We the Fee

I couldn’t find any comment from the Republican presidential candidates on one of the most compelling financial events of the last week: Verizon’s virtually instant reversal of its $2 fee on people who pay their wireless bills over the phone or online.

Nor apparently did the White House have anything to say, even though the Federal Communication Commission’s announcement that it was “concerned” about the fee no doubt factored into Verizon’s decision. The FCC, once the cell phone industry’s best friend in Washington, D.C., has morphed into something actually looking like a consumer protection agency under Obama. It also killed the AT&T – T-Mobil merger that would have destroyed competition in the wireless marketplace and led to vastly higher prices and much worse service. The President certainly deserves a victory lap – and could use one – but remained incommunicado during his vacation in Hawaii.

Nothing from the Tea Party or Occupy Wall Street either.

Fees have become the bane of the American consumer. Airlines make more money from fees than from air fares. Banks replaced tellers with machines and now force their customers to pay $3-$5 for the privilege of accessing their own money. Hotels apply “resort fees” for using the typically impoverished gym. And then there is the coup de grace: the fee you have to pay for getting a bill in the mail – a favorite of the cell phone and health insurance companies.

Undisclosed, or at best hidden in the fine print, these fees cripple consumers’ ability to compare prices. Which becomes a nightmare if you realize you are paying too much and decide to take your business elsewhere: many of these companies require you to stay with them for two years or pay an early termination fee in the hundreds of dollars.

Verizon’s retreat from the fee was a major victory for consumers, who organized a massive internet/Twitter/Facebook protest worthy of Zuccotti Park or Tahrir Square. In November, Bank of America tried to institute a $5 fee for using a debit card – it too was forced to back down in the face of national outrage.

How then to explain the silence of political candidates and public officials? The simple answer harkens back to the Occupy metaphor. The political class doesn’t sweat the small stuff like a $2 fee – they can afford not to. But most Americans can’t afford to throw away two bucks.

Consumer Protection Only Wall Street Could Love

When it comes to finding someone to head the Financial Consumer Protection Bureau that opened its doors this week, the Republicans remind me of that Groucho Marx bit: “Whoever it is, we’re against them.”

The Republicans have a pretty straightforward position:  they’ve made it clear they’ll only be satisfied with one kind of financial consumer protection agency: one that’s dead, buried and incapable of causing the big banks any trouble.

Meanwhile, President Obama is caught between his promises to create a powerful new agency to rein in Wall Street and his need to raise $1 billion to fuel his reelection campaign.

So the president dissd the highly articulate Elizabeth Warren, who came up with the idea for the new agency and who has been a down-to-earth, no-nonsense advocate for consumers for decades, in favor of the former Ohio attorney general, Richard Cordray.

Republicans don’t like Cordray, who enjoys a decent enough reputation any more than they liked Warren. Obama could have waged a political popular fight in favor of Warren and real protection but he didn’t.

How come? On the one hand President Obama would prefer not like to see one of the signature achievements of his financial reform effort strangled in its crib.

On the other hand Wall Street doesn’t like even the whiff of anybody   implying that the bankers might take advantage of their customers let alone anybody actually trying to do something about it.

Based on his weak negotiating efforts so far, Obama and the Democrats are perfectly capable of accepting some form of the proposal offered by Sen. Jim Moran, R- Kansas, which would turn the real power over the CFPB to a committee, preserving consumer protection in name only. Obama and the Democrats can run on that with the same gusto the president is pretending that the faux financial reform actually reined the Wall Street fraud and excess that led to the 2008 financial collapse and bailout.

Democrats and Republicans are competing hard, less for the affections of voters and more for the mountains of cash beckoning to them from Wall Street and corporate coffers.

In calculating whether to keep their promise to protect consumers or whether to bend to Wall Street, the president and the Democrats know that the Democratic voters have no other place to go right now; they are unlikely to swing to the “We’re against it” party even as much as Obama disappoints them

But Obama and the Democrats know Wall Street, which was generous to them in 2008, does have a choice. The Republicans are wooing Wall Street hard, though the Republicans’ knuckleheaded stance on the debt ceiling makes them look more like surly juvenile delinquents than a party with an interest in actually governing.

