Woodstock Blog

Bill to protect consumers from unlicensed payday lenders passes House

Fri, 24 Feb 2012 17:25:44 GMT

HB3935 amends the Payday Loan Reform Act and the Consumer Installment Loan Act to prohibit lenders that illegally make loans to borrowers in Illinois from collecting any portion of an outstanding loan. The bill protects consumers trapped in loans originated by unlicensed lenders by ensuring that lenders cannot collect principal, interest, or any additional fees in the court system, or through any prearranged payment agreement. Currently, the only remedy to unlicensed lending is a cease and desist order issued by the Illinois Department of Financial and Professional Regulation.

Not all online lenders are unlicensed. Some lenders hold state licenses and issue loans with the same consumer protections as loans issued by brick-and-mortar lenders. HB3935 does not affect a licensed lender’s ability to make payday loans, payday installment loans, auto title loans, or small consumer loans—it simply gives regulators more effective tools for enforcing Illinois’ consumer protection laws.

Please contact your Illinois senator (look up your elected officials here) and ask him or her to support HB 3935 so that payday lenders operating illegally in Illinois can’t keep families trapped in a cycle of debt.

How the $25 billion robosigning settlement will impact Illinois

kbuitrago@woodstockinst.org (Katie Buitrago) — Fri, 17 Feb 2012 19:39:04 GMT

The majority of the settlement money, $17 billion, will be used to provide direct assistance to homeowners. Of that figure, at least 60 percent must be used to write down principal on underwater loans. HUD Secretary Shaun Donovan expects that this money could ultimately result in $35-40 billion of principal reductions, since servicers will not receive a dollar of credit towards fulfilling settlement responsibilities for every dollar of principal written down—servicers will likely receive 50 cents or less credit for every dollar written down. Negative equity has been shown to be a principal driver of foreclosure, and Illinoisans have lost billions of dollars in wealth due to plummeting home values. Approximately 380,000 homeowners in the Chicago region are underwater, with another 78,000 dangerously close to losing all of their equity. Woodstock estimates that the average underwater borrower in the Chicago region owes about $61,000 more than the value of his or her home. The rest of the homeowner assistance money will be put toward programs for short sales, forbearance for unemployed programs, waiving deficiency balances, stabilizing vacant homes, and other purposes.

At least $3 billion of the settlement will be put toward refinancing loans that are current but are underwater and have an interest rate of 5.25% or more. Monthly payments must be reduced by at least $100.

Servicers also agreed to a set of standards to improve their loan servicing operations. Servicers agreed to put the brakes on the “dual track” of simultaneously pursuing both a loan modification and a foreclosure on the same home. Under the settlement, servicers will be required to consider a borrower for a loan modification before initiating a foreclosure, increasing the chances of saving his or her home. Borrowers will also have the right to appeal a modification decision, which is crucial when servicers have been shown to have widespread problems with losing important documentation or incorrectly determining eligibility. Other changes to servicing procedures include:

• Improving communications with borrowers by requiring a notice of intention to proceed to foreclosure before foreclosure is initiated that informs borrowers of their rights to remain in the home until foreclosure is completed and explains the servicer’s right to foreclose, appointing a single point of contact for each borrower, informing borrowers of all foreclosure prevention options before foreclosure is filed, requiring timely responses to loan modification applications and other requests, creating an online portal so borrowers can track their modification status, and providing contact information of housing counselors to the borrower.

• Increasing thoroughness in preparation of foreclosure documents.

• Improving oversight of third parties involved in the foreclosure process.

• Requiring that servicers notify the borrower and local authorities when they decide not to complete a foreclosure on a property, a phenomenon documented in Woodstock Institute’s report “Left Behind: Troubled Foreclosed Properties and Servicer Accountability in Chicago.”

• Requiring that servicers have a sufficient number of adequately trained personnel to handle loss mitigation workloads in a timely and thorough manner.

• Improving transparency for proprietary modifications.

• Ensuring that servicing fees are reasonable and that late fees do not accrue during a trial modification.

• Enhancing protections for military service members in foreclosure.

• Enhancing participation in neighborhood stabilization programs, such as land banks.

Read more at RegionalHOPI.org

From the President: Banks should follow Chase's lead in adopting simpler disclosures for ...

kbuitrago@woodstockinst.org (Dory Rand) — Wed, 15 Feb 2012 22:07:33 GMT

Chase was the first bank to adopt a shorter, simplified checking account fee disclosure form in December of 2011. (The Pentagon Federal Credit Union and North Carolina State Employees' Credit Union adopted versions of the form in November 2011.) While the Chase form is three pages long, not one, it is a vast improvement over the usual 100-plus page document filled with fine print that most banks use.

