From the Dispatch

Payday Lending Abuses Reined In, As Colorado Joins Other States in Reform

Cristina Francisco-McGuire — Mon, 17 May 2010 16:37:16 +0000

The payday lending trap has been shorting working families to the tune of nearly $5 billion per year ever since the industry exploded onto the scene in the 1990’s. The number of payday lending institutions has jumped exponentially from 500 in 1990 to about 22,000 today (compared with 14,000 McDonald's), mainly targeting low-income African American and Latino communities.

But two weeks ago, Colorado enacted payday industry reforms, squeaking by with a one-vote margin in the Colorado House. Though lenders can still charge a $75 origination fee as well as monthly fees of up to $30 on top of interest, the bill addresses cycles of debt by capping APR interest rates at 45% and mandating that borrowers be given as long as six months to pay back loans.

Colorado’s joins sixteen other states and the District of Columbia which have already passed limits on interest rates for short-term loans, ranging from 17 percent to 60 percent.

Beyond Capping Interest Rates: A number of other reforms have been enacted or proposed in other states to prevent workers being bled dry by payday loans, including:

Oregon approved SB 993, which toughened existing predatory lending regulations by requiring any lender that derives more than 10% of its business from payday loans to acquire a license from the Dept. of Consumer and Business Services to conduct business, on top of the licenses already required by state and local law. The new law also creates new notice, reporting, and regulatory compliance requirements for payday lenders, the non-compliance of which can result in fines and other penalties.
Illinois’ HB 537 caps the APR on payday loans to 99%, indexes the loans based on the borrower’s ability to pay, and would require loans to be paid off in equal monthly installments with no balloon payments. After passing the House in April, it cleared the Senate in May and is waiting for a concurrence vote in the House.
The Ohio House passed HB209, which limits fees charged by payday lenders. Though Ohio already caps APRs at 28%, the fees were a way for lenders to get around regulations. Though it faces a tough battle in the Senate, Gov. Ted Strickland supports the legislation.
SB 193 passed both houses of the New Hampshire legislature, and establishes a 36% APR cap on all small loans under $10,000, including payday loans.
Though Iowa’s HF 2127, which would give payday lenders the option of capping the APR for loans at 36% or limiting the number of loans per borrower at six per year, was one vote short of moving out of a subcommittee, momentum is building. After 60 members of the Iowa Citizens for Community Improvement managed to shut down the operations of an Ace Cash Express in Des Moines in December 2009, Des Moines City Council members voted unanimously on May 13, 2010, to a six-month moratorium on new payday loan stores in the city.

Unfortunately, two states passed weaker legislation designed to appease the payday lending industry, throwing consumers under the proverbial bus in the process. Utah and Wisconsin both caved to threats that the industry would shed jobs with further regulation, approving bills that stopped short of requiring much-needed limits on interest rates.

Stopping Steps Backward: Advocates are also working to defeat legislation in California, AB 377, that would be a huge step backward, increases the maximum payday loan amount from $300 to $500 and allows lenders to charge consumers an APR as high as 459% for a two week loan. It would also establish de facto legalization of internet payday lending. It passed the Assembly in May 2009 and is awaiting a hearing in the Senate Judiciary Committee.

See the Center for Responsible Lending for more of the latest news on payday lending reform here. For a useful infographic on how payday lending works, visit The Consumerist.

Resources:
Center for Responsible Lending - Pay Day Lending
Coloradans for Payday Lending Reform
Consumer Federation of California, “CFC Opposes AB 377 (Mendoza) — Pro Payday Lenders, Anti Borrower”
Consumerist - How Predatory Lending Works, From Payday Loans To Rent-To-Own

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Financial Reform: Keep State AGs and State Law on the Beat Against Predatory Lending Practices

Nathan Newman — Mon, 10 May 2010 16:22:39 +0000

As Congress debates federal financial reform legislation, a key priority for financial industry lobbyists remains gutting provisions that would strengthen enforcement by state attorneys general and stopping the partial restoration of state powers to regulate national bank abuses against consumers. As we detailed three years ago, much of the damage to communities from subprime lending might have been avoided if the Bush Administration had not been able to shut down most state anti-predatory lending laws early in the decade.

Strengthening state power to regulate abuses by national banks has been a priority for reformers from the beginning of the financial reform process. While the bill approved in the House and the current leadership proposal in the Senate are not as strong in preserving state enforcement powers as some early proposals, under them state attorneys general would still retain the power to enforce federal law against national banks. Federal authority to preempt state banking laws would also be more limited than under our current laws. One broad amendment to keep current bad federal preemption of state banking laws was rejected last Thursday, although most conservative Senators voted for it. (Note that "states' rights" inevitably lose out in conservative hands when corporate interests want federal power to trump state regulations).

Stopping Bad Senate Deals on Preemption: Newspapers continue to report on deals being negotiated between conservative Democrats and Republicans to undermine state regulatory authority, even as national consumer leaders continue to speak out against any further preemption compromises. A letter sent to Senators on Friday by Americans for Financial Reform, a coalition made up of over 250 consumer, labor and civil rights groups, highlights the key arguments for why expanding state authority is so critical, including:

"Help from state AGs is critical to ensuring that consumers have at least minimum protections against reckless Wall Street practices. In addition, consumers are much more likely to complain to, and get a response from, state-based enforcement agencies."
"States need to be able to address new problems before they spread nationally, without waiting for federal regulators to notice them and respond... States that had tough anti-predatory lending laws (until they were preempted) had lower foreclosure rates than states without those laws. After state laws were preempted, national banks made riskier loans."
"It is critical to require a case-by-case assessment of state laws for purposes of federal preemption rather than permitting state laws to be wiped out broadly without due consideration for each law... the protections in the bill against excessive preemption need to be strengthened, substantively and procedurally, to ensure that the [federal government] must undertake a serious inquiry and not a pro forma one."

With critical votes happening all this week, Americans for Financial Reform has an action page with key alerts and tools for contacting Congress to express the need for real financial reform, including keeping authority in the states to protect consumers from national bank abuses.

Resources:
Progressive States Network - The Predatory Lending Bubble and How the Feds Made it Worse
Progressive States Network - Protecting State Consumer Protection from Preemption in Federal Financial Reform
Americans for Financial Reform - Elizabeth Warren and Attorney General Lisa Madigan Speak Out Against Preemption Deal
Americans for Financial Reform - Keep State Attorneys General On The Predatory Lending Beat: Oppose Amendments To Further Preempt State Authority

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Foreclosure and Anti-Predatory Lending Reforms

Julie Bero — Mon, 07 Dec 2009 16:54:08 +0000

There will be 2.4 million foreclosures in 2009 along with 9 million foreclosures between 2009-2012, according to the Center for Responsible Lending (CRL). CRL also estimates that 69 million homes will lose property value because of nearby foreclosures for a total property value loss of $502 billion.

As part of our Multi-State Shared Agenda, the Progressive States Network is working with its partners and leading experts to promote reforms to stem the foreclosure crisis and put in place reforms to discourage predatory lending practices in the future.

Through coordinated, strategic support, PSN and our allies will be working to introduce and advance legislation to address foreclosure and predatory lending reforms, providing model legislation, policy analysis, messaging and more - all of which has been gathered and will be constantly updated on our Foreclosure & Predatory Lending web page.

Our policy staff are also available to answer questions and supply information not on the website. Legislators and advocates can contact us about supporting the Foreclosure Reform and Anti-Predatory Lending campaign through our website or by emailing foreclosure@progressivestates.org.

Table of Contents:

- Summary of Policy and Why It Matters

- Messaging on Anti-Foreclosure Policy

- Building a Campaign

- PSN Support in Your States

Summary of Policy and Why It Matters

Although record foreclosures are currently wreaking havoc in communities across the nation, the federal response has been weak and has so far failed to stem the rising tide of foreclosures. Many borrowers have little or no contact with their creditor prior to foreclosure, not to mention attempts to modify the mortgage.

