Taking On Abusive Lenders and Helping Families Save

"The engine of our economy is not Washington, D.C., or Wall Street. It is the tens of millions of men and women in offices, factories, and fields across America who go to work every day. When we stand up for them, our middle class grows and our economy grows." – John Edwards

Today, American families are working harder, saving less, and borrowing more just to make ends meet. Half of Americans say they live paycheck to paycheck. For most families, wages have not kept up with rising costs for middle-class essentials like health care, housing and child care. More than half of middle-class families do not have enough savings to survive a job loss at 75 percent of their income for even one month. Consumer debt has increased eightfold and foreclosures have skyrocketed in recent years. The result is Two Americas, one struggling to get by and another that has everything it could want. [MetLife, 2003; Warren, 2007; Demos, 2007; Federal Reserve Board, 2007]

Washington has stood by as unscrupulous lenders have ripped off millions of families with deceptive and unnecessarily expensive loans. Payday loans—short-term unsecured loans that carry high interest rates—have ballooned to a $28 billion industry. One in 53 households filed for bankruptcy in 2005, more families than got divorced or graduated from college. Americans own a smaller share of their homes today than they did a generation ago—down from 68 percent to 55 percent —despite the housing boom. [CRL, 2004; Cardweb, 2005; Demos, 2007]

Taking On Abusive And Predatory Lenders

John Edwards has offered new consumer protections against rip-offs from the credit "sneak attack" against the middle class, reigning in irresponsible credit card companies, predatory lenders, and payday lenders. To stand up for regular families and help build One American Economy, Edwards will:

Protect Families from Abusive Financial Products: Families need someone on their side to help them get a fair deal from lenders and investment companies. The current crazy-quilt of five federal regulatory agencies share oversight responsibility but overlook consumer protection in favor of bank profitability. Federal law prevents states from effectively regulating financial products offered to their own citizens from out-of-state banks. Edwards will create a new Family Savings and Credit Commission to protect consumers. It will review all financial services products marketed to families, from six-figure exotic mortgages to $30 bank overdraft charges. It will ensure that terms are reasonable and fairly disclosed and oversee all types of financial institutions, whether chartered under federal or state law. To reduce excess regulatory bureaucracy, Edwards will eliminate the Office of Thrift Supervision. [Warren, 2007]

Prohibit the Most Abusive Practices: Edwards will enact strong national legislation to protect families from the most abusive practices in the credit card, payday loan, and mortgage industries:

• Limiting Abusive Credit Card Practices: Credit card penalty interest rates can now top 39 percent. Deceptive tactics include bait-and-switch marketing on interest rates, penalty rates triggered by unrelated debt under "universal default" clauses, and mailing statements later in an effort to induce more late fees. Edwards will restore balance in the credit card market through a Borrower's Security Act. The strong new law will require credit card companies to: (1) disclose the true cost of making only minimum payments, (2) restore a 10-day grace period before imposing late fees and penalty rates, (3) apply interest rate increases to future balances only, and (4) end the practice of universal default, where a creditor can change borrowers' terms based on their debt and payments to other creditors. [NCLC, 2005; Demos, 2003; GAO, 2006]
• Banning the Most Abusive Payday Loans: Annual rates on payday loans typically exceed 400 percent a year. After the Pentagon concluded that exploitive payday loans undermined military readiness, Congress capped interest rates on payday and other loans to military families at 36 percent, a cutoff that many states use to prevent loan sharking. Edwards will extend this cap to all payday loans. [Center for Responsible Lending, 2006]
• Enacting a Strong National Law Against Predatory Mortgages: Today's homeowners are more than three times more likely to lose their homes than they were a generation ago. Edwards will pass a strong national law to prohibit the worst abuses in the mortgage market, such as steep prepayment penalties, mandatory arbitration clauses, balloon loans, loan flipping, and excessive fees. The law will strengthen underwriting standards to ensure that borrowers receive affordable loans suited to their means and reach non-bank lenders and mortgage brokers. [Warren, 2007]
• Rescuing Homeowners at Risk of Foreclosure: To help the estimated 2.2 million families already at risk of foreclosure, Edwards will create a Home Rescue Fund to help families get more affordable mortgages from responsible lenders and let them restructure excess mortgage debt that exceeds their home's value through bankruptcy. [CRL, 2007]
• Holding Mortgage Lenders and Investors Accountable: The practice of lenders selling families' home loans to Wall Street as investments has fueled the rise in unaffordable mortgages and resulting foreclosures. Edwards believes that lenders and Wall Street, too—not solely hardworking families—must bear some responsibility for their bad loans. Federal regulators should obtain specific commitments from loan holders, to reduce foreclosures, including waiving prepayment penalties, restructuring loan terms, and forgiving back payments.

Creating Alternatives To Abusive Lenders

Edwards believes we must help families gain independence from high-cost debt so every American has a fair shot at the American Dream. As president, he will:

Support Alternatives to High-Cost Credit: Because commercial banks rarely make personal loans anymore, high-interest credit cards and payday loans are often the only option for families with unexpected expenses. Edwards will help non-profits and states administer low- or no-interest emergency loans directly to taxpayers. States could choose to use state tax refunds as collateral. Because neighbors have a stake in one another, Edwards will help community groups establish up local revolving loan funds. [CFSI, 2006]

Help Families Save and Get Ahead: Savings are how families cushion themselves against bumps in the road. Edwards will create new "Work Bonds" to help low-income workers save up to $500 a year. He will subsidize banks to offer free savings accounts to the nearly 28 million Americans without them, giving them a way to save and avoid exorbitant check-cashing fees. Finally, he will give taxpayers the option of directly depositing their tax refunds into a retirement account. [Federal Reserve, 2007]

Modernize the Community Reinvestment Act: For decades, the Community Reinvestment Act has led financial institutions to serve millions more families, helping them save. However, lower-income families, people of color, and rural Americans are still underserved and President Bush has weakened the law's requirements. Edwards will modernize this important law by expanding its reach to non-bank finance and mortgage companies, securities firms, insurers, and services in areas without bank branches. The new CRA will reward financial institutions for marketing financial products at fair terms to underserved consumers and collect the data we need to ensure that all Americans have equitable access to financial services. [Woodstock Institute, 2006; NCRC, 2007]