Category: Personal Finance

Payday Lender Among First Businesses to Reopen on West Florissant in Ferguson

KMOX, July 1, 2015

While many businesses in Ferguson have still not re-opened, Pay Day Loans was quick to open their doors. They have three locations along West Florissant.

Jacqueline Hutchinson is Board Chair for Missouri Consumers Council and says that this is typical from predators.

“We know that the rates for Pay Day Loans can be as much as 1,400 percent as compared to if you borrowed the money from a bank,” says Hutchinson.

She says that there needs to be legislation passed in Missouri to put a cap on interest rates that a lender could charge. She adds that the military has capped at 36 percent the amount that a Pay Day lender can charge.

Hutchinson’s organization works with banks and credit unions to help people in need of a loan with a reasonable interest rate that they can obtain.

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Wise Up on Payday Loans

Two Videos Give Good, Basic Information on Predatory Lending

Two short videos produced by The Pew Charitable Trusts lay out the issues about short-term, cash loans in plain language.  Click here.

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Payday Lending Rules Proposed by Consumer Protection Agency

The New York Times, March 26, 2015

BIRMINGHAM, Ala. — The Consumer Financial Protection Bureau, the agency created at President Obama’s urging in the aftermath of the financial crisis, took its most aggressive step yet on behalf of consumers on Thursday, proposing regulations to rein in short-term payday loans that often have interest rates of 400 percent or more.

The rules would cover a wide section of the $46 billion payday loan market that serves the working poor, many of whom have no savings and little access to traditional bank loans. The regulations would not ban high-interest, short-term loans, which are often used to cover basic expenses, but would require lenders to make sure that borrowers have the means to repay them.

The payday loan initiative — whose outlines were the focus of a front-page article in The New York Times last month — is an important step for a consumer agency still trying to find its footing among other financial regulators while defending itself against fierce attacks from Republicans in Washington.

On Thursday, Mr. Obama lent his weight to the consumer bureau’s proposal, saying that it would sharply reduce the number of unaffordable loans that lenders can make each year to Americans desperate for cash.

“If you lend out money, you have to first make sure that the borrower can afford to pay it back,” Mr. Obama said in remarks to college students here. “We don’t mind seeing folks make a profit. But if you’re making that profit by trapping hard-working Americans into a vicious cycle of debt, then you got to find a new business model, you need to find a new way of doing business.”

The president’s appearance at Lawson State Community College is part of a campaign-style effort to portray Republicans as out of touch with the needs of middle-class Americans. In his remarks, he accused Republicans of backing a federal budget that would benefit the wealthy at the expense of everyone else. And he denounced his adversaries in Congress for seeking to terminate the consumer agency’s automatic funding.

“This is just one more way America’s new consumer watchdog is making sure more of your paycheck stays in your pocket,” the president said. “It’s one more reason it makes no sense that the Republican budget would make it harder for the C.F.P.B. to do its job.” He vowed to veto any attempt that “unravels Wall Street reform.”

Yet even supporters of the consumer bureau’s mission were critical on Thursday, saying that the proposed payday lending rules do not go far enough.

A chorus of consumer groups said that loopholes in the proposal could still leave millions of Americans vulnerable to the expensive loans. Lenders have already shown an ability to work around similar state regulations, they said.

“We are concerned that payday lenders will exploit a loophole in the rule that lets lenders make six unaffordable loans a year to borrowers,” said Michael D. Calhoun, the president of the Center for Responsible Lending.

Payday lenders say that they welcome sensible regulation, but that any rules should preserve credit, not choke it off. “Consumers thrive when they have more choices, not fewer, and any new regulations must keep this in mind,” said Dennis Shaul, the chief executive of the Community Financial Services Association of America, an industry trade group.

The attacks from both directions underscore the challenges facing the bureau, and its director, Richard Cordray, as it works to fulfill its mandate while pressure grows from Congress and financial industry groups.

In drafting the rules, the bureau, according to interviews with people briefed on the matter, had to strike a precarious balance, figuring out how to eliminate the most predatory forms of the loans, without choking off the credit entirely.

The effort to find that balance can be seen in the choice that lenders have in meeting underwriting requirements under the proposal.

Under one option, lenders would be required to assess a customer’s income, other financial obligations and borrowing history to ensure that when the loan comes due, there will be enough money to cover it. The rules would affect certain loans backed by car titles and some installment loans that stretch longer than 45 days.