Why Anti-Foreclosure Policy Matters: Mandating foreclosure mediation will bring the parties together, which will lower the number of foreclosures without allocating scarce resources. Requiring lenders foreclosing on homes to maintain those properties and giving foreclosed homeowners the right to remain in their homes as renters for a specific amount of time will keep vacant homes from contributing to blight, and help prevent homeowners from having their families' lives disrupted. By cracking down on illegal practices by predatory lenders, particularly giving whistleblower protection to front-line banking employees, states can stop the exploitation of moderate- and low-income communities.

Based on the best of state policies enacted and recommendations of national experts, the following are some key model provisions for alleviating the crisis for families and communities due to the foreclosure crisis.

Bill Summary: Summary of Foreclosure Prevention and Mitigation Legislation
Model Legislation: Mandatory Mediation Provision Tenant Rights in Foreclosure Whistleblower Protection for Employees of Financial Institutions Maintenance of Property The Right to Rent Act of 2009 from CEPR

Bill Summary:

Summary of Foreclosure Prevention and Mitigation Legislation

Model Legislation:

Key Provisions include:

Mediation Before Foreclosure: Mandatory mediation increases the chance that a mortgage will be modified so that the borrower can stay in their home, while not reducing the ability of the lender to refuse a modification request. By getting the opinion of a neutral party and forcing the lender to the table, foreclosures can be avoided.
Maintenance of Properties Before and After Foreclosure: Legislation would require banks to repair properties before a home can be foreclosed upon, a key measure to preserving communities. Requiring new owners to upkeep foreclosed property will contain the effects of the subprime foreclosure crisis since lack of upkeep on foreclosed homes brings down the appearance and property values of the surrounding area. Upkeep requirements and penalties can offset this burden on communities.
Notice to Tenants of Foreclosure: Legislation would require that tenants and others with interests in any building would have to receive notice of any pending foreclosure action. They would be given notice and greater protection from summary eviction with greater due process.
Right to Rent after Foreclosure: Instead of foreclosure leading to millions of vacant properties, this legislation would allow homeowners facing foreclosure the option of renting their home at fair market rate. People facing foreclosure would be allowed to stay on as renters even if the foreclosure goes through, helping them keep a roof over their heads. The proposal requires no tax payer dollars and would help preserve neighborhoods by keeping community members in their homes as long-term renters.
Whistleblower Protection: Legislation would protect the employees of financial institutions from retaliation when they reveal criminal or unethical conduct by their employers, which can help bring predatory practices to light. Such free speech protection is essential to bringing these practices to light. States should also empower workers to resist pressure to engage in illegal or unethical conduct when an employee reasonably believes the company "to be in violation of any law, rule, or regulation, or to be unfair, deceptive, or abusive and likely to cause specific and substantial injury to one or more consumers.” This will empower the employee to stop the bad practice right away by refusing to cooperate.

Messaging on Anti-Foreclosure Policy

Address the Financial Insecurity of American Families: Homeowners who thought themselves financially secure are now vulnerable in a way most never even contemplated.

Because federal reforms have been slow, state leaders have a political opening to take strong action to address these concerns.
Indeed much voter discontent is the result of anxiety from economic problems and voters should respond favorably to actions that are low cost, but effective, in reducing foreclosures and bankruptcies.

Tap the Public Anger Against Financial Institutions: Average Americans are absolutely incensed about what appears to be a rigged financial system where businesses destroy jobs and wealth, only to be rewarded with government bailouts.

74% of the public believes "The greed and risky decisions of banks and financial companies led to the financial crisis and recession" and that the government should crack down on them through regulations.
The current economic turmoil has also sparked a significant increase in populist sentiment, which continues to grow as major bad actors in the financial industry swing quickly to profitability and reinstate obscene pay structures.
A direct push on wayward financial institutions will bring predatory practices to light, reinforcing sentiment in favor of reform.

Requiring Buyers to Maintain Foreclosed Properties and Allowing Former Owners to Rent Them can Preserve Communities.

Foreclosures have a "spillover" effect by depressing the value of nearby homes—most owned by families who are paying their mortgages on time. This results in lower property values for homeowners and a reduced tax base for communities. During the period 2009-2012, the Center for Responsible Lending projects that foreclosures will cost 92 million U.S. families some $1.9 trillion in lower home values--an average of $20,300 in lost wealth per household.
Requiring lenders to maintain foreclosed property, and fining them if they don't, is a strong way to decrease the blight that the foreclosure crisis has brought to many communities. These laws also help cash-strapped municipalities that have taken on the burden of maintaining these homes themselves in order to preserve their neighborhoods and property values.
The potential costs of maintenance may deter foreclosures from happening in the first place.
As Dean Baker of the Center on Political and Economic Research wrote in the Los Angeles Times, "By keeping homes occupied, "right to rent" also would be a boon to communities that have been especially hard-hit by foreclosures. Often foreclosed homes are abandoned, with unkempt lawns, broken windows and other property damage." Keeping former owners in their homes as renters is a big step towards maintaining communities.

Whistleblower Protection for Bank Employees can Deter Bad Bank Practices: Protecting the employees of financial institutions from retaliation when they reveal criminal or unethical conduct by their employers can help bring predatory practices to light. Many tellers, loan officers and other retail banking employees report a culture of corruption with managers firing workers who don't engage in predatory practices. Many of these employees want to do the right thing and put a stop to these practices, which undermine the financial well-being of their clients, but fear of losing their jobs keeps them from doing so.

Building a Campaign

There are a few broad-based archives of policies adopted around the country to ease the foreclosure crisis, including:

Other Key Organizations Supporting Foreclosure and Predatory Lending Reforms: Americans for Fairness in Lending (AFFIL), National Consumer Law Center Foreclosure Prevention, ACORN Stop Foreclosures Campaign, DEMOS.

Key Information on the Foreclosure Crisis: The Impact of Bad Lending State-by-State (CRL), State by State Foreclosure Fact Sheets (CRL), Snapshot of a Foreclosure Crisis: 15 Fast Facts (CRL).

Overall Analysis of Reform: Beyond the Mortgage Meltdown: Addressing the Current Crisis, Avoiding a Future Catastrophe (DEMOS), Assets & Opportunity Special Report: Net Worth, Wealth Inequality and Home Ownership during the Bubble Years (CFED).

Malfeasance of Subprime Brokers: For more specific information on the worst of the scams against home loan borrowers, see Steered Wrong: Brokers, Borrowers, and Subprime Loans (CRL), Predatory Lending Scams Targeting First-Time Homebuyers (NEDAP).

Effects of Subprime Mortgages on Communities: A number of reports detail the broad-based damage to communities from the foreclosure crisis, including Soaring Spillover: Accelerating Foreclosures to Cost Neighbors $502 billion in 2009 alone; 69.5 million homes lose $7,200 on average (CRL), Neighborhood and Individual Impact of the Subprime Mortgage Lending Crisis: Reporter’s Guide (AFFIL), Home Insecurity: A set of reports on neighborhoods in trouble due to foreclosure (ACORN).

On Importance of Whistleblower Protection for Banking Employees: For more on why free speech rights for bank employees can help blow the whistle on predatory lending practices in the future, see Protecting Whistleblowers (Public Citizen), Protecting Consumers and Workers Fact Sheet and Whistleblower Protections Archive (SEIU).

