New U.S. Consumer Watchdog Makes First Appearance in Birmingham
January 19th, 2012
President Obama’s new consumer watchdog Richard Cordray made his first public
appearance — after his controversial recess appointment — at a public hearing on
the predatory practices of payday lenders in Birmingham, Alabama (see video and story below).
by Glynn Wilson
BIRMINGHAM, Ala. – The Obama administration’s controversial new consumer watchdog Richard Cordray made his first appearance outside of Washington, D.C. here Thursday to take part in a public hearing on the predatory practices of payday lenders, which critics say rip off consumers and hurt the economy.
Cordray was appointed director of the Consumer Financial Protection Bureau by President Barack Obama during the holidays in December while Congress was adjourned. Some Republicans, including Senator Richard Shelby of Tuscaloosa and Rep. Spencer Bachus of Birmingham have opposed the nomination on procedural and philosophical grounds, so the case has landed in court.
While protesters outside the Birmingham-Jefferson Convention Complex carried signs opposing Shelby and Bachus, Cordray led a discussion to a standing-room-only crowd about loan shark-style collection practices and illegal access to the bank accounts of borrowers in some cases. The executive branch agency gets its authority from the Dodd-Frank Act to regulate financial institutions that are not banks, and due to the impact of the sometimes “outrageous” interests rates customers end up paying, Cordray said, the activity needs to be investigated and perhaps even outlawed.
“We know that some payday lenders are engaged in practices that present immediate risks to consumers and are clearly illegal,” Cordray said. “The illegal practices are outrageous. We want to root them out where we find them. We are here to make sure that fundamental fairness for all consumers is assured when they need to borrow money.”
Examples include unauthorized debits on a person’s checking account, even done by online fraudsters that sell the information, as well as aggressive debt collection tactics where collectors pose as federal authorities, threaten borrowers with criminal prosecution and garner wages improperly, even harassing them and their families, friends and co-workers.
Birmingham was chosen for the first field hearing since the city is a hotbed of the predatory activity, prompting the City Council to recently pass a moratorium on new payday lenders, and since Alabama has more payday lenders than just about any other state.
Cordray said he was in town to listen to testimony about the situation and to consider potential changes to regulations and the law, although the panel and the audience was stacked with representative from big banks who would like nothing more than to see the quick cash shops closed down.
The business of granting short-term loans backed by weekly or monthly checks, in some cases Social Security checks, is a growing field. Estimates indicate the practice generates $7 billion a year in fees, while 29 million people now have outstanding payday loans. In this state, regulations allow lenders to charge up to 17.5 percent interest over a maximum loan period of 31 days, but critics say that amounts to 456 percent over the course of a year, which often places consumers in an unsustainable cycle of never-ending debt they have no hope of ever paying off.
Cordray and bureau staffers heard formal testimony from four executives representing payday lenders, traditional bankers and credit unions, and from four consumer advocates, as well as comments from about a dozen members of the audience in a room which was packed with about 500 people or more. Convention Center staff had to set up more chairs outside the back door and add an audio feed so people could hear out in the hall.
In spite of the legal and political controversy surrounding Cordray’s appointment, Rep. Terry Sewell, who introduced Cordray, said, “issues about consumer protection really require our immediate attention, and we can no longer wait.”
Sewell also introduced U.S. Attorney Joyce Vance, who indicated that 11.5 percent of households in the state had no checking or savings account, according to surveys, and 20 percent have had to turn to a payday lender, a check cashing place or a pawn shop at one time or another, making Alabama sixth in the nation in citizens without bank accounts. Birmingham ranks fifth in the same category among cities.
“We all know the laws that exist were insufficient to prevent the financial meltdown,” Vance said, so her office has made it a priority to look for “fraudulent or predatory practices.”
“The lack of regulation and oversight in this industry created an opportunity for those who were unscrupulous to take advantage of those who are most vulnerable,” she said. “My job is to protect all of the citizens including those who are vulnerable.”
AFL-CIO President Al Henley observed the hearing on behalf of thousands of union members in Alabama who sometimes have fallen prey to the “loan sharks” in a state with one of the highest per capita rates of the practice around the country.
He’s looking to see some legislation to at least lower the interest rate people can be charged. Some states impose a 36 percent cap, as does the U.S. military.
“We think the exorbitant rates they charge are just gouging the people,” he said. “We’ve got to change the law to protect regular working folks from these predatory lending practices.”
Attorney Thomas G. Keith, consumer law advocacy director of the non-profit Legal Services of Alabama, submitted written comments to the consumer agency. He sees a number of Social Security recipients targeted by predatory lenders who gain access to their bank accounts and withdraw the interest money before they can pay rent, buy food or medicine. When they can’t pay the loan off at the end of the week or the month, the interest just keeps piling up.
“This is very, very hard on them,” he said. “The people I see are just not able to pay the loans at the end of the month when they come due.”
Birmingham radio personality Frank Mathews said the big banks are the problem when they engage in red-lining and won’t lend money to poor people and minorities, which drives them to payday lenders charging loan shark rates.
Gilbert Klein stood outside the hearing carrying a sign protesting Shelby, who sits on the Senate Banking Committee, and Bachus, who sits on the House Banking Committee, for opposing Cordray’s appointment instead of doing something to represent their constituents in Alabama.
“Cordray’s appointment is a step in the right direction,” he said. “These two people are in powerful positions that could really do something to help the consumers in this state, yet they are in direct opposition of this strong watchdog. As consumers it’s up to us to take a strong stand to eradicate ourselves of public officials who don’t put the public will before their own.”
He pointed out that Bachus has been accused of insider trading by 60 Minutes.
Stephen Stetson, a policy analyst with the nonprofit organization Alabama Arise, pointed out that other Southern states, “good pro-business states,” he joked, have banned the predatory lending practice by law, including Arkansas, Georgia and North Carolina.
“They have not seen any catastrophic affects,” he said. He suggested doing the same thing in Alabama, although he did not indicate how that could happen with a pro big business Republican governor, Legislature and Supreme Court.
Payday lenders do not help communities build assets and wealth, he said, which is what is desperately needed.
He compared people in poverty to those who are caught in a major storm, like Hurricane Katrina in New Orleans.
“Everyday is like a hurricane for someone living on the financial edge,” he said. “We have anti-gauging laws preventing you from charging eight bucks for a gallon of gas or $30 for a bottle of water, and there’s a reason. It’s not right to take advantage of people when the stakes are down.”
Tags: Obama Administration
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