Plain Vanilla
| Thu Sep. 24, 2009 2:47 PM PDT
I've been mulling this over ever since I first read it. It's from a story about Barney Frank's decision to jettison one part of Obama's plan for a new Consumer Financial Protection Agency:
An Obama proposal that Mr. Frank rejected would have required banks and other financial services companies to offer so-called plain vanilla products, like 30-year fixed mortgages and low-interest, low-fee credit cards.
That proposal set off criticism by Democrats and Republicans, some with close ties to the banking industry, that it was the first step toward having government bureaucrats approve and disapprove an array of products.
The more I mull, the more pissed off I get. Yes, this would be a very direct government intrusion into the financial market, but that's the whole point. That's exactly why it might actually work and exactly why politicians "with close ties to the banking industry" don't like it.
Look: the finance lobby would prefer that this bill — and especially the CFPA — simply go away. Failing that, they'd like the CFPA's writ to be so circumscribed and its rules so intricately written that they can figure out easy ways to ignore it. As we know all too well, they're pretty good at that. The only way to keep this from happening is to write some very plain, very clear regulations that simply can't be evaded.
And why shouldn't we? Forty years ago Congress passed the Truth in Lending Act which, among many other things, limited consumer liability for stolen credit cards to $50. That was a pretty direct intrusion into the financial market, but it worked: it was a plain and simple requirement with no wiggle room and no loopholes. If you offer credit cards to consumers, you're responsible for all losses above $50. And guess what? The credit card industry seems to have done pretty well for itself despite having the TILA jackboot on its throat all this time. And consumers have been saved billions of dollars.
(Plus there's this bonus: because banks are responsible for losses over $50, they've put a ton of time and energy into figuring out how to limit losses. They make sure their customers have fast and easy access to 800 numbers to report stolen cards. They have sophisticated transaction monitoring software and they call you proactively if they see spending patterns that suggest fraud. They have reward programs for merchants who confiscate cards. Etc. Do you think they would have done any of this if you were on the hook for bogus charges? Nope. Instead, they would have spent the past four decades claiming that stuff like this simply wasn't economically feasible and consumers needed to be more careful with their credit cards.)
The "plain vanilla" requirement would accomplish something the financial industry hates: it would make it easy for consumers to compare products. Even if you're planning to buy something non-vanilla, the price of the vanilla product provides a baseline that makes it easier to compare companies to each other and easier to see exactly how much you're paying (and what extra terms you're agreeing to) for the more complex products. That's good for consumers.
And it's something we wouldn't have been afraid to insist on 40 years ago. So why are we now? Felix Salmon answers: "There’s no good reason for this capitulation, except for the financial lobby has so effectively captured Congress that no reform would be able to get through with such a common-sense provision in place....I fear that by the time Congress is done, the Consumer Financial Protection Agency won’t be able to protect consumers at all — and that’s assuming it’ll even exist."
UPDATE: A eulogy here from Rortybomb. Worth a quick read.
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"Plus there's this bonus:
Submitted by Art Eclectic on Thu Sep. 24, 2009 3:05 PM PDT.
"Plus there's this bonus: because banks are responsible for losses over $50, they've put a ton of time and energy into figuring out how to limit losses. They make sure their customers have fast and easy access to 800 numbers to report stolen cards. They have sophisticated transaction monitoring software and they call you proactively if they see spending patterns that suggest fraud."
Yay! What we need is for the same protection to apply to plain old ...ahem...vanilla retail bank accounts. You can clear up a fraudulent charge on a credit card within hours. Good luck doing that when it comes to your checking account -- all of which is precisely why you as a consumer have more protection when paying via credit card than by debit card. Why is it so hard to have protection on both? And while we are at it, why is it a nightmare to salvage your life after identity theft? Why are data aggregators allowed to sell data on you without your consent? Why is it next to impossible to get errors cleared off your credit report?
This is why we need a consumer protection agency. This is why we need Elizabeth Warren running it.
We need a consumer
Submitted by Robbrian on Fri Sep. 25, 2009 10:01 PM PDT.
We need a consumer protection agency like "yesterday."
Look at what has happened to millions of homeowners over the past two years as banks foreclosed on what they wrongly and knowingly claimed was property owned by the banks. Millions of homeowners have been defrauded by foreclosure proceedings because Banks and Courts have not followed the law.