Or the lender could forgo that scrutiny and instead have safety limits on the loan products. Lenders could not offer a loan greater than $500, for example.

Under this option, lenders would also be prohibited from rolling over loans more than two times during a 12-month period. Before making a second or third consecutive loan, the rules outline, the lenders would have to provide an affordable way to get out of the debt.

For certain longer-term loans — credit that is extended for more than 45 days — the lenders would have to put a ceiling on rates at 28 percent, or structure the loans so that monthly payments do not go beyond 5 percent of borrowers’ pretax income.

Driving the proposal was an analysis of 15 million payday loans by the consumer bureau that found that few people who have tapped short-term loans can repay them. Borrowers took out a median of 10 loans during a 12-month span, the bureau said. More than 80 percent of loans were rolled over or renewed within a two-week period.

Nearly 70 percent of borrowers use the loans, tied to their next paycheck, to pay for basic expenses, not one-time emergencies — as some within the payday lending industry have claimed.

Such precarious financial footing helps explain how one loan can prove so difficult to repay. Borrowers who take out 11 or more loans, the bureau found, account for roughly 75 percent of the fees generated.

Until now, payday lending has largely been regulated by the states. The Consumer Financial Protection Bureau’s foray into the regulation has incited concerns among consumer advocates and some state regulators who fear that payday lenders will seize on the federal rules to water down tougher state restrictions. Fifteen states including New York, where the loans are capped at 16 percent, effectively ban the loans.

The rules, which will be presented to a review panel of small businesses, are likely to set off a fresh round of lobbying from the industry, said Senator Jeff Merkley, Democrat of Oregon.

“They should instead strengthen this proposal by absolutely ensuring it is free of loopholes that would allow these predatory loans to keep trapping American families in a vortex of debt,” he said.

Mr. Cordray introduced the rules at a hearing in Richmond, Va., on Thursday, flanked by the state’s attorney general and consumer groups from across the country. At the start of the hearing, Virginia’s attorney general, Mark Herring, said the choice of location was apt, describing the state as “the predatory lending capital of the East Coast,” a description he said was shameful.

The hearing offered a rare glimpse at the forces aligning on either side of the payday loan debate. On one side, there was an array of people against the rules, from industry groups to happy customers, to dozens of payday loan store employees — many wearing yellow stickers that read, “Equal Access, Credit For All.”

On the other, there were consumer groups, housing counselors, bankruptcy lawyers and individual borrowers, all of them calling for a real crackdown on the high-cost products.

Both sides had their horror stories. Some told of stores forced to close, while others described how such loans had caused tremendous pain and fees.

At one point, a woman wearing a neon pink hat who gave only the name Shirley burst into tears, saying that without the loans, her cousin with cancer would be dead.

Martin Wegbreit, a legal aid lawyer in Virginia, called payday loans “toxic,” noting that “they are the leading cause of bankruptcy right behind medical and credit card debt.”

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More Payday Lenders Than McDonald’s Shows Value of Fast Money Across U.S.

NBC News, November 24, 2014

There are more payday lenders in the U.S. than McDonald’s or Starbucks, reflecting economic conditions in which fast money is even more important than fast food.

Payday lending, in which users pay a fee for what amounts to an advance on their paychecks, has blossomed over the past 20 years. There are now more than 20,000 across the country, according to the St. Louis Federal Reserve, while McDonald’s boasts 14,267 locations.

They’re used most often by people who lack access to ordinary credit—often those at or near the bottom of the economic spectrum, with nearly a quarter living on public assistance or retirement income.

While the loans can fill a need for fast cash, they also can become a way of life for users who end up paying effective annual percentage rates, or APRs, well in excess of 300 percent.

Consequently, they’ve attracted the attention of regulators, politicians and economists why worry about those left behind in a decidedly uneven economic recovery.

“A large number of Americans are literally living paycheck to paycheck. They’re one unplanned expense away from being in financial distress.”

“A large number of Americans are literally living paycheck to paycheck,” said Greg McBride, chief financial analyst at Bankrate.com. “They’re one unplanned expense away from being in financial distress.”

