, because they are the political gatekeepers.

As Malcolm said, “…you are chumps…” when it comes to politics; and I say we are pawns when it comes to economics. However, if we combine politics with economics and not be led around by the ears by so-called leaders who only care about themselves, their political connections, and the money they make from selling us down the road, we will be much better off than we are now.

So, turn off the television and start reading more, start learning more for yourself, and start initiating and participating in efforts, where you live, to combine and leverage your collective economic and political clout – a winning strategy for sure. In other words, start practicing “Blackopoliticonomics.”

Jim Clingman, founder of the Greater Cincinnati African American Chamber of Commerce, is the nation’s most prolific writer on economic empowerment for Black people. He is an adjunct professor at the University of Cincinnati and can be reached through his Web site, blackonomics.com.

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