Racial and Other Disparities in Subprime Lending: A number of reports detail the racial and gender disparities involved in the lending industry, including:

Unfair Lending: The Effect of Race and Ethnicity on the Price of Subprime Mortgages (CRL)
The Impact of the Home Equity Lending Market on Latino Consumers (NCLR)
Women are Prime Targets for Subprime Lending (Consumer Federation of America)
Foreclosure Exposure: A study of racial and income disparities in home shortage lending in 172 American cities (ACORN)
Foreclosure Exposure 2: The Cost to Our Cities and Neighborhoods (ACORN)
Paying More for the American Dream: The Subprime Shakeout and Its Impact on Lower-Income and Minority Communities (California Reinvestment Coalition)

PSN Support in Your States

PSN has already begun working with legislators and advocates to provide support for them as they introduce foreclosure reforms around the country. We'd like to work with many more!

Our policy staff are also available to answer questions and supply information not on the website. Legislators and advocates can contact us about supporting Foreclosure and Anti-Predatory Lending campaigns through our website or by emailing foreclosure@progressivestates.org.

As bills are introduced and sessions begin, PSN will provide ongoing resources and updates on foreclosure reform and anti-predatory lending legislation, as well as help coordinate strategy and information sharing with our partners among sponsors and advocates.

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Compromise Preserves State Power to Protect Consumers from Abuses by National Banks in Proposed U.S. House Bill

Nathan Newman — Thu, 22 Oct 2009 16:31:07 +0000

Yesterday, the U.S. House Banking Committee defeated amendments that would have gutted provisions in law to restore state powers to protect consumers of national banks. Instead, the Committee approved compromise language that, while not as expansive in the protection of state legislation as the Obama administration had urged, is still a significant victory overall against large financial interests. By a vote of 29-38, the committee defeated a proposed amendment by Rep. Jeb Hensarling (R-Texas) that would have preempted all state regulation of national financial institutions.

As we detailed last month, the provisions to restore state authority to enforce consumer protections against abuses by national banks have been one of the most contentious parts of the new legislation (see also our conference call on the issue). The amendment that was approved would give the Office of the Comptroller of the Currency, which regulates national banks, the optional power to override the states, but only if it found that the state law “significantly” interfered with federal regulatory policies. Since under the Bush Administration, the Office of the Comptroller had claimed the right to preempt state law automatically without any evidence of interference with federal policies, this will be a significant change in legal standards.

Especially given the stated Obama administration strengthening of state regulation, this amendment should preserve the ability of states to promote stronger consumer fraud law, repossession, foreclosure, and collection law reforms applied to national banks in coming years.

Resources:
Progressive States Network - Protecting State Consumer Protection from Preemption in Federal Financial Reform
Americans for Financial Reform - Summary of Preemption and Relation to State Law Provisions in The Consumer Financial Protection Agency Act of 2009: H.R. 3126

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Protecting State Consumer Protection from Preemption in Federal Financial Reform

PSN — Thu, 10 Sep 2009 17:22:24 +0000

As Congress moves to enact new federal laws governing financial institutions, Progressive States Action is teaming up with Americans for Financial Reform, a coalition of nearly 200 national, state and local consumer, labor, retiree, investor, community and civil rights groups to sponsor a conference call on why state leaders need to mobilize to protect state consumer protection laws from federal preemption. Currently, proposed federal legislation includes language that safeguards the ability of states to take independent action to protect consumers, but the banking industry is seeking amendments that would override state consumer protection laws and eliminate the ability of state and local prosecutors to act on behalf of consumers defrauded by financial institutions.

Please join us Tuesday, September 15th at 12 noon EST for this important discussion to highlight the need for state leaders to call for federal reform that treats states as partners in reform and honors a tradition of collaborative federalism in consumer protection. The call will bring together legislators and state organizational leaders from around the country to highlight the importance of including strong non-preemption language in federal financial reform legislation.

Please RSVP at www.progressivestates.org/conferencecallrsvp.

We also urge you to call and send a letter to your Congressional Representative urging that federal reforms include strong provisions to strengthen state authority to protect consumers from financial industry abuses. Send a letter to your Congressperson here.

The context of this call is that, in the wake of the financial meltdown that engulfed the country last year largely caused by fraud and predatory lending, Congress is now debating the Consumer Financial Protection Agency Act (CFPA Act, H 3126). The act would create a consumer product protection agency for financial products analogous to the Consumer Product Safety Board.

Crucially, in the current proposed version of the legislation, the ability of states to also enforce their own tougher lending laws against national banks will be explicitly protected. Keeping this provision in the bill is shaping up to be the big fight as the legislation moves through Congress. As the CFPA Act goes to markup this month in the House Financial Services Committee, the major goal of banks and their legislative allies is stripping states of the power to enforce not only federal law, but also their own state lending laws. Now the banks and their allies, which includes a large block of moderate Democrats on the House Financial Services Committee, want to block the robust state regulation that could have helped prevent the financial crisis from exploding in the first place.

The crucial non-preemption provisions in the current version of the CFPA Act include:

Federal law would preempt only inconsistent state laws and regulations, and only to the extent of the inconsistency. State laws and regulations that provide greater protection are not inconsistent.
Concurrent state attorney general enforcement authorized. State AGs can bring any action in court to require bank to produce records relating to investigation of state or federal consumer laws or to enforce applicable state or federal law as authorized by such law.
Bush-era rules preempting state regulation of national banks would be overturned. State consumer laws of general applicability, including UDAP laws, consumer fraud law, repossession, foreclosure, and collection law, would apply to national banks.
It would assure that states could, for example, limit negative amortization and protect the right of states to regulate terms such as prepayment penalties on all mortgages, including ARMs.

In order to preserve the anti-preemption language in the CFPA Act, state lawmakers and advocates will need to make clear to House Financial Services Committee Members that retaining the power of the states to enforce their own consumer protection laws against nationally chartered banks is imperative. Efforts to strip states of this power will be central to the committee markup process soon to begin. Without strong progressive support for states' rights in this area, we can expect any new national protections to come at the expense of what the states are already doing.

Progressive state legislators have a critical role to play in convincing their counterparts at the national level how important state enforcement of state laws is to your constituents. House members must be educated about the regulatory failings that led to the current crisis, how states were hamstrung and couldn't step in to protect consumers, and how this scenario will repeat itself if the financial services industry gets its way. Because state legislators are closer to the ground and are likely more aware of predatory lending practices and products in their districts, they have an important perspective to impart.

Resources:
Consumer Financial Protection Agency Act (CFPA Act, H 3126).
Americans for Financial Reform - Summary of Preemption and Relation to State Law Provisions in The Consumer Financial Protection Agency Act of 2009: H.R. 3126
Center for Responsible Lending
National Consumer Law Center
Consumer Federation of America - Testimony on the Consumer Financial Product Agency Act
Center for Responsible Lending - Making Consumer Protection Work

Table of Contents

- Why State Action is Crucial for Consumer Protection in the Financial Industry

- State Strategies for Protecting Borrowers in 2010

- Conclusion

Why State Action is Crucial for Consumer Protection in the Financial Industry

As we've written about before, aggressive federal preemption of state laws, especially those designed to protect consumers, is one of the legacies of our conservative governance that we must reverse if we are to make real strides in protecting Americans from a variety of corporate abuses.

For years before the recent mortgage meltdown, states were canaries in the coal mine, sounding warnings of fundamental problems in the mortgage market. But during the Bush administration the Office of the Comptroller of the Currency (OCC, which supervises national banks) began asserting that the National Bank Act preempted state enforcement of state lending laws against national banks. This created a regulatory vacuum in which sub-prime and other predatory lending practices grew largely unchecked. The Supreme Court overturned part of that ill-conceived theory in a case last term, Cuomo v the Clearing House Association and the Office of the Comptroller of the Currency, where, in a landmark ruling the court found that while the law prevents states from regulating the internal operations of nationally chartered banks, they remain free to enforce criminal statutes against subprime abuses and other predatory lending practices. The CPFA Act would build on that court decision to strengthen state oversight roles.