Time will tell whether the Democrats or the Republicans will actually allow the new agency to do real consumer protection or if they will thwart the majority’s will in favor of Wall Street’s.

 

 

Around the Web: Landmark or Pit Stop?

I understand why people feel the need to tout the historical significance of the financial reform package that passed the conference committee. The president needs it politically and those who support him want to give him credit for getting anything at all in the face of the onslaught of bank lobbyists. Lots of folks worked very hard against tremendous odds to get something passed.

But I think a more sober analysis shows that what’s been achieved is pretty modest. It hands over many crucial details to the same regulators who oversaw our financial debacle.

Summing up, Bloomberg reports: “Legislation to overhaul financial regulation will help curb risk-taking and boost capital buffers. What it won’t do is fundamentally reshape Wall Street’s biggest banks or prevent another crisis, analysts said.”

Zach Carter characterizes it as a good first step. The Roosevelt Institute’s Robert Johnson writes: “This first round was not the whole fight. It was the wake-up call and the beginning of the fight. Rest up and get ready. There is so much more to do.”

The question is when we’ll get the chance to take the additional steps that are needed. The public is skeptical that the new rules will prevent another crisis, according to this AP poll. The Big Picture’s Barry Ritholtz grades the various aspects of the reform effort. Overall grade? C-. Top marks go to the new minimum mortgage underwriting standards. But legislators get failing grades for leaving four critical issues on the table: “to big to fail banks,” bank leverage, credit rating agencies and corporate pay.

Ritholtz saves some of his harshest evaluation for the proposal to house the new consumer protection agency inside the Federal Reserve, which he finds “beyond idiotic.”

Soldiers Lose Out to Yo-Yos

Here’s a snapshot that puts into sharp focus where we are politically this summer:

In a showdown between the U.S. military and the nation’s car dealers over protecting soldiers from predatory lending, the car dealers won.

Even though the commander-in-chief said he wanted the fighting men and women to be shielded by the proposed new consumer protection agency when they went to get a car loan, congressional Democrats Tuesday sided with the car dealers, who would prefer not to face any additional regulation, thank you very much.

After all, they argue, we didn’t cause the financial meltdown, so leave us alone.  But according to the Better Business Bureau, new car dealers rank fifth in complaints about lending practices.  Used car dealers do a little better; they rank seventh.

The military says its soldiers, focused as they should be on other matters, are particularly vulnerable to predatory lending.

Rosemary Shahan, president of a Sacramento-based nonprofit, Consumers For Auto Reliability and Safety, told the Chicago Tribune that auto dealers pack financing contracts with costly items such as extended warranties and insurance to cover loan payments if the vehicle is wrecked.

One of the more obnoxious forms of predatory lending is something called a yoyo loan. The buyer is told they can drive the car off the lot with a deal they can’t refuse – subject to loan approval. Then the dealer calls back and tells the buyer the initial loan wasn’t approved but they can have the vehicle at a higher interest rate.

The car dealers argue that they’re already subject to other forms of regulation. But they also have other means of persuasion: the National Association of Auto Dealers is among the elite top 20 campaign contributors since 1989, according to the Center For Responsive Politics, with more than $25 million in contributions. During 2009 and the first quarter of 2010, the National Automobile Dealers Association and another group that represents foreign-car franchises, the American International Automobile Dealers Association spent almost $3.5 million to lobby on financial reform and other issues, the Center For Public Integrity reported.

Call President Obama and let him know we need him on the front lines in the battle against predatory lending.

Consumer Protection, Fed Style

One of the big unsettled issues for the congressional conference committee considering financial reform is whether to create an independent financial consumer protection agency.

That’s what the House bill does. The argument for an independent agency is that consumers need a strong advocate in the financial marketplace.