Chase does a pretty good job of clearly identifying the most common types of fees on the first page of its three-page disclosure form. This page includes the following items included in the Pew form: monthly fee; requirements to waive monthly fee; ATM fees for using your bank’s ATM; ATM fees for using another bank’s ATM; insufficient funds fee; returned check fee; and, overdraft transfer fee. The Pew-recommended disclosure of a stop payment fee appears on page two of the Chase disclosure form.

Items recommended in the Pew form but not reflected in the Chase form include: minimum deposit needed to open account; account closing fee; and maximum number of overdraft transactions. Chase does include on page two of its form the maximum number of debit insufficient funds fees Chase charges per day (three charges of $34 each). Since some banks are now charging account closing fees, it would be a good idea to include this line in the disclosure form for comparison purposes even if a bank does not charge the fee. (Congressman Brad Miller of North Carolina has introduced legislation to prevent banks from charging customers fees to close a personal checking or savings account.)

Chase provides additional information about other fees on pages two and three of its disclosure form, including: Chase debit card coverage and fees; how deposits and withdrawals work; some other fees (stop payment and deposited item return fees); other ATM and debit card fees; statement services; wire transfers; miscellaneous; and, online banking services. The information on how deposits and withdrawals work is particularly important because it helps customers understand how much money is likely to be in the account at a given time based on how the bank processes the deposits. This information is critical to avoiding overdrafts and insufficient funds fees. Chase recently settled legal claims relating to this processing issue and changed its policy from processing the biggest payments first to generate fees to processing deposits first, followed by payments in the order in which they were authorized, then all other items.

One area in which Chase should improve its disclosure form is the section on overdraft fees. In the overdraft fee section on page one, Chase does not disclose that customers have a right to opt out of overdraft services. At the same time, the Chase form states that overdraft protection transfer fees apply “(If you are enrolled)”. The Pew form suggests inclusion of a line stating “No Overdraft Service” with a related explanation that “If you choose not to opt in to any kind of overdraft service, transactions that would cause an overdraft will be declined at no cost to you.” Chase should include a No Overdraft Service line in the top or bottom of the section on overdraft fees and link to information on how customers can opt out. Chase should also insert a parenthetical under the overdraft fees heading on page one as follows: “(If you opt in)”.

While we remain concerned regarding the amounts of fees charged, we applaud Chase for taking steps to make its fee policies clear to customers and encourage other banks and credit unions to follow the Pew form and these examples. We urge Chase to make the changes recommended here as quickly as possible.

Over community objections, the Federal Reserve approves Capital One acquisition of ING

kbuitrago@woodstockinst.org (Tom Feltner) — Wed, 15 Feb 2012 17:18:42 GMT

The Federal Reserve’s approval was made over the strong objections of consumer and community groups, who raised concerns about creating the nation’s fifth largest financial institution by deposits without putting in place safeguards to prevent widespread systemic risk. Capital One has a large subprime credit card portfolio and the ING Direct customer base represents an opportunity to expand that line of business dramatically.

“By approving this acquisition, the Federal Reserve Board has made it clear that when it comes to creating large, systemically risky financial institutions, it is business as usual,” said Woodstock Institute president Dory Rand.

The approval highlights the need to modernize the Community Reinvestment Act, which requires that financial institutions invest in the communities, including low-wealth communities, where they have a branch presence. Capital One has a limited branch presence on the East Coast, and ING Direct carries out the majority of its business through its website. In California and the Chicago region, two areas where Capital One does significant business but has no branch network, the Federal Reserve found that the bank’s mortgage market presence in communities of color was lower than the industry average. Without a branch presence in its major markets, including the Chicago region, the combined bank’s community commitments are unenforceable despite its large market share.

During public hearings on the merger held last year, Capital One made a large national pledge to provide mortgages, consumer credit and other products to low-wealth communities, but provided no local commitments to the Chicago region. In the only concessions to objectors’ demands, the Federal Reserve conditioned its approval on Capital One fulfilling the voluntary commitments it has made and providing the Federal Reserve with the results of an internal audit of consumer compliance.

Regulatory changes are needed to address how banks with a large market share, but limited branch presence, would be evaluated at the local level for their community reinvestment activity. Consumer and community groups expected federal banking regulators to announce a proposed rule to modernize the CRA last year.

“We are still waiting for the federal banking regulators to modernize the CRA,” said Rand. “We simply cannot have another merger of this size without local, verifiable, and enforceable commitments to serve low-wealth communities.”