Why does state oversight matter?

States can catch problems early, before they become nationwide: States are closer to the ground, and have been better able to see emerging issues and problems. For years before the recent mortgage meltdown, states were canaries in the coal mine, sounding warnings of fundamental problems in the mortgage market.
State laws provide useful data-points for federal policymakers: Congress has often looked to the states for workable solutions to take nationwide in consumer protection, as in other arenas. Iowa, for example, pioneered a legal framework for electronic funds transfers that was used as a model for the federal Electronic Funds Transfer Act in the 70s. Congress has looked to those state laws in crafting some of the current proposals. This is more than just saving Congress work. Without the creative input and local action of states protecting consumers we can expect financial institutions to remain several steps ahead of regulators, just where they have been for the years leading up to the current financial crisis.
States must be able to address local problems: Not all problems that arise locally are destined to metastasize to national problems. But that does not mean that states' hands should be tied by preemption. While a higher federal "floor" for regulation is needed, that federal floor should also assure that states have the right — and the responsibility and accountability — to address local problems. State enforcement of financial protections are necessary therefore because even when a predatory practice is identified by the feds, action is only taken when the problem becomes regional or national in scope, so the majority of predatory practices will not be curbed by the feds until many local families have already suffered.

Federal Enforcement is not Enough: Opponents use false arguments that "patchwork regulation" will add costs to banks which will then pass these costs to consumers, yet these are the same opponents who justify abusive fees imposed on consumers by those same banks. The egregious overdraft practices that strip an estimated $17 billion (and rising) from deposit accounts (hitting the elderly especially hard) have become industry standard. The reality is that the federal banking regulatory agencies issued “guidances” and “best practices” for these unfair, deceptive and wealth-stripping “conveniences," but did nothing to enforce them.

If we have learned anything from the recent financial meltdown, it is that trusting any single institution to safeguard the financial system is misguided. More eyes, both at the state as well as federal level, are the best guarantee that malfeasance and illegal activity will be stopped before the damage gets out of control. Even with a renewed federal effort to prevent abuses by national banks, there are almost 20 times as many enforcement personnel in the offices of state attorney general than there are at OCC. As a comprehensive report produced on behalf of the nation's state attorneys general details in analyzing the need to allow greater state enforcement in new legislation:

Like the existing federal regulators, no new agency created to protect consumers will ever have enough resources to comprehensively reform the financial marketplace across the entire nation. State authorities can maximize resources and bring a more localized focus to ensure widespread compliance with the new rules.

States therefore have a critical role to play in adding cops on the financial protection beat. It is clearly impossible for federal regulators to monitor the local practices of every national bank, so strengthening the role of the states is a key step to cracking down on consumer abuses across the nation.

Resources:
Progressive States Network - The Predatory Lending Bubble and How the Feds Made it Worse
Progressive States Network - Restoring State Authority: An Agenda to Restrict Preemption of State Laws
Center for Responsible Lending - The CFPA and Preemption: The Federal Floor and the Need for States to Be “First Responders"
Center for Responsible Lending - Respecting the Role of the States: Maintaining State Law as Backstop Protection Against Local Abuses
National Attorneys General Training and Research Institute - Sharing Enforcement of the New Financial Regulations

State Strategies for Protecting Borrowers in 2010

In addition to helping make sure that states' prerogative to enforce their own laws is protected in the CFPA Act, lawmakers should also consider improving their own states mortgage finance and predatory lending laws. The effects of the Great Recession will continue to be felt for years to come, but there are many steps that states can take, regardless of the outcome of CFPA Act negotiations, that will both help to ameliorate the current foreclosure and debt crisis, and prevent new damage from financial predators. Here are some of the most promising reforms.

Mandatory Mortgage Mediation: Requiring that banks or servicers go through a mediation process to attempt a workout of delinquent mortgages is a no-cost reform that should greatly increase the number of loan workouts lenders make. Most borrowers never have any direct contact with their lender before foreclosure is begun, in these situations there is little opportunity for a resolution short of losing one's home. Miami recently began such a program, and Philadelphia has kept thousands in their homes with mandatory mediation.
Anti-Blight Measures: Requiring lenders to maintain foreclosed property, and fining them if they don't, is a strong way to decrease the blight that the foreclosure crisis has brought to many communities. These laws also help cash-strapped municipalities that have taken on the burden of maintaining these homes themselves in order to preserve their neighborhoods and property values.
Own to Rent Statutes: Requiring lenders to allow borrowers whose homes have been foreclosed on to remain in their homes as renters for a specified number of years is another no-cost solution to the collateral consequences of the crisis - displaced families, broken communities, joblessness, and homelessness. Under this law owners would become tenants if they could afford market rent as determined by an independent appraisal.
Whistle blower Protection for Financial Services Workers: Protecting the employees of financial institutions from retaliation when they reveal criminal or unethical conduct by their employers can help bring predatory practices to light. Many tellers, loan officers and other retail banking employees report a culture of corruption with managers firing workers who don't engage in predatory practices. Many of these employees want to do the right thing and put a stop to these practices which undermine the financial well-being of their clients, but fear for their jobs keeps them from doing so. Statutory protection against retaliation for workers who file administrative or legal complaints, or testify in an administrative or legal proceeding regarding prohibited practices by the employer, are essential to bringing these practices to light.
Protections Against Engaging in Predatory Practices: States can go even farther in empowering workers to resist pressure to engage in illegal or unethical conduct by giving workers specific protection when they refuse to participate in, any activity, policy, practice, or assigned task that the employee reasonably believed to be in violation of any law, rule, or regulation, or to be unfair, deceptive, or abusive and likely to cause specific and substantial injury to one or more consumers.” This would empower the employee to stop the bad practice right away by refusing to cooperate, instead of having to wait until they made an official complaint to receive whistle blower protection.

Resources:
ACORN - Road to Rescue: How the Philadelphia Model Can Reduce Foreclosures
Chula Vista, CA - Abandoned Residential Property Program
Dean Baker, The Guardian - How to Solve the Housing Crisis
SEIU - Protecting Consumers and Workers Factsheet

Conclusion

One of the greatest problems contributing to the current crisis in the credit markets has been federal obstruction of state authority to protect consumers. New federal legislation should ensure that the states serve as a backstop against weak federal rules or lax enforcement in the future. States are more connected to conditions on the ground than a centralized federal agency. When one state passes a more protective law, that should be a red flag to the federal government that they need to evaluate whether there is a problem that requires a federal rule.

Ultimately, collaboration between states and the federal government leads to more effective oversight. Leaders in the states need to deliver that message to Congress.

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The Supreme Court and the States 2008-2009: Trend Defending State Authority Emerges this Term

Nathan Newman — Tue, 14 Jul 2009 15:41:02 +0000

Whether out of circumstance or an emerging trend, where state authority was at issue, this term the U.S. Supreme Court overwhelmingly deferred to state decisionmakers-- a significant reveral from last year. There were major exceptions -- the Ricci decision preempting the affirmative action decision by the City of New Haven being the most prominent -- but the results in favor of state authority overall were relatively broadbased. In the context of President Obama's recent endorsement of less preemption of state laws by federal regulators, we may be seeing a more general reversal of trends that had increasingly undermined state authority. Still, any trend on this Court is provisional since it continued its politicization and divisions, ruling on 79 cases where 23 of which, according to SCOTUSblog, were split 5-4.

Overall Resources:
Scotusblog.com - Statpack
ScotusWiki - Case Index OT08

Table of Contents:

- Upholding State Regulation of the Economy

- Civil Rights and the States

- Criminal Justice Decisions Mixed for Local Authority

- Conclusion

Upholding State Regulation of the Economy

In major decisions, the Supreme Court made dramatic decisions affirming state authority to rein in corporate malfeasance even where federal regulations had been enacted in the same policy area.

