Reining in Wall Street Updates

The CFPB wants your views on general purpose reloadable prepaid cards. Some of the campus cards featured in U.S. PIRG Education Fund's new report, the Campus Debit Card Trap, are prepaid cards, others are debit cards, and there is a difference.

(Updated 1 June) This morning the House Financial Services Committee will likely approve HR 1588, legislation designed solely to allow the rent-to-own industry ("for only 104 weekly payments of $10.99, you can own this TV/computer/couch" for 3 or 4 times its total retail price) to preempt or override the laws of the several states that protect its consumers from predatory financial practices. Is that the role of the Congress?

News Release | U.S. PIRG | Higher Ed

BANKS SKIM MILLIONS IN FEES FROM STUDENT AID USING DEBIT-CARD-LINKED STUDENT IDS

Washington, D.C. – Over 9 million students are at risk for increased educational debt, due to bank-affiliated student debit cards that come with high fees, insufficient consumer protections, and few options.  Financial institutions now have affinity partnerships with almost 900 campuses nationwide, grafting bank products onto student IDs and other campus cards to become the primary recipient of billions in federal financial aid to distribute to students.

Report | U.S. PIRG Education Fund | Consumer Protection, Higher Ed

The Campus Debit Card Trap

Banks and other financial firms are taking advantage of a variety of opportunities to form partnerships with colleges and universities to produce campus student ID cards and to offer student aid disbursements on debit or prepaid cards. In addition to on-campus services, such as student ID functions offered on the card, some cards offer traditional debit card services linked to bank accounts; other cards provide additional reloadable prepaid card functions. The disbursement of financial aid and university refunds is the most significant partnership identified.

NYTimes on growing tax fraud identity theft epidemic

By | Ed Mierzwinski
Consumer Program Director

The New York Times has a story on the web "With Personal Data in Hand, Thieves File Early and Often" by reporter Lizette Alverez for Sunday's paper. It describes an "epidemic" of tax identity theft. Thieves file fraudulent tax returns and receive a legitimate taxpayer's refund before he or she does, often on a hard-to-trace prepaid card.  Losses are in the billions, losses are increasing and legitimate taxpayers are waiting a long time to get their refund. It's a very good story that explains how the crime works, how it disproportionately harms retirees and how, -- despite massive efforts by agencies from the IRS to the post office -- it's a growing mess. Unfortunately, the reform promoted by some policymakers quoted in the story -- increasing criminal penalties -- has never worked to stop identity theft. Bad guys don't have to carry guns and they rarely get caught, so the crime is booming. Sure, it doesn't hurt to increase penalties, but it is not enough. We need to protect personal data better. Relying on increasing penalties is a feel-good solution that won't work on its own. But the credit bureaus and other powerful special interests have resisted legislation to protect personal information better and spent heavily to convince policymakers that "blaming bad guys" is more important than fixing their own sloppy practices. The credit bureaus, of course, are wrong.

Several members of the PIRG-backed Americans for Financial Reform are among the witnesses at a field hearing on prepaid cards that the Consumer FInancial Protection Bureau holds at noon today in Durham, NC. While reloadable prepaid cards are growing fast as an option for convenience, for the unbanked and for distribution of government and student benefits, so-called general purpose reloadable prepaid cards sold under a variety of brands have fewer consumer protections than credit cards (gold standard), debit cards (fewer protections), and payroll, government benefit and gift cards (some protections).The CFPB will announce a advance notice of proposed rulemaking to improve the situation.

It's called force-placed insurance for a reason. Your mortgage lender buys it for you and you are forced to pay for it, even if it isn't the best deal for you. When lenders purchase a product to "benefit" consumers, they often have numerous incentives to make the more expensive, not less-expensive, choice due to what's called reverse competition. That's a bad deal for you and a bad deal for the economy, but a good deal for the kind of sordid crony capitalism that relies on kickbacks, not better products. Fortunately, the New York Department of Financial Services (both banking and insurance) and the CFPB are both taking a deep dive into the forced-place-insurance mess.

The silver lining in the JP Morgan Chase gambling (they call it "hedging") losses now predicted to reach $3-5 billion, not just $2 billion, is that Congress has slowed misguided efforts to slow or repeal important reforms to derivatives trading. Also, you can "like" or comment on my recent debate position  over at US News and World Report urging the Federal Reserve to use this latest big bank mess to implement a strong Volcker rule against risky bank betting with other people's money.

Last week the nation's largest -- and to date least vulnerable to attack for stupid bank tricks  -- bank, JP Morgan Chase, lost two billion dollars in a very bad derivatives bet. Now Chase's until-now-Teflon-coated CEO Jamie Dimon faces increased scrutiny over his own and his firm's loud and arrogant opposition to the Volcker rule and exchange trading of derivatives -- two Dodd-Frank Wall Street reforms not yet implemented due to the obstinacy of bankers like him that might have prevented the loss. The episode also raises the question: Are the big banks too big to manage?

Yesterday, U.S. PIRG joined U.S. Rep. Carolyn Maloney (NY) and other leading members in front of the U.S. Capitol to introduce the Overdraft Protection Act of 2012. Also this week, the Consumer Financial Protection Bureau described its proposal to simplify mortgage points and fees. Click read more to find about these and other important financial stories this week.

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