Republicans have been fighting against the new Consumer Financial Protection Bureau, and especially hard to stop Elizabeth Warren from becoming its head. The new bureau is tasked with protecting consumers from predatory lenders and was primarily a response to massive abuses by mortgage lenders that contributed to the recent mortgage crisis.
One of the most outspoken opponents of Elizabeth Warren was Congressman Patrick McHenry (R-NC), who was particularly nasty to her during Congressional hearings.
So it should surprise nobody to learn that McHenry has received $63,800 from lobbyists and executives for banks, mortgage companies, payday lenders, pawn shops, and other (often predatory) lenders. But what is particularly telling is that McHenry received a whole bunch of campaign donations from payday lending companies on a single day, April 20, 2011, leading to speculation that the Congressman had a campaign financing party for opponents of Warren.
Not only that, but McHenry’s wife is on the payroll of Brattle Group, an industry consulting firm that represents banks, credit card companies, and other financial industry businesses. The Brattle Group even helped produce a report for a trade association of predatory lenders that claims that payday lending never results in cycles of debt for its customers. Yeah, right.
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I don’t buy into the whole predatory lending theory. In my mind there is no such thing. There may be uninformed or uneducated citizens along with those that just didn’t care and wanted a loan no matter what. The regulations they put into place to protect consumers from abusive credit card companies and accomplished its goal, but the unintended consequence was that everybodies rate went up. Even those who had never abused their credit and paid bills on time. If the CC comps can’t punish bad credit risks then everyone pays and that doesn’t help the middle class guy (like me) who is trying to do the right thing.
Stupid people who take obnoxious loans deserve what stupid lenders who provide them get. Foreclosed on and upside down foreclosures. People who borrow and don’t/won’t pay it back deserve what stupid lenders who allow them to borrow get. Defaulted credit cards and bad credit. There was little or nothing wrong with the credit markets that would not have gotten fixed if we were’nt hell bent on trying to help stupid people and stupid businesses. Failure is part of life, if a company fails, its their fault and if a consumer wants too much the get bad credit and have to buy with cash.
Regulate the markets or more appropriatley enforce the existing regs, get rid of the ones that are broke and or revise them for current conditions and times.
PatriotSGT: NOT. During the Clinton Administration Reader’s Digest did an article on the predatory lending. About giving people the down payment. About a woman on Disability who was told that she could afford the nice house they put her in. When it came to the closing, there were ten vultures in the room. She wanted to read every paper before she signed. And she tried to. “Its all right. Trust us” She stopped reading. Sure enough it was a balloon mortgage. She was soon out on her tush. Then again I had a tax client. He and his wife are clueless and took a mortgage from his wife’s father. Another balloon mortgage and huge rates. They have no idea what is coming.
We have brains. So many of these people don’t have brains. I have discovered there is a segment of our society who can’t send e-mails no matter how much you show them. Can’t be done. I would sure like to see a study on this. I’m sure it is a huge number. They have to trust those in authority. When I worked at H&R Block, I discovered a segment of our society who had really good factory jobs, $20 an hour way back in the 80s, 90s. They could not read, they could not make out a check. They had to go on trust.
I’m sure that Starluna has met these same people.
I would just tell them that I was also a nurse. Trust would pour out of them, but then I know I wouldn’t cheat anyone.
And you may not have watched “Inside Job” which is all about the predatory lending. Eva
EBDOUG – I agree if there was outright lying to a client the lender was absolutely at fault and should be charged criminally. You kind of backed up my point though that perhaps first time home buyers should be required to attend a 1 hr class on the types of different mortgage loans or some other education, but bottom line most know what they are signing and choose to sign it not thinking or caring about the down the road consequences. It’s not that hard to go to the library, look up on the internet, or ask and attorny or a gov’t agency what an 5/1 ARM mortgage is, but they seem to in some cases “close their eyes and ears” and say whatever. Same on credit card debt. I know people who amazingly accrued 50-75k in CC debt and were fine because they thought they’d just take another home equity loan or refinance to pay it off. When the bubble burst so did their world. Ignorance is not an excuse. As for those lenders who gave out more then they should and/or approved erroneous loans and to the investors and banks that bought them, they should get what they deserve and have to eat the losses. Taxpayers should not have to bail them out. Taking the loss teaches them. The greed in my opinion was on both sides of the loans.
I know there were exceptions and but the majority I’d bet were poor, but calculated decisions. Here’s my analogy. If someone trys to sell me something especially something big like beachfront property in Kansas, I’m going to check it out. If I can’t understand it or it sounds too good to be true then I’m not going to touch it, much less buy it. If I do yeah the unscrupulous carpet baggers should be chased out of town, but I need to get my head examined. I would be just as greedy as they.
PatriotSgt, when I say “predatory lenders” I’m talking about people who purposely lie or mislead people. The Consumer Financial Protection Bureau can’t prevent people from making bad deals, but it can go after companies (like Countrywide) who falsified paperwork and did other dirty tricks.
In addition to lying and cheating (which is actually a small percentage of lenders) there are a large number of what are called “hard money” loan companies. What they do is legal, but they take advantage of people that don’t understand the nuances of finance contracts to get them to commit to either very high interest rates or other confiscatory practices.
Example of a hard money contract clause:
Payments must be made by the due date. Each late payment will be assessed a late fee of 15% of the TOTAL loan balance and interest rates may be increased by 15%. And they don’t mean making the interest rate 115% of the original rate, they mean ADDING 15% to the interest rate.
Another example: Failure to cancel the contract in writing by certified mail at least 6 months in advance will cause an automatic extension of the contract by 24 months.
Tuesdays real examples – all legal, but the kind of “predatory practice” the agency was founded to stop.
Don’t the courts have the right to modify contracts that they decide are too one-sided. Have any of these contracts been modified?
RK – The answer is probably yes there has been at least one example where a court ordered a modification, but in practice the answer is no. Few people who get caught by predatory lenders are smart enough, or have enough money, to fight the legal battle.
And while a court might rule some specific contract as too one-sided or usurious, most of the awful terms (like the automatic contract extension clause above) will not be seen by a court as being that “unreasonable”. I happen to know about that one because I inherited a contract in a previous company with that (and other) ridiculous terms, and when it came time to cancel the contract I sent three separate certified letters AND had a hand delivery made to the company. We had to go to court anyway – they sued us for failing to pay on the “automatic” contract extension. Luckily we had taken such pains to be sure we had completely met every silly clause, they had no leg to stand on and the case was summarily dismissed, but we had gone to incredible lengths, including taking photographs of every piece of equipment showing the serial numbers that we returned to them so their claim we had failed to return everything was not credible.
Arthanyel, I’m sure some people will say it was your fault for signing a contract with a company like that in the first place 🙁
Just like some people blame women who get raped for dressing too provocatively.
Just for the record – I agree IK and Arthanyel about those “over the top” companies. However, do we need another federal agaency with a multi billion dollar budget and long term pension and health care obligations to solve this? Why can’t we just create the legal framework limits or boundaries of what is allowable. For instance, set the maximum interest rate at like 25%. Make it mandatory to “opt in” in writing and illegal to have an automatic opt in. It seems like we waste so much money solving seemingly simple problems and wasting more money. We don’t need another federal agency, we just need the ones we have to do their job.