McBride cited some sobering statistics: Twenty-six percent of Americans have no emergency savings and 41 percent say their “top financial priority” is simply staying current with their expenses or getting caught up on their bills. This is occurring even as the financial headlines trump new stock market highs by the day and President Barack Obama’s administration touts the U.S. economic recovery.

“Americans that have assets have seen the value of those assets appreciate, but Americans who don’t have those assets, they’re not feeling the recovery in their pocketbooks, particularly at a time of stagnant income,” McBride said. “If you don’t have those things, and you haven’t seen a pay increase, then you’re no better off, you’re no wealthier.”

Finding Themselves Poorer

Those using payday loans, in fact, may find themselves poorer.

The mean, or typical, payday borrower makes $22,476 a year and paid $458 in fees. However, a quarter of those borrowers paid $781 or more in fees due to repeat usage, according to the Consumer Finance Protection Bureau, which is closely monitoring the approximately $50 billion industry and will likely put forward more regulation.

About 48 percent of borrowers had done 10 transactions in the CFPB’s time sample, and 14 percent had more than 20 transactions. The median borrowing amount was $350, for a 14-day term. Median fees for $15 per $100, which computes to an APR of 322 percent.

In all, consumers using payday loans were on the hook to their lenders for 199 days, or about 55 percent of the year.

“It appears these products may work for some consumers for whom an expense needs to be deferred for a short period of time. The key for the product to work as structured, however, is a sufficient cash flow which can be used to retire the debt within a short period of time,” the CFPB wrote in a 2013 report studying the payday proliferation.

“However, these products may become harmful for consumers when they are used to make up for chronic cash flow shortages,” the report continued. “We find that a sizable share of payday loan and deposit advance users conduct transactions on a long-term basis, suggesting that they are unable to fully repay the loan and pay other expenses without taking out a new loan shortly thereafter.”

A year ago this month the bureau began accepting consumer complaints and received thousands soon after, according to the St. Louis Fed, which in its own recent report cited the potential for payday loans to “become a financial burden for many consumers.”

Payday lending is allowed in 36 states, and fees are lowest in the states that regulate them.

Bankrate’s McBride cautioned, however, that excessive regulation could be problematic if it ends up denying cash-strapped consumers who can’t get conventional loans or credit cards access to emergency funds.

“That’s a double-edged sword,” he said. “In some ways it can benefit consumers but in some ways it can hurt consumers. Limitations on how often that borrowed amount can be rolled over could keep consumers from falling into a bottomless pit of debt. But there’s certainly a fine line. These services exist because the demand is so high. The reality is a lot of Americans need short-term credit.”

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Rise in Black Households’ Banking Reflects Success of Local Program

St. Louis Post-Dispatch, October 29, 2014

A local effort to increase the availability of banking services to minority and low-income households appears to be gaining traction, according to the latest figures from the Federal Deposit Insurance Corp.

The percentage of black households in the St. Louis area who were unbanked — that is, didn’t have a checking or savings account — fell to 13.3 percent in 2013, a sharp decline from 29 percent in 2011. When the survey results were released in 2009, the St. Louis area ranked highest in the nation for unbanked black households, at 31 percent.

Nationally, unbanked black households fell to 20.5 percent last year, down from 21.4 percent in 2011, according to the FDIC’s National Survey of Unbanked and Underbanked Households report released Wednesday.

The highest unbanked rates in the U.S. are among non-Asian minority households, lower-income, younger and unemployed households, the FDIC survey found. Unbanked Hispanic households in the U.S. fell to 17.9 percent in 2013, down from 20.1 percent in 2011.

The large number of unbanked minority and low-income households in St. Louis revealed in past FDIC reports spurred local nonprofit leaders, bankers and others to take action. The St. Louis Regional Unbanked Task Force, organized in 2011, has focused on increasing the availability of banking products while convincing those who pay high fees to cash checks and access other financial services to instead open a checking or savings account.

“It’s reflective of the collaborative work we’ve been doing with the task force and Bank On Save Up,” said Jackie Hutchinson, co-chair of the task force and vice president of operations at the nonprofit People’s Community Action Corp., which provides food, clothing, financial literacy and other services in St. Louis. She called the latest FDIC survey results encouraging.

“When people have bank accounts, they move on to participate in the economy,” Hutchinson said. “We’ve seen people go from unbanked to getting an account and purchasing a car or home. It improves the economy as a whole in the St. Louis area.”