Expanding State Regulation of Banks: A blockbuster decision was Cuomo v. The Clearing House Ass’n, L.L.C. which ruled that federal banking regulations did not preempt states from enforcing their own fair-lending laws. The ability of New York's attorney general to bring enforcement actions over banks' residential real-estate lending practices was upheld, a reversal of past court trends that had favored federal regulations at the expense of state regulations.

The decision in many ways come five years too late, since as we wrote back in 2007, Bush administration rules and lower court decisions blocking state fair lending rules allowed the subprime debacle to explode. But as new federal laws are being written to regulate the financial industry, the decision will help reinforce proposals to explicitly make federally chartered institutions subject to state consumer and civil rights laws and allow states to enforce some federal consumer protection laws.

Upholding State Regulations Against Deceptive Marketing Practices: A major goal of the corporate legal right wing has been to gut state tort laws in the name of federal preemption-- and the Supreme Court dealt that a double loss this term in the Wyeth and Altria decisions.

In Wyeth v. Levine, the Court held 6-3 that federal drug labelling rules did not preempt state tort laws holding companies responsible for inadequate warnings over the dangers or procedures for safely using prescription drugs. Justice Thomas, notably, took the broadest position that he would no longer support claims against state laws based on "implied" preemption, instead arguing the burden should be on Congress to make clear its intent to preempt state law.
Similarly, in Altria Group v. Good, the Court held that state laws challenging the marketing of "light" cigarettes were not preempted by either the Federal Cigarette Labeling and Advertising Act or the regulatory actions of the Federal Trade Commission.

In two key labor decisions-- one which was against the interests of unions and one in support of them -- the common denominator was that state governments were given greater discretion over union fees paid by employees:

In Locke v. Karass, the Court ruled that states may enter into collective bargaining agreements that require public employees to pay agency fees that finance litigation by a parent union, as long as such litigation is related to collective bargaining rather than political issues.
In Ysura v. Pocatello Education Association, the Court found states also have the discretion to ban payroll deductions for labor union political activities, even when the state ban applies to the deductions from the paychecks of local government workers.

Protecting Integrity of Jury Decisions: As we highlighted a few weeks ago, the Caperton v Massey decision protected state jury decisions regulating the behavior of businesses from local judges corrupted by corporate campaign contributions. In that case, a $50 million jury award against a West Virginia coal company was overturned by the state's Supreme Court, the deciding vote by a judge whose campaign had received $3 million by the coal company. The U.S. Supreme Court in turn ruled that the judge should have recused himself due to such clear conflict of interest.

Resources
Progressive States Network - States' Victory Against Preemption: FDA Approval Does not Block State Tort Claims Against Drug Makers
Progressive States Network - Judge Ruling in Favor of Big Contributor Ruled Illegal by U.S. Supreme Court
Constitutional Accountability Center - Supreme Court Decides Wyeth: A Victory for Diana Levine and the Constitution
Jurist - National Bank Act does not prevent state enforcement: Supreme Court

Civil Rights and the States

Where it came to the issue of race and civil rights, on the other hand, the conservative majority that controlled most decisions tended to uphold state or federal authority based on which was more hostile to rectifying racial inequality.

Judicial Activism Against Local Decisions in Ricci: It is ironic that the most famous case of the session, Ricci v. DeStefano was also the most dramatic example of the conservative majority on the Court disregarding local government authority. In this case, a local decision that a test for the promotion of firefighters was racially biased -- and thus should not be used -- was deemed illegal reverse discrimination under federal civil rights laws. Even more problematically, the Court majority indicated an inclination to void a much wider range of employer actions seeking integrated workplaces as illegal under the 14th Amendment. "The Supreme Court's interpretation imposes new burdens on employers and makes it more difficult to maintain a discrimination-free workplace," said John Payton, president and director-counsel of the NAACP Legal Defense Fund.

Weakening the Federal Voting Rights Act: Conversely, as we detailed in March, the Court in its 5-4 Bartlett decision narrowed the scope of the Voting Rights Act by ruling that when minority voters make up less than 50 percent of the voting age population, states can ignore provisions of the law meant to keep minority votes from being diluted during redistricting.

And in Northwest Austin Municipal District No. 1 v. Holder, the Court created new exceptions to the Voting Rights Act that allow local government jurisdictions to "bail out" of a provision in the Voting Rights Act that requires federal pre-clearance for changes in election procedures in a number of states. Even more worrisome for civil rights, conservatives on the court indicated a willingness in the future to strike down larger swathes of the federal Voting Rights Act.

Language Access in Schools: In Horne v. Flores, the Court expanded states' ability to escape federal laws requiring them to take “appropriate action” to help English language learners overcome language obstacles. Back in 2000, a a federal district judge found that Arizona's minimal spending on instruction for English language learners violated the federal Equal Educational Opportunity Act. In a decision written by Justice Samuel A. Alito Jr., the Court majority limited lower court decisions requiring more spending to assure equality for non-native speakers in schools.

Rights of Special Needs Students: On the other hand, in its Forest Grove School District v. T.A decision, school districts are now required under the Individuals with Disabilities Education Act to reimburse parents for the hefty costs of sending a child with special needs to private schools for services that were unavailable in public school, even where the child had never even attended public school.

Access to Public Space by Religious Minorities Limited: In Pleasant Grove City v. Summun, the Court ruled that a municipality was not required to allow other religious groups to erect their own religious monuments just because a Ten Commandments monument existed in a park. However, after the Supreme Court decision came down, the municipality made further litigation moot by moving the Ten Commandments monument out of the park.

Resources:
Alliance for Justice - Alliance for Justice Supreme Court Review: Analysis of the 2008-2009 Term
Civilrights.org - Civil Rights in the Supreme Court: Wrapping up the 2008-2009 Term
Think Progress - The Supreme Court Term In Review, Part III: Anti-Discrimination
Progressive States Network - Supreme Court Limits Redistricting Provision of Voting Rights Act

Criminal Justice Decisions Mixed for Local Authority

As is usual, the criminal justice docket was a mixed bag, weakening individual rights for defendants in some cases, while giving law enforcement a more free hand in others.

Cases Strengthening Police Powers: In one of its highest profile criminal justice cases of the term, the Court overruled a longstanding precedent to make it easier for police to obtain a waiver of counsel from suspects in Montejo v. Louisiana. The Court held that the right to counsel could be waived “so long as relinquishment of the right is voluntary, knowing and intelligent,” which could be established by the state’s rote recitation of the defendant’s Miranda rights, and the defendant’s un-counseled and voluntary waiver of those rights. Other cases strengthened police and prosecutor powers included:

In Herring the Court weakened protections against illegal searches and seizures by holding that it was not necessary to exclude evidence that had been obtained pursuant to a warrant based on erroneous evidence that was negligently supplied by a police clerk. The opinion suggests a broader trend toward allowing the use of evidence obtained through police negligence.
In its Osborne decision, the court rejected a claim that those convicted of crimes had a due process right to DNA testing to prove their innocence. Although Alaska is one of the few states that has no DNA testing law, the court reasoned that since 46 states already have such a law, it should not ''short-circuit'' the legislative process by mandating it for all jurisdictions.
In Van de Kamp v. Goldstein, the Court strengthened the immunity from prosecution that prosecutors enjoy.
Arizona v. Johnson expanded the stop and frisk powers of police.
Oregon v. Ice strengthened judicial power to impose consecutive sentences based on facts that were not found by the jury, but only by the judge.