The Senate decided that an independent consumer financial watchdog wasn’t needed, and that the consumer financial protector should live in, of all places, the Federal Reserve. After all, the Fed already has responsibilities to “implement major laws concerning consumer credit.” We all know how well that worked out.

The problem is that the Fed has functioned as a protector of the big banks, never more so than since the big bank bailout and in the battle over financial reform.

Despite promises for greater transparency, the Fed has repeatedly resisted attempts to get it to disclose all the favors it’s done for financial institutions since the bailout. If the Fed had put up half the fight against bank secrecy that it’s waged on behalf of bank secrets, consumers would never have been subjected to all those lousy subprime loans.

It is telling that no actual consumers or consumer organizations actually think that housing consumer protection inside the Fed is a good idea. Who does? The big banks and the Fed.

For those who still need convincing that a Fed-housed consumer protection agency is a bad idea, the Fed has provided a more recent example of what it means by consumer protection.

Last month it unveiled a database that’s supposed to help people choose the most appropriate credit card.

The database might be useful to professional researchers but provides little that would be of use to ordinary consumers. It presents the credit card statements by company but provides no other search functions, such as comparing credit cards by interest rates or fees.

Some of the presentation suggests that the information was dumped onto the Fed’s website without much thought. Bill Allison, who is editorial director of the Sunlight Foundation, a non-profit organization that digitizes government data and creates online tools to make it accessible to readers, said the following:

“I don't think there's anything wrong with posting it, but this is obviously not data you can search,” Allison told Bailout Sleuth.

He also pointed out that some of the agreements themselves aren't particularly informative. He cited the entry for Barclays Bank Delaware, which notes that the bank may assess fees for late payments and returned checks. “The current amounts of such Account Fees are stated in the Supplement,” the agreement reads.

But that supplement is not contained in the Fed's database. The Fed promises to go back and refine its database. But if they’re not devoting the resources to get this right now, with their ability to protect consumers under the microscope, do you really expect they’ll do better later?

An independent consumer protector is not simply some technicality to be bargained away. We’ve learned from the bubble and its aftermath that consumers need all the help they can get. Contact your congressperson and tell them you’re still paying attention to the reform fight. Check out your congressperson and see if they’re on the conference committee. If they are, your voice is especially important. While you’re at it, contact the president and remind him we won’t settle for any more watering down of financial reform.

Around the Web: On to Financial Reform

With the Obama administration and the Democratic leadership declaring historic victory on health care reform, the next big item could be fixing the troubled banking system.

It could make the battle over health care look like a walk in the park. The financial industry, Republicans and Blue Dog Democrats are all lined up to kill or weaken it.

They’ve already succeeded in getting Sen. Chris Dodd to weaken his reform proposal, which the Senate Banking Committee passed Monday on a 13 to 10 party line vote. Here’s the Atlantic’s take, including what Dodd had to say Monday.

Getting Dodd to soften his stance probably wasn’t that tough. He’s traditionally a staunch ally of Wall Street and only took a strong stance when it looked he was going to have to face angry voters. But then Dodd dropped out of the race, became a lame duck and returned to form as the financial industry’s best friend.

For example, Dodd has abandoned support for a strong independent financial consumer protection agency, instead placing it within the Federal Reserve, which has ignored consumers in the past even though it had authority to protect them. In National Journal’s Clive Crook’s assessment, Dodd’s proposal will enshrine “too big to fail” banks in law rather than fix the problem.

Now the full Senate will consider it. Here’s Barry Ritholtz’s analysis of what should be on the final bill.

Around the Web: Rewarding Fed Failure

Bottom line on the new Chris Dodd reform proposal: much watered down from his earlier proposal and maybe even weaker than the weak House bill.

Here’s the summary from A New Way Forward: “The bill contains no real solution to too-big-to-fail, no real enforcement guarantees, the bad guys are off the hook, the financial system will continue to be as big and dangerous and full of risk taxpayers will likely own. Dodd made a few good steps forward and major steps backwards”. The rest of their analysis is here.