The group’s first initiative, Bank On Save Up, started in February 2013 with a goal of opening 20,000 accounts in the St. Louis region within two years. Similar Bank On initiatives formed across the country after the first program was started in San Francisco in 2006.

When it formed locally, 18 banks and credit unions said they would offer accounts requiring low minimum amounts to open, access to free online banking services and safeguards to help customers avoid overdraft fees. The number of banks and credit unions now offering the Bank On accounts locally has since grown to 20.

Since its debut, the Bank On program led to 2,435 new accounts through the second quarter of 2014, far short of the goal. But Hutchinson said some partner banks didn’t yet have the ability to capture the accounts attributed to Bank On through their current data systems.

Families save an estimated $2.9 million annually that they otherwise would have spent on fringe financial services such as payday loan fees, according to the task force. Additionally, the Bank On accounts have a 95 percent retention rate, higher than the initiative’s 80 percent goal when the program started.

“In an era of declining wealth, it’s good to see a greater number of banked households,” said Ray Boshara, director at the Federal Reserve Bank of St. Louis’ Center for Household Financial Stability, adding that banking accounts are an essential first step to financial stability.

Boshara said that in addition to traditional brick-and-mortar bank branches, many people were using technology to better manage their finances. “Technology is bringing the cost down, and we’re seeing more apps that help people manage their money in real time, he said.

REGIONAL LOOK

The percentage of households in the St. Louis region that don’t have a checking or savings account dropped by more than half to 4.2 percent between 2011 and 2013, according to the latest survey results from the FDIC.

The last time the FDIC did the survey, in 2011, an estimated 9.7 percent of St. Louis area households were unbanked.

The FDIC’s report estimates the percentage of unbanked households dropped to 7.7 percent nationally in 2013, down from 8.2 percent in 2011.

The survey estimates 9.6 million U.S. households are unbanked, down from about 10 million in 2011. Those 9.6 million unbanked households represent 25 million people in the U.S. age 16 and over who lack a checking or savings account.

In addition, the FDIC looked at households that had bank accounts but also used expensive alternative financial services such as payday loans, pawn shops or rent-to-own services in the past 12 months. These “underbanked” households remained at about 20 percent nationally.

The FDIC conducts the survey every two years in partnership with the U.S. Census Bureau. At an advisory committee on economic inclusion meeting Wednesday morning, Ryan Goodstein, a senior financial economist in the FDIC’s Division of Depositor and Consumer Protection, said the decline in unbanked households was because of improving economic conditions, such as lower unemployment rates and higher household income.

Additionally, changing demographics as American households are older and better educated attributed to the decline in unbanked households, Goodstein said.

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Settlement with Bank of $16.6 Million Expected to Benefit Minority Consumers

St. Louis Post-Dispatch, October 2, 2014

Midland States Banks said it will open a branch and loan production office in the St. Louis region as part of a settlement of a fair housing complaint that sought to block its acquisition of Heartland Bank.

Effingham, Ill.-based Midland States Bank announced Thursday it will open a new local branch in a predominantly minority community in the city of St. Louis, a loan office in the St. Louis region and a branch in Joliet, Ill. The bank also committed $16.6 million to increase access to home mortgage products including refinancing and multi-family lending in predominantly minority communities in St. Louis and Joliet.

The locations of the St. Louis area branch and loan production office have not yet been identified, said Douglas Tucker, senior vice president and general counsel of the bank’s holding company, Midland States Bancorp. The bank’s local branches are in Chesterfield, Columbia, Ill., and Waterloo, Ill.

Several national and local organizations, including the St. Louis Equal Housing and Community Reinvestment Alliance (SLEHCRA), filed a complaint a year ago with the U.S. Department of Housing and Urban Development, alleging Midland States Bank did not provide equal services to black borrowers in violation of federal law. The complaint alleged black mortgage applicants made up just 0.39 percent of all applicants at the bank, based on an analysis of federal racial lending reports. The low numbers constituted redlining, a practice of refusing to lend in minority areas, which is prohibited by federal rules, according to the complaint. The National Community Reinvestment Coalition and the Woodstock Institute joined with SLEHCRA to file the complaint.