Cases Favoring Defendants Against Police and Prosecutors: On the other hand, defendants won a number of victories against state police powers. These included:

In Melendez-Diaz, the Court ruled that a state forensic analyst's laboratory report prepared for use in a criminal prosecution is "testimonial" evidence, meaning that defendant has the right under the Confrontation Clause to require forensics staff to testify and be cross-examined at all trials.
Arizona v. Gant restricted the power of the police to search a vehicle seized in the course of an arrest.
And in Safford Unified School District #1 v. Redding, the Court held that school authorities violated the Fourth Amendment right by applying a strip search to a 13-year old girl who was suspected of having ibuprofen.

Resources:
Think Progress - The Supreme Court Term In Review, Part II: Criminal Justice

Conclusion

Future terms will show how durable this term's trend of the Court deferring to state authority will be, but the fact that conservative Justices Thomas and Scalia each joined one or more of the decisions giving states greater authority to regulate corporations means there may be a longer-lasting judicial coalition emerging to defend state authority adding an extra set of regulatory eyes on corporate malfeasance. No doubt, the spectacular federal regulatory breakdown around the financial crisis has dimmed the corporate argument that a single federal regulatory scheme is sufficient to protect consumers. On the other hand, the Ricci decision shows the conservative majority's ongoing commitment to using federal power to overturn local affirmative action actions is unabated even as those same conservative Justices seem determined to weaken federal commitments to racial equality.

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The Financial Bailout and the Challenge for the States: De-Leveraging Working Families

Nathan Newman — Mon, 29 Sep 2008 22:09:42 +0000

According to The Wall Street Journal, "Fed and Treasury officials have identified the disease. It's called de-leveraging, or the unwinding of debt. During the credit boom, financial institutions and American households took on too much debt."

But let's not buy into a false equivalence of "financial institutions" and those "American households" borrowing beyond their means. Wall Street leverage was built on obscene wealth looking to become only more obscene, while the leveraging and debt of working families was driven by expanding income inequality, stagnant wages and rising health care costs that left families with less and less money available to gain a basic foothold in the American middle class.

As this Dispatch will emphasize, policymakers need to not just “de-leverage" the burden of debt speculators in the financial casino; they need to take action to reverse the economic burden on working families that has forced so many of them into debt in the first place.

The Real Crisis Facing Working Families

Let's be clear: the crisis we're talking about today is not shareholders losing a few dollars or even a few firms ceasing to exist and their traders losing their jobs. That just reflects the real crisis that has been sweeping across this nation for years. For regular families, it is not about financial speculation, but being driven into debt by what New York Times writer Steven Greenhouse has called in his recent book the Big Squeeze:

The bottom 90% of households saw only a 10% increase in real income in the three decades between 1976 and 2006, while the richest 1% saw a 232% income increase in the same period.
In the most recent 2000s business cycle, employment increased at only one-third of the pace of the 1990s cycle.
A quarter to thirty percent of the jobs actually created since 2000 were due to the housing bubble, a froth of jobs that are quickly disappearing. Yet, between 1995 and 2005, our nation has lost 3 million core manufacturing jobs that represented real wealth creation, almost all of that loss occurring during the 2000s business cycle.
Real costs burdening families have been escalating. The recent jump in energy prices comes on top of rising education costs, day care costs, and most punishingly, health care costs. One study found that 49 million Americans under 65 lived in families where more than 10 percent of family income went to health care costs, with 19 million spending 20 percent of income on health care.

The result of this squeeze of stagnant incomes and rising costs is unsurprising. With less money in their pockets, families were pushed into greater debt, which became a vice pushing many of those with homes into foreclosure as the housing bubble bursts and prices fall, especially as the predatory terms of their "subprime mortgages" sprung into action.

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State Leaders Saw the Subprime Mortgage Crisis Coming - But Feds Block Reforms

Even as those economic realities building up over years were ignored by national politicians and the mainstream media, those same national political leaders and media were lauding and even encouraging "financial innovation." At its core, this "innovation" meant using advanced technology to skirt regulation of things previously prohibited under the law and taking risks with debt that previous generations of regulators would have prohibited without the capital on hand to back up failed loans.

That those loans are going bad in communities across the country speaks to the real economic burdens on families; many families facing these burdens were lured into mortgages with "subprime" terms that left them in economic traps when the housing market went south.

Some in Congress actually recognized the problem of under-capitalized mortgages as early as 1994, when they passed the Homeownership Opportunity and Equity Protection Act. This law required the Federal Reserve to regulate the loan-origination standards of mortgage companies that were not otherwise government-regulated. But Fed Chairman Alan Greenspan failed to implement the law.

States Took Action but Feds Blocked Reform: Community organizations began agitating against "subprime loans," the polite term for predatory lenders targeting vulnerable working families. Pushed by these advocates, 30 states in the 1990s and 2000s passed laws to implement tougher standards on mortgage companies since the federal government was failing to implement the 1994 Act.

But adding insult to injury, the federal government not only failed to use the 1994 law to restrain predatory lending, it went to court claiming that law preempted state protections. As PSN detailed last year, the Office of the Comptroller of the Currency claimed in 2004 that federal law preempted Georgia's Fair Lending Act, which had offered protection against predatory lending, including outlawing extreme prepayment fees or penalties, unreasonable monthly payments, and increased interest rates after default. This was followed by the OCC preempting New Jersey's Home Ownership Security Act, which prohibited abusive lending practices, which was followed by OCC challenges to other state laws. The federal courts largely backed this federal preemption of state authority with federal courts striking down predatory lending laws in a number of states.

Whatever the courts decide now, the damage has been done. During the critical period of the recent housing bubble, as speculation and predatory lending ran amok, state regulators were so involved in defending their laws in court that their effectiveness was undermined and the costs are being borne by some of the most vulnerable borrowers in the market. A report by the Center for Responsible Lending released in December 2006 showed that as many as 2.2 million subprime borrowers face foreclosure on their home loans, but few at the federal level listened to the warnings.

While some national leaders and media are saying "we" all have to cut back to pay for the excesses of the financial failures, state leaders should be loud in proclaiming that most of us didn't create this crisis; in fact, most advocates for working families and most state legislatures took action early on to try to restrain subprime predatory lending. It was colossal stupidity and greed by the wealthiest financial corporations in the country, along with lax federal financial regulation and their active assault on those state anti-predatory lending laws that created this crisis. So responsibility and the costs should be borne by those who caused the problem and those who benefited from those excesses.

State leaders need to speak up against bad federal policy: One thing state leaders should be vigilant on is making sure that supposed "reforms" don't undercut their present ability to protect working families. Earlier this year, the Bush Administration, led by Treasury Secretary Henry Paulson, proposed a sweeping new proposal, its Blueprint for a Modernized Financial Regulatory Structure, to "reform" regulatory oversight of different financial sectors. But the proposal was little more than an industry wish list, including replacement of state regulation of insurance with a single federal regulator, which would likely preempt stronger consumer insurance protections at the state level. At the time, Michael McRaith, insurance director for the Illinois Department of Financial and Professional Regulation, noted that insurance companies, "[v]ery large, wealthy companies would get to choose the lesser level of regulations," much as banks were able to escape tougher state mortgage regulations for lax ones at the federal level. Even now, rightwing politicians are seeking to use the financial crisis to gut state insurance regulations. So state leaders should be loud in demanding that any federal policies not weaken the ability of state regulators to be an alternative check on financial abuses.

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Lessons from the $700 Billion Bailout: States Should Take Bold Action to Help Working Families

Now Washington is discussing stabilizing the financial system with $700 billion in federal investments. After an initial proposal that was a pure giveaway to the banks, some improvements by progressive national leaders may provide some taxpayer protections, though the proposal will still hardly address the real burdens facing working families. The final plan for some improvements, including some taxpayer protections, the principle of an equity stake for the government in firms bailed out, and helping mortgage holders. But given that the plan is initially being implemented by the same federal regulators who failed in the first place, these principles may well not be implemented in practice.