A landmark ruling in a recent Kansas Supreme Court case may have given millions of distressed homeowners the legal wedge they now need to avoid foreclosure.
In Landmark National Bank v. Kesler, 2009 Kan. LEXIS 834, the Kansas Supreme Court held that a nominee company called MERS has no right or standing to bring an action for foreclosure. MERS is an acronym for Mortgage Electronic Registration Systems, a private company that registers mortgages electronically and tracks changes in ownership.
The significance of the holding is that if MERS has no standing to foreclose, then nobody has standing to foreclose – on 60 million mortgages. That is the number of American mortgages currently reported to be held by MERS. Over half of all new U.S. residential mortgage loans are registered with MERS and recorded in its name. Holdings of the Kansas Supreme Court are not binding on the rest of the country, but they are dicta of which other courts take note; and the reasoning behind the decision is sound. (E. H. Brown)
MERS is basically a little tap dance that the banks amazingly dreamed up to pretend that the ownership of the note was under the MERS shell. They point to it in the mortgage documents that recent purchasers signed- and in the agreements between the banks and MERS, and they point to it in the courts, but if you picked up the shell it would not have the ownership pea under it because....it is not the banks that get to name a nominee; it is the REIT that must do it. A big tip off is that once default is declared MERS cannot come in on the foreclosure.
The bottom line is the IRS rule. The REITS and MERS are two separate animals. The REIT is what the investor invests in; he does not buy shares in MERS. The IRS says the REITS must own and hold the title to the property in their name. . . .period - end of discussion. It does not say Fannie MAE may hold them; nor can Freddie. In fact the IRS law says the opposite; it says that while a REIT can have a nominee act in its name, that nominee cannot be a finance or insurance company, and whomever they do pick has to be in writing, and it must be registered and recorded with the SEC, and it has to be on the EDGAR.gov web site for the public to see.
None of the REITS have made MERS their nominee. The banks made MERS their nominee for the property they do not own, and if they do own it, then they are holding stolen property that belongs to the REIT. Same goes for Freddie and Fannie. When a foreclosure is contested, the owner was getting a letter from Freddie saying: Hey I own the property . . .but that was before the 41 year old head committed suicide. I guess he goofed, admitting that he had ownership, when he was not supposed to; now they send letters with the banks and Freddie's or Fannie's name together. A foreclosure partnership????? I think not.
The IRS also says that a REIT cannot dispose of a property that is not foreclosed, and there are sever penalties if they do . Between 5-7 are allowed depending on the year the REIT was formed and they will just make you owe taxes for the full amount you sold them for and anyone involved in the transaction is libel for the taxes- all the way down the line; if you go over that number, the IRS brings out the gong and there is no more REIT.
Read the IRS rule numbers 856-859. You cannot find on the EDGAR files any REIT, domestic or foreign, that has named MERS as a nominee to foreclose for them. (Andrea Silverthorne)
The banks arranging these mortgage-backed securities have typically served as trustees for the investors. When the trustees could not present timely written proof of ownership entitling them to foreclose, they would in the past file “lost-note affidavits” with the court; and judges usually let these foreclosures proceed without objection. But in October 2007, an intrepid federal judge in Cleveland put a halt to the practice. U.S. District Court Judge Christopher Boyko ruled that Deutsche Bank had not filed the proper paperwork to establish its right to foreclose on fourteen homes it was suing to repossess as trustee. Judges in many other states then came out with similar rulings.
Following the Boyko decision, in December 2007 attorney Sean Olender suggested in an article in The San Francisco Chronicle that the real reason for the bailout schemes being proposed by then-Treasury Secretary Henry Paulson was not to keep strapped borrowers in their homes so much as to stave off a spate of lawsuits against the banks. Olender wrote:
“The sole goal of the [bailout schemes] is to prevent owners of mortgage-backed securities, many of them foreigners, from suing U.S. banks and forcing them to buy back worthless mortgage securities at face value – right now almost 10 times their market worth. The ticking time bomb in the U.S. banking system is not resetting subprime mortgage rates. The real problem is the contractual ability of investors in mortgage bonds to require banks to buy back the loans at face value if there was fraud in the origination process....