“I can already visualize the changes in St. Louis due to agreements like the agreement we now have with Midland States Bank to reinvigorate our communities, to put in investment where needed to provide low income individuals the access to credit,” said Ed Wartts, director of the U.S. Department of Housing and Urban Development’s fair housing and urban equal opportunity office in St. Louis. “Banking is a fundamental foundation of any community and without it, communities fail to thrive, they fail to grow.”

The settlement announced Thursday paves the way for Midland States Bank’s acquisition of Clayton-based Heartland Bank, announced last September, to move forward. Heartland has 13 branches and is among the largest locally chartered banks with $870 million assets at mid-year, according to the Federal Reserve Bank of St. Louis.

“We were concerned with Midland States Banks’ record of lending to minority communities in St. Louis as well as other areas in Illinois,” said Elisabeth Risch, director of research and education at the Metropolitan St. Louis Equal Housing Opportunity Council, a nonprofit housing organization that is a member of the alliance that lodged the complaint.

The alliance made the announcement on an undeveloped lot in the 5900 block of Dr. Martin Luther King Drive. The site was chosen because the zip code where the lot is located, 63113, has only one bank branch, and an adjoining zip code, 63113, has no bank branches. Combined, the two bank branches have a population of 33,000, of which 80 percent is black, Risch said.

“The agreement announced today with Midland States Bank represents the ongoing efforts by SLEHCRA and our partners to increase investment in low income communities and minority communities,” Risch said.

Midland States Bank’s Tucker said the acquisition of Heartland Bank is expected to close soon. “We’re hoping we will be able to close in the next month or two,” Tucker said.

Regarding the settlement, Tucker said Midland States Bank looks forward to working with the local nonprofit groups to identify sites for the new branch and loan production office. “We try to be a leader in every community that we’re in and we fully expect to be a leader in the economic development here in St. Louis.”

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Help Work to Sustain Veto of SB694, Bogus Bill to Reform Payday Loans

Veto Session to Convene in Jefferson City

The Missouri General Assembly will meet at the Capitol in Jefferson City beginning Wednesday, September 10, 2014, for the annual Veto Session.  Legislators will have the opportunity to vote on overriding any of the 30 bills vetoed by Governor Jay Nixon after the regular legislative session ended in May.

Consumers Council of Missouri is working to ensure that the veto of Senate Bill 694 be sustained should a motion be made to override it.

To read why Governor Nixon vetoed SB 694, click here.

To find out more about the bill and why the veto should be sustained, click here.

Help CCM by contacting your state legislators to uphold the veto: Click here.

 

Editorial Praises Veto; News Reports Detail Bill’s Many Defects

St. Louis Post-Dispatch, July 14, 2014

St. Louis Public Radio/The Beacon, July 11, 2014

Springfield News-Leader

Consumers Council Lauds Governor’s Veto of Bogus Payday Loan Reform Bill

ST. LOUIS, Mo., (July 10, 2014) — Governor Jay Nixon’s veto today of legislation purporting to reform the payday loan business is receiving approval from the statewide organization that represents interests of individual consumers.

“Governor Nixon has acted on behalf of the legions of people who have gotten snared by the debt trap set by the payday lending industry,” said Joan Bray, executive director of Consumers Council of Missouri.  “Proponents of the bill, Senate Bill 694, touted it as improving the current law in favor of consumers.

“But this bill was only window dressing.  If it became law it would postpone significant reform by enabling the industry to say it had made enough changes,” Bray added.  Nothing in the bill precluded a payday lender from entangling a consumer in long-term debt, she said.

She noted that Missouri is one of the last frontiers for predatory lending, with interests on some short-term loans approaching 2,000 percent and the average being 454 percent.

Bray said one significant deception in the bill appeared to curtail bullying and abusive behavior by bill collectors by referring to federal law.  But the federal law cited does not cover bill collectors, thereby making the provision worthless.

“That ruse was one of the major reasons we urged the governor to veto the bill.  He listened to everyone opposing this bill on behalf of consumers,” she said.

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Opinion: Legislature Should Limit Payday Loan Industry

St. Louis Post-Dispatch, May 2, 2014

Opinion

By Tishaura O. Jones, Treasurer of the City of St. Louis

One of my goals as treasurer is to create programs that will help improve the quality of life for St. Louis residents. That is why I’ve made financial literacy and empowerment my mission.