From the Atlantic Wire, a solid roundup of assessments. The takeaway: Too many concessions to the big banks, and it is still faces many obstacles to passage. And who exactly besides Chris Dodd and Wall Street thinks it’s a great idea to house consumer protection within the Federal Reserve? Only last year, Reuters reminds us, Dodd was labeling the Fed “an abymsal failure."

But Elizabeth Warren, the congressional bailout monitor who has campaigned aggressively for strong reform, including an independent agency to protect financial consumers, offered a lukewam endorsement of Dodd’s plan.

I’ll give Alan Sherter the last word. When Dodd says that he doesn’t have the votes for an independent financial consumer protection agency, what he really means is that “lawmakers have more to gain by advocating the interests of banks than those of consumers.”

Around the Web: Declaring Independence on Consumer Protection

Read Reuters’ economic blogger Felix Salmon’s intriguing takeaway from the weekend’s depressing news that Repubs have rejected even Chris Dodd’s watered-down, weakened version of the financial consumer protection agency. Salmon’s prescription: the Dems should accept whatever the key Republican senators, Richard Shelby and Bob Corker, want. It won’t be that much worse than Dodd’s current “toothless” proposal is now.

Then, consumer advocate Elizabeth Warren should team up with a non-governmental organization like the Center for Responsible Lending and perform the function of a real independent consumer financial protection agency, warning people about particularly bad loans or institutions that are rip-offs, and commending good ones.

Are the Republicans really thwarting the Democrats? Or do Democrats not get anything done by design? Salon’s Glenn Greenwald tells you how and why the Democrats have perfected ineffectiveness and timidity into a high art. Read it and weep.

Meanwhile, the old dinosaur print media isn’t dead yet. New York Times’ columnist Gretchen Morgenstern has a scathing take on the naiveté of Fed chair Ben Bernanke’s takes on Goldman and their Greek default swaps. As for Bernanke’s “quaint” insight that the SEC will probably be interested in looking into the matter, Morgenstern writes: “If the past is prologue we might see a case or two emerge from the inquiry five years from now. The fact is that credit default swaps and other complex derivatives that have proved to be instruments of mass destruction still remain entrenched in our financial system three years after our financial system was almost brought to its knees.”

Strong Financial Consumer Protection Not Optional

While a key Democrat has been wobbling in his support for an agency to protect financial consumers, President Obama and members of his administration have recently come out strongly in support.

But will they fight for it in the face of relentless opposition from bank lobbyists, Republicans and Blue Dog Democrats?

The Obama administration’s abandonment of the public option in the health care debate provides a grim omen for the financial reform battle.

Some have compared the public option to the Consumer Financial Protection Agency. Both enjoyed broad public support but have been fiercely opposed by the businesses they would challenge: insurance companies fought hard against the public option while financial institutions fiercely oppose the consumer protection agency.

Aside from industry opposition, the public option and the CFPA shared the potential to provide a shield for consumers against abuses.

At various times, the president also supported the public option. Today his spokesman said the public option just didn’t have the votes. But that assessment was something of a self-fulfilling prophecy. There’s little evidence that President Obama put much pressure on legislators in support of the public option, and his ambiguity in public didn’t help it, either.

After initially supporting the public option, the president signaled it was not a crucial aspect of health-care reform.

But the public option offered the only potential check on the insurance companies, which are about to get a glut of new customers forced to buy policies from them. Democrats are suggesting a tepid combination of subsidies and insurance cooperatives that won’t provide meaningful accountability for the insurance companies.

Now Republicans are digging in their heels in opposition to the CFPA, with the usual rhetoric about wasteful government bureaucracy. It’s nothing but a thinly disguised fundraising pitch to woo the financial industry back from Democrats. Chris Dodd, soon to be retired head of the Senate Banking Committee, has suggested the consumer protection function might co-exist within some other agency. That’s a very bad idea. Just look at how much consumer protection the Federal Reserve, Treasury Department and other agencies accomplished in the housing bubble and its aftermath.