What would be prudent and logical is for the banks that sold this toxic waste to buy it back and for a lot of people to go to prison. If they knew about the fraud, they should have to buy the bonds back.” (E. H. Brown)
These banks have to be held accountable for hocking stolen property, and more importantly for destroying its value for the investors of the REITS with contrived and illegal appraisals, because they used duress sales which are not arms length. There is already a law firm suing Wells Fargo because they lowered equity lines using short sales and foreclosure values.
Yes, we need a consumer Protection Agency for many, many reasons and if the above is not a sufficient reason then millions more are doomed to the guile and greed of the banksters.
In the absence of freedom there is no creativity and where there is no creativity there is no progress.
It has been the unintended
Submitted by Anonymous (not verified) on Thu Sep. 24, 2009 3:26 PM PDT.
It has been the unintended destiny of the Obama administration to reveal that voting for a Democrat for Congress is about the most futile exercise available to man. He will end up destroying his own party simply by creating the expectation it might act on its alleged principles.
They ain't got any-except their own institutional power and how much money they can extort from it.
I am not really all that
Submitted by Napoleon (not verified) on Thu Sep. 24, 2009 3:48 PM PDT.
I am not really all that particularly liberal, but Obama has totally lost me. He really is incompetent, or something.
Huh?
Submitted by Douglas McClean (not verified) on Thu Sep. 24, 2009 4:27 PM PDT.
If your evidence that Obama is incompetent is that Congress is still in the pocket of industry, you really must have been expecting a miracle.
In other news, I'm still waiting for the free unicorn I imagine he promised me.
Ha! I got my free unicorn,
Submitted by Anonymous (not verified) on Thu Sep. 24, 2009 5:53 PM PDT.
Ha! I got my free unicorn, just as promised.
I do wish though, I had paid for the premium shipping option. :(
Chris Dodd
Submitted by steve duncan on Thu Sep. 24, 2009 5:55 PM PDT.
I listened to an interview with Dodd on NPR his morning. He was put on the spot about this proposal and his disagreement with it becoming law. The reporter questioned his objections from several angles and every damned answer was pitch perfect in its nonresponsiveness, evasion, abstruseness and general fricking bullshit & lying. I was very disappointed. Democrats=consumer friendly? Not on this one.
energy
Submitted by Paul Camp (not verified) on Thu Sep. 24, 2009 6:00 PM PDT.
", they've put a ton of time and energy into figuring out how to limit losses."
Yeah, like (Capital One's latest trick) making you call and ask for permission, for preclearance, before making any "large purchases." How large is large? They won't tell. We learned of this last week when my wife tried to buy a couple hundred dollars worth of throw pillows, the charge was declined, and when she called the handy 800 number, was told "Oh you have to let us know about that purchase before you make it. This is our program to help you limit fraud."
A perfect illustration of catch 22 re banking action
Submitted by The Lounsbury (not verified) on Fri Sep. 25, 2009 11:04 AM PDT.
The bank will not define what is large because:
(i) the monitoring software adjusts the definition dynamically based on loss history, regional patterns (large is also defined by where spending is geographically) and
(ii) defining large immediately gives scammers a threshold to work with, and with information leakage, communicating that to a customer means (eventually) the world, and giving colour as they say on the details makes it worse;
(iii) hard definitions always are sticky and thus hard to evolve given (a) nominal currency changes and (b) inflation.
This illustrates why, while consumer protection is a very valid complaint relative to finance (retail especially), there is no way to be transparent and meet the whinging hordes complaints as such.
Usury
Submitted by Joe S. (not verified) on Thu Sep. 24, 2009 6:28 PM PDT.
The most annoying thing about the CFPA was that it conceded usury caps in draft form. Talk about negotiating with yourself! At least in health care reform, the public option won't go until the very end (and hopefully not even then.) It was a decent piece of legislation as drafted. We'll be lucky if the enacted form doesn't repeal the 13th Amendment, and permit outright debt slavery.
We are already debt slaves
Submitted by Robbrian on Fri Sep. 25, 2009 9:25 PM PDT.
We are already debt slaves thanks to the Federal Reserve's Usury System. GDP $17 trillion, Total Debt of all kinds $120 trillion (includes unfunded liabilities.)