However, state leaders can learn some lessons from the whole credit crisis debacle and the bailout bill:

The Feds Won't Save Working Families by Themselves: While there were some discussions about increasing aid to states to help working families as part of the deal, this was largely blocked by conservatives at the federal level. The bottom line is that state policy leaders should not depend on the federal government to take on the fundamental challenge of easing the burdens on working families that underlie the original demand for subprime mortgages in the first place. State leaders should demand and lobby for whatever aid Congress will allocate to help states and families, but the states need to take leadership on this issue. The worst thing possible is for state governments to slash spending on education, health care and help for those same families in the middle of a recession.
Big Problems, Big Investments Needed: But the $700 billion committed by the federal government, whether this particular proposal is the right one or not, shows that our nation has the resources to address big problems if we have the political will. States need to make similarly bold, not incremental plans to address the real needs of working families. While the temptation is for states to cut back in hard times, they should instead be increasing their spending to counterbalance lower spending by working families.
Investments in Economic Growth Pay Dividends in the Future: In principle, the new version of the federal bailout would require banks whose debt is purchased to give the federal government an equity stake in those firms, so if they recover financially, taxpayers would see more of their investments paid back. The idea is that while government may make initial upfront investments, returns from economic growth and contributions from the wealthy who most benefit should ultimately fund such long-term investments. Just as the feds are projecting that upfront investments in the financial system will lead to a financial recovery and higher asset values that will help pay off initial investments in troubled assets, an even better investment is for states to help working families "de-leverage" their financial burdens. Investing in job growth, whether through education or transit or other means, will pay off in the longer term with higher tax revenues.
States May be the Only Institution that Can Borrow and Invest Effectively: A key lesson is that in an economic credit crunch, it is government and often only government that can continue to borrow and invest to keep the economy moving forward. State tax and bonding authority, if focused on real investments, can create jobs and put money in the hands of working families in a time of economic crisis. Notably, states have access to credit at less expensive rates than a private sector caught in the credit crunch and can therefore be a critical player in jumpstarting a range of initiatives.
Taxing the Wealthy for Economic Investments Makes Economic Sense:If the borrowing needed does seem too daunting, financially or politically, then raise taxes from your wealthiest residents, the one group who saw their incomes triple in the last three decades. Taxing the wealthy to fund long-term investments is not a punitive goal, but an economically rational one. Not only do the wealthy benefit the most from economic growth, as the federal bailout plan acknowledges, but money in the hands of the wealthy does not, contrary to supply-side economics, trickle down to working families. In fact, much of it gets flushed down speculative toilets, as during the S&L scandal in the 1980s, the dotcom meltdown, and the current speculative subprime crisis. A dollar of taxes collected from the wealthy and put in the hands of working families is a dollar that is almost guaranteed to be spent on goods and services in the real, not speculative economy, and far more likely to stay circulating in your state to multiply into broader economic growth.

States should be emboldened to reject the remaining holdouts of rightwing ideology and reinvigorate their regulations on behalf of working families and investments in real economic growth.

Inexpensive Ways for States to Help De-leverage Working Families

There are basic standards that we can return to the workplace and our economy that don't cost the state treasury much if anything, yet will put more money in the hands of working families and help them cope with their costs and debt burdens.

Raise the Minimum Wage: The most obvious action is to further raise the minimum wage, whose value has been destroyed by inflation in the last three decades. Compared to 1968, when the federal minimum wage was the equivalent of $9.34 per hour accounting for inflation, even the highest state minimum wage rates have lost value against inflation. States should be aiming to raise their minimum wage rates to that level or a bit higher, and then index it to inflation to avoid erosion over time. Part of that effort should be toughening enforcement of the law, to assure that those owed the minimum wage and overtime receive it.
Help Balance Work and Family: Given that it usually takes at least two incomes to sustain a household budget these days, helping families navigate the tensions between the demands of work and family are critical. States moving to enact paid family leave and paid sick days laws guaranteeing all workers time to care for themselves and family members without fear of losing their jobs are desperately needed.
Raise Labor Standards and Union Rights: States should work to raise wage standards across the board, including strengthening the ability of all workers to join a labor union to help them demand a fairer wage share of profits generated from their employers. These can include using government contracting rules to promote stronger prevailing wage standards in more sectors, extending bargaining rights to agricultural industries and groups of independent contractors denied bargaining rights under federal law, and expanding general free speech rights in the workplace to better protect workplace-based advocacy for workers rights.

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Long-Term Investments to Create Strong State Economies

On the other hand, there is no getting around the fact that we need to shift our economy from one where speculation has soaked up trillions of dollars to one that invests in good jobs for working families. And some of those investments need to be by state governments, because while they may require significant upfront costs, the results will permanently strengthen state economies, lower costs for taxpayers, and save money for both government and household budgets over the long-term, helping to pay off any borrowing needed.

Health Care: The reality is that our health care system suffers from similar problems to Wall Street speculation; too lax regulation, too much profiteering, and too much waste without real returns. Investing in comprehensive health care for all state residents will not just help working families burdened by health care costs, it will likely save money. Even though the United States spends substantially more per person than any other country, the World Health Organization ranked our health care system 37th in the world in 2000 with working families paying out of pocket costs at twice the international average. Clearly, we spend more, but we get less. In Why Not the Best?, the Commonwealth Fund found that we would save $100 billion in administrative costs if we reached top efficiency benchmarks achieved elsewhere in more integrated government-managed health care systems. So the returns from comprehensive health care investments could easily pay for themselves over time.
Infrastructure Investments: A report last year by the Urban Land Institute found that 83 percent of the nation's transportation infrastructure is not capable of meeting the nation's needs over the next 10 years. There is a $1.6 trillion deficit in needed infrastructure spending through 2010 for repairs and maintenance, yet the U.S is spending less than 1 percent of its GDP on infrastructure. Making serious new investments in infrastructure is critical to increasing productivity, expanding economic growth, creating jobs, and making our states more economically competitive globally.
Broadband: It is estimated that widespread adoption of high-speed Internet will add $134 billion to the U.S. economy annually and create 1.2 million new jobs per year. A recent study found that for every 1% point increase in state high-speed Internet penetration, employment is projected to increase by 0.2% to 0.3%. Assuring that all residents have access to affordable, high-speed broadband is critical for long-term economic growth, especially when we are competing internationally with countries like Japan where households have access to broadband 8 times our average speed at roughly 1/2 of the cost. Again, these are investments that will build permanent economic strength and jobs for working families.
Green Jobs and Clean Energy: Investing in energy independence and green jobs -- from retrofitting homes to alternative fuels to mass transit -- promises some of the highest returns on state investment possible. More energy dollars will go to creating jobs at home and help eliminate wasted energy use. In many cases, families just need help making the energy investments and new technologies that will lower their energy bills far more over time - a clear place where states can help families in ways that, while requiring upfront state spending, will help pay for initial investments over time.

In a time of crisis for working families, state leaders need to step up with both the money and political will to make the investments that will create both more job and better wages for workers. The reward will not only be the de-leveraging of the debt burden for those families but, over time, the higher tax revenues needed to pay back any bonds used to pay for these initiatives.