Simply put, financial literacy is the ability to understand how money works. But financial literacy isn’t just about balancing your checkbook or knowing how much money you have in the bank. When you are financially empowered, you can avoid predatory lending practices like payday loans. A financially empowered person knows that legislation like Missouri Senate Bill 694 is a bad idea.

SB 694 is like putting lipstick on a pig in that it doesn’t really reform the payday loan industry. SB 694 allows lenders to increase their collection fees by adding the cost of returned checks. Even though it prohibits rolling over a loan several times, it does not prevent the lender from cancelling out or closing one loan and opening a new one.

The sponsors and supporters of the bill will tout that consumers will have a new option of paying off the loan through an extended payment plan. However, the lender doesn’t have to offer it to customers. Lenders can just post a couple of conspicuous signs and print a few flyers.

There is more. One of the most egregious additions to the law is it allows payday lenders who are licensed out of state but advertise on the Internet to obtain a license in Missouri to do business. This opens Pandora’s Box and allows consumers to take out multiple payday loans from different sources.

Real reform would be getting rid of the payday loan industry altogether, but since that is unlikely to happen, the next best solution would be to cap the loan interest rates at 36 percent, which is still incredibly high. There should also be a statewide database, a limit to the number of payday loans a borrower can take out, and if a borrower cannot repay the loan, then they would have to undergo credit counseling. Payday loan fees should be limited to 10 percent of the loan amount. The payday lender should be limited in what they can do to obtain past due payments from clients.

However, I don’t see any of this happening, as our weak ethics laws allow special interest groups to make unlimited campaign contributions. Previous attempts to legislate this issue have been derailed.

As treasurer, I am committed to helping St. Louis residents become financially literate and learn how to confidently manage money so they can avoid using payday loans. Long-term planning of our financial futures will in turn leave a legacy to our children so they will be protected for years to come.

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10 Things Elizabeth Warren’s Consumer Protection Agency Has Done for You

Mother Jones, March 17, 2014

The Consumer Financial Protection Bureau (CFPB), the watchdog agency conceived of and established by Sen. Elizabeth Warren (D-MA) in the wake of the financial crisis, had a hard time getting on its feet. The GOP tried everything it could to hobble the bureau, but to no avail. Over the past couple of years, the CFPB has issued dozens of protections shielding consumers from shady practices by mortgage lenders, student loan servicers and credit card companies. Here are ten things the CFPB, which was created in 2011, has done to protect the little guy:

1. Mortgage lenders can no longer push you into a high-priced loan: Until recently, lenders were allowed to direct borrowers toward high-interest loans, which are more profitable for lenders, even if they qualified for a lower-cost mortgage — a practice that helped lead to the financial crisis. In early 2013, the CFPB issued a rule that effectively ends this conflict of interest.

2. New homeowners are less likely to be hit by foreclosure: In the lead-up to the financial crisis, lenders also sold Americans “no doc” mortgages that didn’t require borrowers to provide proof of income, assets or employment. Last May, the bureau clamped down on this type of irresponsible lending, forcing mortgage lenders to verify borrowers’ ability to repay.

3. If you are delinquent on your mortgage payments, loan servicers have to try harder to help you avoid foreclosure: During the housing crisis, loan servicers — companies that collect payments from borrowers — were permitted to simultaneously offer a delinquent borrower options to avoid foreclosure while moving to complete that foreclosure. New CFPB rules force servicers to make a good faith effort to keep you out of foreclosure. That’s not all: Loan servicers will now face civil penalties if they don’t provide live customer service, maintain accurate mortgage records and promptly inform borrowers whose loan modification applications are incomplete.

4. Millions of Americans get a low-cost home loan counselor: In January 2013, the CFPB required the vast majority of mortgage lenders to provide applicants with a list of free or low-cost housing counselors who can inform borrowers if they’re being ripped off.

5. Borrowers with high-cost mortgages get an outside eye: Lenders who sell mortgages with high interest rates are now required to have an outside appraiser determine the worth of the house for the borrower. If a borrower is going to be paying sky-high prices for a fixer-upper, at least she’ll know it beforehand.

6. Fly-by-night financial players will be held accountable: Part of the CFPB’s mandate is to oversee debt collectors, payday lenders and other under-regulated financial institutions that profit off low-income Americans. The bureau is preparing new restrictions on debt collectors and considering new regs on payday loan industry. In the meantime, the bureau is cracking down on bad actors individually.