If that’s not enough to convince you, look at the recent shenanigans by banks and credit card companies piling on new fees.

The New York Times reported this morning how banks are getting ever more aggressive in socking their customers with higher over-draft protection fees. Credit card companies, even in the face of new regulations, are finding new ways to gouge their customers, charging fees for paying off your card on time, or even charging fees for not using a card.

There’s nothing stopping the Treasury and the Fed from using their bully pulpits to rail against these continuing abuses now. But they don’t. They ignored warnings about predatory lending during the housing bubble and have shown no stomach for protecting consumers since the economic collapse.

Dodd is supposed to unveil his latest version of financial reform this week. Let President Obama and your senators know that you won’t be fooled by financial reform in name only. Whether President Obama is capable of staying the course we don’t know. But we do know we need a strong, independent Consumer Financial Protection Agency.

Good Riddance to a Bipartisan

Let's take a closer look at one of the most overhyped buzzwords in politicspeak: bipartisanship.

Especially as it relates to the battle for financial reform, the call for bipartisanship threatens to drown the entire debate in meaningless twaddle.

Take for example the retirement announcement by Evan Bayh, who said he was calling it quits because he just couldn’t take how politically divided the Senate had become. Nearly the entirely Washington establishment, including the press corps went into a mad swoon over Bayh, lamenting the sad lack of bipartisanship.

I shed no tears for Bayh, a member of the Senate Banking Committee who was MIA in the debate over financial reform, and was among those moderate Democrats who was expected to oppose one of the most important proposals: creation of a stand-alone financial consumer protection agency.

Bayh did lead a group of Democrats whose idea of leadership was compromising with Republicans during the Bush Administration. What really got Bayh’s juices going was fiscal discipline and budget-cutting. Now that the Republicans have shown that they have no interest in reciprocating Bayh’s spirit of compromise, he’s got no one to play with in the Senate.

It was left to the astute cable TV comedian, Bill Maher, and a lone blogger on the Huffington Post to identify Bayh, for what he really is: A Democrat who represents corporate interests in the U.S. Senate.

During his 20-year political career, Bayh was a fundraising juggernaut. As far as I can tell, no one in the mainstream media dwelled on the $26.6 million in campaign contributions Bayh garnered, as reported by the Center for Responsive Politics. His top contributor was not from Indiana. That would be the financial giant Goldman-Sachs, which ponied up more than $165,000, edging out the drug company Eli Lily for the top spot. The third top contributor was Indiana-based Conseco Inc. an insurance company. Another bailout beneficiary, Morgan Stanley, was right up there too, with more than $81,000 in contributions.

Finance and securities was the second largest industry in contributions to Bayh, outdone only by corporate law firms.

Freed from the constraints of politics, Bayh’s first act after announcing he wouldn’t run again was to stick up for one of his beleaguered constituents – the student loan industry. The administration is proposing to stop subsidizing that industry and loan directly to students. Bayh’s against that, concerned that Indiana-based student loan servicer Sallie Mae will lose jobs.

If this is bipartisanship, it’s exactly what’s wrong with the Senate, where health care and financial reform are now gasping for life, in the stranglehold of supposed centrists like Bayh and another retiring Democratic senator, Chris Dodd of Connecticut. Dodd is also a top recipient of contributions from the financial sector. You have to wonder whether Bayh and Dodd’s next stop will be top lobbying firms, where they can continue to earn top dollar from Wall Street.

We don’t need more compromise with Goldman-Sachs and Sallie Mae under the guise of bipartisanship. Let’s retire all the blather about it along with Bayh. We don’t need more senators like him who do Goldman Sach’s bidding and then piously whine about the poisonous atmosphere in Washington. We need real reform and we shouldn’t settle for politicians who don’t have the guts to fight for it.