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Resources

The Real Crisis Facing Working Families

Center for Budget Policy & Priorities - Average Income In 2006 Up $60,000 For Top 1 Percent Of Households, Just $430 For Bottom 90 Percent
Economic Policy Institute - REVERSAL OF FORTUNE: Economic gains of 1990s overturned for African Americans from 2000-07
Brookings Institution - Bearing the Brunt: Manufacturing Job Loss in the Great Lakes Region, 1995-2005
Banthin and Bernard - "Changes in financial burdens for health care: National estimates for the population younger than 65 years, 1996-2003," Journal of the American Medical Association and "Financial burden of health care, 2001-2004," Health Affairs

State Leaders Saw the Subprime Mortgage Crisis Coming - But Feds Block Reforms

Progressive States Network - The Predatory Lending Bubble and How the Feds Made it Worse
Progressive States Network - Gutting State Regulation of Insurance under Bush Administration's Financial Oversight "Reform"
Center for Responsible Lending - Federal Preemption Favors Predatory Lending
Center for Responsible Lending - Losing Ground: Foreclosures in the Subprime Market and Their Cost to Homeowners

Inexpensive Ways for States to Help De-leverage Working Families

Progressive States Network - States Still Leading Feds on Minimum Wage
Progressive States Network - Paid Sick Days & Paid Leave Bills Approved in D.C. and New Jersey
Progressive States Network - Strengthening the Freedom to Form Labor Unions

Long-Term Investments to Create Strong State Economies

Progressive States Network, U.S. Infrastructure: An Economic Disaster Waiting to Happen
Progressive States Network, Health Care for All: Policy Options for 2009
Progressive States Network, Broadband and Technology Investments: Policy Options for 2009
Apollo Alliance, Clean Energy, Good Jobs
Commonwealth Fund, Why Not the Best?
EDUCAUSE, A Blueprint for Big Broadband

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Arbitration: "Set up to squeeze small sums of money out of desperately poor people"

Nathan Newman — Thu, 12 Jun 2008 13:10:00 +0000

The headline above is a quote from former West Virginia Supreme Court Justice Richard Neely, describing what his role was as an arbitrator at the National Arbitration Forum (NAF), a for-profit company hired to enforce mandatory arbitration clauses for credit card consumer loans. "NAF is nothing more than an arm of the collection industry hiding behind a veneer of impartiality," says Richard Neely.

In a devastating expose by BusinessWeek, Neely and other former arbitrators describe an arbitration system stacked completely against consumers-- a system where creditors win 99.8% of all disputes involving companies ranging from Bank of America to Sears to Citgroup. Arbitration clauses buried in the fine print of credit card offers means consumers lose the right to have disputes decided in an independent court and instead are forced into corporation-selected arbitration firms.

Elizabeth Bartholet, a Harvard Law School professor and an NAF arbitrator in 2003 and 2004 stated in a deposition that NAF ran "an unfair, biased process." Dennis J. Herrera, San Francisco's city attorney, has sued the firm in California state court: "NAF has done an end run around the law to strip consumers of their right to a fair collection process," Herrera said in an interview with BusinessWeek. And made a healthy profit doing so-- in 2006, NAF had a net income of $10 million, a 26% profit margin on revenue of $39 million.

What's shocking is that it's not just critics who describe arbitration as a way for industry to gain at the expense of consumers-- it's actually NAF's pitch to corporate clients. A confidiential September, 2007 NAF presentation aimed at creditors promised "marked increase in recovery rates over existing collection methods" and celebrated the fact that 93.7% of arbitrations are decided without consumers even getting to participate in the process. And if a consumer does respond and files a response, NAF promoted the fact that creditors can use delays and dismissals to manipulate arbitration cases.

As we described in a Dispatch in March, the use of mandatory arbitration clauses are increasingly being used by large corporations to deny consumers and employees any access to justice in the courts. While federal law makes it hard for states to ban mandatory arbitration altogether, they do have the power to stop the kind of the abuses of arbitration that companies like NAF promote. There are a series of key model state laws states can enact to preserve consumer rights, force arbitration companies to disclose the results of arbitration decisions, and limit any fees imposed on consumers by the process The kinds of abuses outlined in the .BusinessWeek expose should be a rallying cry for reform of arbitration in every statehouse.

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Minnesota Governor Pawlenty Vetoes Bill to Help Stop Foreclosures

J. Mijin Cha — Thu, 05 Jun 2008 12:35:00 +0000

Giving into corporate efforts to protect banking interests, Minnesota Governor Tim Pawlenty vetoed SF 3396, which would have put a temporary hold on foreclosures while still requiring borrowers to make payments on their loans. The bill would have required homeowners with a sub-prime or negative amortization loan to pay either 65 percent of the payment owed when the loan defaulted, or the minimum monthly payment when the mortgage was first created, whichever is less, for a one-year foreclosure deferment period. The bill passed both chambers of the Minnesota Legislature with a wide margin, only to be vetoed (part of Pawlenty's record number of vetoes for a single session). In the meantime, home foreclosures are projected to increase 39 percent this year in Minnesota, with one out of every 31 Minnesota households experiencing a foreclosure between 2005 and the end of this year.

We've highlighted the ways in which states have taken action to protect their citizens against the sub-prime crisis, including passing moratoriums. The Brookings Institution recently released a new report listing 10 action steps that states can take to stem the sub-prime crisis. Many of the steps focus on preventing foreclosures and vacant properties, re-emphasizing the importance of keeping people in their homes and allowing a fair restructuring of the mortgage.

Progress and Setbacks in the States: Earlier this year, Maryland passed a de facto moratorium of 45 days for foreclosures through HB 365. Last May, Massachusetts became the first state to pass a de-facto moratorium on foreclosures with a law requiring a 90-day notice of intent to foreclose that must be filed with the Division of Banks before a home can be foreclosed.

Other states, however, have had more of an uphill battle trying to fight the foreclosure crisis in the face of financial interests' lobbying. Connecticut SB 347 would have provided protections for newly unemployed homeowners facing foreclosure. The bill passed both House and Senate committees but didn't pass either chamber. Florida's effort to provide a Foreclosure Relief Act died in committee. Indiana couldn't even pass a non-binding resolution urging Congress to impose a moratorium on foreclosures.

Other state bills are still moving forward: New York's AB 9695 has passed the Assembly and is now before the Senate and would provide a 1-year moratorium on foreclosures for sub-prime "fundamentally unaffordable" mortgages. Michigan's SB 1305 is also active and would provide a two-year moratorium on mortgage foreclosures.

But as Pawlenty's veto shows, too many politicians are beholden to financial interests at the expense of average homeowners.

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States Blowing Past Feds in Fighting Foreclosure Crisis

PSN — Thu, 17 Apr 2008 13:10:23 +0000

Faced with total and continued inaction on the federal level, Maryland enacted a series of emergency measures earlier this month to combat the foreclosure crisis in the state.

HB 365/SB 216 reforms the foreclosure process and prohibits a foreclosure action to be filed for the latter of either 90 days after default or 45 days after a notice letter is sent.

HB 360/ SB217 creates a comprehensive mortgage fraud statute that allows the seizure of property used in connection with fraud and provides defenses against forfeit for innocent owners, tenant and property used as a principle residence.

HB 361/SB 217 establishes a requirement for a foreclosure consultant, bans foreclosure rescue transactions and provides consumer protections for sales of residences 60 days in default.

A recent Pew Charitable Trust study highlights the many ways that states have stepped in to fill the void left by massive federal inaction towards the foreclosure crisis. The study found that 20 states have launched foreclosure intervention or prevention initiatives. Sixteen states have enacted both high-cost lending and foreclosure intervention laws. Thirteen states have created counseling hot-lines to help those at risk of foreclosure.

Nine states have created loan funds to help refinance loans or provide short-term loans to help borrowers overcome financial difficulties.

In contrast, the U.S. Senate just passed a bill that takes modest steps to help families in danger of losing their homes but gives billions of dollars in tax breaks for automakers, airlines, alternative energy provides, and home builders. While passing on a modest tax credit to purchasers of foreclosed properties, the bill provides tax credits that amount to roughly $6 billion over 10 years to various industry interests. Instead of the feds giving more help to airlines and automakers than people who are losing their homes, they might do better to look at steps the states are taking to deal with the crisis.

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