We need to resolve the issue of whether the Fed will continue to usurp our sovereignty by creating debt through ledger entries, rather than have the Treasury issue legal tender and enforce fractional reserve levels at or near 100%.
Moreover, the 49 States that have not established State Banks like that of N. Dakota really need to explore that option since N. Dakota is the only State with a real budget surplus. Their State Bank replaces the functions of the Federal Reserve's regional Banks and in so doing offers the State a much lower cost of financing public needs.
Wyoming has a surplus driven mainly by energy industry operations which are not permanent like a State Bank.
A fourth solution would be for the Congress to order the Fed to implement a moratorium on interest charged to the Treasury when it seeks, from the Fed, financing for public sector programs.
Fifth, Congress could also refuse to pay debt service to the Federal Reserve account which would save $4-6 hundred billion in this and subsequent years. Income tax revenue could then, for a change, finance a great many of the nations needs instead of being siphoned off by the Fed for its balance sheet and payments to bond holders.
Since we are a nation in bankruptcy--we have to borrow to pay our debts--we as a people should do something about it. Demanding an end to the Fed is a good first step. While an audit, as proposed by Ron Paul, would be helpful, it is obvious to all that the Fed failed to protect our monetary system, and indeed was part of the reason for its near collapse. Yet we must endure the charade of audits and reviews. We just don't have the stomach for the tough choices when their is a clear cut trail of misfeasance.
Maybe when the foreclosure debacle (See Kansas Judge disallows MERS as agent for foreclosures) gets worse in the next three months folks will take notice and do something.
"In the absence of freedom there is no creativity and where there is no creativity there is no progress." RB 1972
Barney Frank: Hank Paulson's most admired Congressman
Submitted by DevilDog on Thu Sep. 24, 2009 9:38 PM PDT.
Now, we know why.
this is so uncharacteristic
Submitted by howard (not verified) on Fri Sep. 25, 2009 6:51 AM PDT.
this is so uncharacteristic of barney frank that i wonder what in the world his explanation is. other democrats selling out - not a surprise.
barney selling out - a surprise.
How far should they go?
Submitted by MarkH on Fri Sep. 25, 2009 10:26 AM PDT.
Maybe Obama has been thinking about the health insurance public option and let that influence his thinking on this.
I tend to agree with Barney Frank. I think that for the nation credit cards are very important, but for many individuals they are not. There isn't a dearth of them available to the public and competition isn't a big problem. I suggest there is no place in this for the gov't to force them.
OTOH, there should be significant regulation to protect the consumer. Requiring consumer services (requests for information, complaints, requests for co. rules and customer rights and so on) is where the government force might reach it's limit. A limit on interest rates is certainly within the 'consumer protection' sphere. As a part of the larger Consumer Protection concept there might be another gov't purpose in arbitrating complaints if both consumer and company would rather avoid a court.
Health care is essential, but credit cards are different.
Drum, as usual badly wrong on banking (bis)
Submitted by The Lounsbury (not verified) on Fri Sep. 25, 2009 11:13 AM PDT.
First, the clearest complaint relative to this article is it tells you nothing.
Second, I am very sympathetic to a fight to set up a separate protection agency for consumer interests (defined as retail consumers, not high income). I do believe that Prudential (i.e. system security) oversight is not in real accord with Consumer Protection oversight. I would suggest that concentrating on a root and branch structure reform is rather more important than, as Drum continues to do, whinging on about specifica financial ratios - in particular when it is not in any way clear said issues are of driving relevance to the financial crisis (e.g. French banks to date, with higher leverage ratios seem to remain stronger than US banks), and the clear problems / drivers to date are related to the US specific balkanisation of the regulatory system which allowed massive bad inputs.
Third, while I have nothing against law requiring financial institutions that meet certain criteria to offer "plain vanilla" regulatory approved products - although I note from what I have seen this doesn't really do what people like Drum think it will do - getting regulators too involved in product definition / approval is - given my experience - a long run losing game. Setting broad principals and then ensuring the proper regulatory culture (and in this a consumer dedicated institution helps).
Drum continues to bark down blind alleys. I am honestly disappointed. And Felix, although entertaining, is a whanker.
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