Bailout Plan Hits the Poor June 25, 2009Posted by rogerhollander in Economic Crisis, Poverty.
Tags: bailout, bank loans, consumer credit, consumer debt, consumer law, consumer protection, consumer rights, H&R Block, hsbc, jackson hewitt, jp morgan chase, loans, low-income, poverty, predatory lending, rals, refund anticipation, roger hollander, Santa Barbara Bank & Trust, tarp, tax preparers, tax refund, victor corral
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When Congress hastily created and passed the Troubled Asset Relief Program (TARP) last fall to bail out the financial sector, the program didn’t offer any consumer protection against the type of predatory lending practices that led to the financial crisis. It came as no surprise, then, when Santa Barbara Bank & Trust, a self-described “community bank” in California, announced in January that it was intending to use its $180 million in bailout money to make high-priced refund anticipation loans, known as RALs.
RALs are short-term loans borrowed against a consumer’s tax refund. They’re often advertised as “quick cash,” because they allow people to get their tax refund in days instead of waiting for the IRS, which can take at least 10 days. Historically, poor communities have been targeted for these loans. According to the IRS, 85 percent of the people who took RALs in 2006 had incomes of $37,300 or less, and nearly two-thirds were recipients of the Earned Income Tax Credit. On average, a person pays between $200 and $500 in fees for a RAL.
This tax season, it’s expected that low-income taxpayers will pay more than $1 billion in fees and triple-digit interest rates associated with RALs.
Refund anticipation loans are made by a handful of banks, including HSBC, JP Morgan Chase and Santa Barbara Bank & Trust. The banks give tax preparers—including H&R Block and Jackson Hewitt, as well as preparers found at places like used car lots—a share of
the hundreds of dollars in “application,” “processing” and “e-file” fees that can be made from a single loan.
“These multimillion dollar corporations are basically skimming off another layer of taxpayer money with these loans,” said Chi Chi Wu, a staff attorney with the National Consumer Law Center, an organization that specializes in consumer law issues on behalf of low-income people.
While refund anticipation loans can be classified as abusive, predatory loans, they escape government regulation because they are bank loans, Wu said. National banks are immune to state consumer protection laws. Other than requiring full disclosure about RALs, all most states can do is sue for the fraud frequently associated with these loans.
Recently, the IRS began to implement the initial phase of a new system to process tax returns and issue refunds within 48 to 72 hours. “While this is significant, the refund anticipation loan business is anticipating this,” said Kimberly S. Jones of the California Reinvestment Coalition, a group that advocates for fair access to banking and financial services. “Now, some preparers provide RALs where you can walk out of there with a check or a check card. But it’s still a good thing, because it shortens the amount of time that they can accrue interest.”
Staff from the California Reinvestment Coalition and other groups recently met with Congress members to alert them to how bailout money was being used. “There was a lack of awareness on how TARP funds were being used” said Jones, who added that the groups are going to keep pressing Congress and the media about this “because there is a genuine, and appropriate, disgust with how TARP has been spent.” © 2009 ColorLines
Save the Big Banks: Screw the Little Guy November 13, 2008Posted by rogerhollander in Economic Crisis.
Tags: Bank of Canada, Bank of Montreal, Bank of Nova Scotia, Canada Banks, canada credit cards, Canada NDP, Canadian Bankers Association, consumer debt, Credit Canada, credit card debt, credit card interest, credit card interest charges, credit card interest rates, economic crisis Canada, interest rate increase, Jack Layton, MasterCard Canada, MasterCard interest rate, roger hollander, Stephen Harper, Visa interest rate
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Just as the federal government is moving to spend $50 billion more to entice Canadian banks to keep lending, many customers are getting hit with higher credit costs.
For example, Toronto-Dominion Bank – which has skirted the worst of the credit crisis – is the latest lender to toughen up key conditions of its credit card agreements.
The changes, effective Dec. 1, will drive up interest rates for most Visa customers who miss two consecutive minimum payments. Customers who take 30 days beyond the payment due date to make the minimum payment will pay interest at 24.75 per cent, a five percentage point jump.
“The changes align with the pricing practices of our competition,” a TD spokesperson said.
The trend is another headache for struggling consumers like Hayley Moffat. She started racking up credit card debt after she graduated from college five years ago and now finds herself among the many with out-of-control debt loads.
“I just got into the habit of putting everything on credit because I wasn’t making enough money to either buy groceries, or pay my bills, or do all the normal sort of things that I thought you should be doing,” said the 25-year-old funeral director.
“And it just kind of accumulated and it was like a snowball effect over the last few years. I paid it down to a manageable amount, but then life happens, life throws things at you, and then it got back up again.”
Moffat’s debt load became unwieldy about a year ago when her bank cancelled her credit line after it reassessed her creditworthiness, even though she says she had never missed a payment.
She couldn’t pay off the $7,000 balance, so she put it on one of her credit cards, which carried a much higher interest rate. That pushed the balance on her credit card so high the interest charges kept putting her over her credit limit, prompting hefty surcharges on top of her regular monthly payments.
With the help of a credit counsellor, Moffat is now trying to negotiate with creditors to get a handle on her debt, which includes $13,000 on a bank-issued Visa card and $2,000 on a furniture store card.
TD is following in the footsteps of the Bank of Nova Scotia, which revised grace periods and increased fees that apply to its Visa cards. As of May, its “interest-free grace period for new purchases” was reduced from 26 to 21 days.
Last week, Canadian Tire Corp. said it is lowering credit limits for some inactive customers’ credit cards because it is worried some who have tapped out their other credit may turn to Canadian Tire cards.
The tighter credit measures come at a time when the Bank of Canada, which sets rates for loans to financial institutions, has slashed its key rate to just 2.25 per cent in a bid to generally ease debt costs and stimulate the flagging economy.
Bank of Montreal, which issues MasterCard, has not made any changes to cardholder agreements this year. Royal Bank of Canada altered some terms of its Visa cardholder agreements in 2005, a spokesperson said.
Laurie Campbell, executive director of non-profit credit counselling service Credit Canada, said consumer debt loads are out of control.
“We’re seeing lines of credit, mortgages, payday loans, credit cards, absolutely, lots of credit cards. And really people that perhaps got into the housing market that really shouldn’t have gotten into the housing market and then have relied on credit to makes ends meet,” Campbell said. Some people are simply “living on the edge.”
According to the Canadian Bankers Association, there are about 64.1 million Visa and MasterCard cards in circulation in Canada. As of July, there were more than 65 “low-interest” card products with rates of 13.9 per cent or lower on the market. The association also notes 73 per cent of households pay their credit card balance in full each month. That statistic, however, is from 2005.
The Financial Consumer Agency of Canada acknowledged yesterday there is a need to “simplify” credit card documentation.
“Consumers may have trouble reading the fine print in credit card application forms because they find this information too dense,” said commissioner Ursula Menke.
The agency, along with MasterCard Canada, designed a “model plain language application form.” Said Menke: “The next step for both organizations will be to share these findings with members of the industry and encourage them to review their documentation and to consider using some of the best practices outlined in this model.”
During the recent federal election campaign, the NDP vowed to cap credit card interest rates at 5 per cent above prime while banning ATM fees.
NDP Leader Jack Layton again brought up the issue of interest rates in a meeting last night with Prime Minister Stephen Harper.
Layton said he told Harper if the banks and other large corporations are on the receiving end of federal help, consumers deserve something as well.
“There’s all kinds of help being given to companies right now,” Layton said.
“But people are still being gouged with interest rates that are outrageous, with hidden charges.”
- With files from The Canadian Press