7. Folks scammed by credit card companies get refunds: In October 2012, the CFPB ordered three American Express subsidiaries to pay 250,000 customers $85 million for illegal practices including misleading credit card offerings, age discrimination and excessive late fees. This past September, the CFPB ordered JPMorgan Chase to refund $309 million to more than 2.1 million Americans for charging them for identity theft and fraud monitoring services they didn’t ask for.

8. Student lenders face scrutiny: The CFPB oversees private student loan servicing at big banks to ensure compliance with fair lending laws. In December, the agency announced that it will also start supervising non-bank student loan servicers, which are companies that manage borrowers’ accounts. Many of these servicers have been accused of levying unfair penalty fees and making it hard for borrowers to negotiate an affordable repayment plan.

9. Service members get extra protection: In June, the CFPB ordered US Bank and its non-bank partner Dealers’ Financial Services to refund $6.5 million to service members for failing to disclose fees associated with a military auto loan program. In November, the CFPB ordered the payday lender Cash America to pay up to $14 million for illegally overcharging members of the military.

10. Consumers get a help center: If your bank or lender does anything you think is unfair, the bureau has a division dedicated to fielding consumer complaints. The agency promises to work with companies to try to fix consumers’ problems.

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Columnist: 401(k) Fees Still Hard to Spot

St. Louis Post-Dispatch, March 17, 2014

In theory, disclosing more information about fees was supposed to make 401(k) plans better.

Two years after it imposed sweeping new disclosure rules, though, the Labor Department isn’t sure whether they’re working. Disclosure is helpful only if it is read and understood, and 401(k) documents can be extremely dense.

“Some employers, particularly small businesses, may be having a hard time locating the required fee disclosures when they are embedded in lengthy or complex documents,” Assistant Labor Secretary Phyllis Borzi said last week.

The department proposes adding a roadmap feature, a sort of document on how to read the document. Employers would be told in plain language that they could find investment costs on page 17, recordkeeping fees on page 23, and so on.

Debra Moran, director of Acropolis Retirement Plan Solutions in Chesterfield, believes the roadmap is needed. “I can’t tell you how many (employers) still have no idea what they are paying,” she said. “It’s not being provided in an easy-to-read format that breaks fees down transparently.”

If employers don’t understand all of a plan’s fees, they’re probably not negotiating the best deal, and the cost to employees can be huge. For a 25-year-old worker who puts $5,000 a year into a 401(k) over a 40-year career, the difference between 1 percent and 2 percent in fees amounts to nearly $225,000.

Moran says that Acropolis clients have always received clear fee disclosures, but that companies she visits on sales calls often don’t know if their 401(k) costs are high or low. “Even companies that have 600 to 1,000 employees are struggling with this,” she says. “It shouldn’t be that complicated.”

Ah, but it is. When the Labor Department was writing the current rules, some big 401(k) providers lobbied against a requirement for simple, standard fee disclosure. They have to provide the information, but they don’t have to make it easy to find.

“There are some very simple ways to show people what their fees are, and the Department of Labor requirements don’t go far enough,” says Sean Duggan, a retirement plan consultant at Moneta Group.

The only justification for the current, confusing documentation, Duggan says, is that “someone doesn’t want someone to know what fees are. They want to hide it.”

He says disclosures to individual employees, which the new Labor Department proposal doesn’t address, also should be improved. The opacity of those documents may explain why, according to a survey by the Employee Benefit Research Institute, only 53 percent of 401(k) participants said they had seen a fee disclosure.

Still, both employees and employers have more information than they did before 2012. The new transparency — as imperfect as it is — seems to be driving down fees.

Brooks Herman, head of data and research at 401(k) information firm Brightscope, says average fees fell between 2009 and 2011, when the Labor Department was working on the disclosure rules. Based on a preliminary look at 2012 data, he says they probably also fell after the rules were issued.

“We’re better off than we were five years ago,” Herman said, “and I’m excited to see what round two of fee disclosure brings. I’m hopeful it will be another step in the right direction.”

It shouldn’t be the last step, however. Having embraced the concept of fee transparency, the Labor Department now needs to enforce the companion virtues of simplicity and readability.

David Nicklaus, the writer of this column, Mound City Money, is business columnist at the St. Louis Post-Dispatch.

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