The Automatic Debit That Can't Be Turned Off and Other Consumer Loan Nightmares

Receiving Wide Coverage ...

Consumer Debt Traps: The lead front-page story in Sunday's Times examined large banks' role in supporting online payday lenders that get around state interest-rate restrictions by locating offshore. At issue is the banks' automatic debiting of borrowers' accounts to pay the interest, authorized by the customers when they take out the loans. The problem is that the banks often continue to withdraw money to pay the loans even after accountholders ask them to stop. "I don't understand why my own bank just wouldn't listen to me," says one borrower. The article suggests this is driven by the megabanks' desire to rack up overdraft and nonsufficient-funds fees, rather than by incompetence. The CFPB and FDIC are investigating banks' involvement with this kind of lending, while New York financial regulator Benjamin Lawsky is probing the banks' role in helping the nonbank lenders evade state interest caps, the Times reports. … Another Times article looks at the struggles of young veterinarians to service the debt that paid their veterinary school tuition. … A special report on wealth management in today's Journal leads with "12 Debt Myths That Trip Up Consumers." Myth No. 2: "Credit cards from your favorite retailers are a good deal."

Wall Street Journal

"Debating Future of Fannie and Freddie" — This is a preview of a report released today by the Bipartisan Policy Center. Their plan sounds a lot like "option 3" from the Treasury white paper two years ago. Per the Journal: "The BPC paper calls for replacing Fannie Mae and Freddie Mac with a 'public guarantor' that would oversee a new mortgage market through which banks and other private companies would originate mortgages and issue mortgage-backed securities. … Private insurance companies would guarantee the mortgages and cover losses when loans default. The public guarantor would only step in if private-insurance providers were wiped out. To protect taxpayers, a fee paid on each issue of mortgage-backed securities would fund a separate federal insurance pool. … At the heart of the commission's report is the conclusion that the U.S. mortgage market should continue to offer access to low-cost, 30-year fixed-rate mortgages and that the government will need to play some market backstop."

An editorial skewers Citigroup for paying Treasury Secretary nominee Jack Lew the opposite of a stay bonus. "The terms of Mr. Lew's original employment contract with Citi included a bonus guarantee if he left the bank for a 'high level position with the United States government or regulatory body.' Most companies include incentives for top employees not to leave, but in this case the contract was written to reward Mr. Lew for treating the bank like a revolving door."