Barack Obama (Issues Page)

Senator Obama supports a 36 percent APR interest cap on consumer debt. This is an interesting position in light of his response to Hillary Clinton at a January 2008 debate, which I wrote about last week, in which he explained a 2005 vote against a 30 percent cap on interest rates for credit cards and other consumer debt by saying he thought 30 percent was too high. However, it’s worth pointing out that Obama discusses this 36 percent cap specifically in the context of payday loans, which can achieve APRs as high as 5000 percent—amounting to just a few dollars over the course of a typical payday loan, but quickly becoming ruinous for someone who becomes trapped in the cycle of taking out new loans to pay off old ones. Obama would also require lenders to provide borrowers with clear and simplified information about fees, payments, and penalties during the application process, to make it harder for lenders to use “fine print” against borrowers.

During the primary season, Americans for Fairness in Lending (AFFIL) asked the candidates to endorse its statement of principles demanding reform in the credit industry. Obama endorsed the statement on September 25, 2007, saying “I am proud to support the important efforts of [AFFIL] to empower more Americans in the fight against consumer fraud and abusive lending practices.”

John McCain

Senator McCain hasn’t addressed predatory lending specifically, earning blasts from the Obama campaign over what they characterize as his inaction on the issue. His mortgage proposals do include provisions for homeowner relief from unmanageable loans in some circumstances, and a task force to investigate and punish criminal wrongdoing in the mortgage industry.

For insight into a potential McCain administration’s possible attitude toward predatory lending, we might turn to his chief economic advisor, former Senator Phil Gramm. McCain, who told the Boston Globe last year that “the issue of economics is not something I’ve understood as well as I should,” has all but ceded control of his campaign’s economic message to Gramm (who was forced to resign as McCain’s campaign co-chairman last month after his “nation of whiners” remark, but still advises the campaign on economic issues). Gramm was a staunch opponent of predatory lending protections when he was in the Senate, blocking several efforts to rein in some of the lending industry’s more outrageous abuses. “In Washington the buzzword today is predatory lending,” the always-quoteworthy Gramm said in 2001, “but there are predatory borrowers.”

AFFIL has asked McCain to endorse its statement of principles, but he has not done so.

Coming next week: The Candidates on Student Loan Issues

Barack Obama (Issues Page)

Senator Obama has two major planks that address abusive credit card issuer practices. The first of these is a “Credit Card Bill of Rights,” which would ban unilateral changes, apply interest rate increases to future debt only, prohibit interest on fees, prohibit universal default (a controversial practice in which a lender can change the terms of your debt if you default with a different lender), and require prompt and fair crediting of payments.

Obama also proposes a five-star rating system that would give consumers an easy-to-understand metric of the risk involved in different credit cards. He charges credit card issuers with making their terms too difficult for the average consumer to understand, which makes it difficult or impossible to make an educated, rational decision. Credit card companies would be required to display this rating on all application and contract materials, “enabling consumers to quickly understand all of the major provisions of a credit card without having to rely exclusively on fine print in lengthy documents.”

In a January debate, Senator Hillary Clinton criticized Obama for voting against an amendment to the 2005 bankruptcy bill proposed by Sen. Mark Dayton (D-Minn.) that would have imposed a ceiling of 30 percent on interest rates for credit cards and other consumer debt. “I thought 30 percent potentially was too high of a ceiling,” Obama explained. The amendment failed, and there is still no federally-imposed ceiling on interest rates to this day. Obama did vote against the harshly punitive bankruptcy bill as a whole, as covered here two weeks ago.

Obama talked about credit card issues in his July 8 economic speech in Georgia, starting at about the 12 minute mark:

John McCain

Senator McCain has taken no position on credit card issues during the presidential campaign, and apparently does not intend to. Obama charges that McCain “sides with the credit card companies,” citing his opposition to a 1998 effort to require to require credit card companies to affirmatively determine that borrowers under 21 could handle any debts they might incur before issuing them cards, and to a 2005 bill to require issuers to inform borrowers on their monthly statement that making the minimum payment would increase the interest they’d have to pay and the time it would take to pay their debt off. McCain criticizes Obama for his vote on the Dayton amendment discussed above, but that criticism is more than a little bit disingenuous, because McCain also voted against the amendment.

Then again, considering the $1.37 million debt on the McCain campaign’s American Express card—a card that apparently carries a 17 percent annual percentage rate—maybe a McCain administration would bring some needed perspective to the issue of abusive credit card practices. And then there’s the personal credit card with a 25.99 percent APR…

Coming next week: The Candidates on Predatory Lending

Barack Obama on the Mortgage Crisis (Issues Page)

Sen. Obama’s mortgage plan focuses on increasing the transparency of the lending business and giving borrowers more options for relief from onerous loans.

Sen. Obama proposes to make it easier for borrowers to obtain and understand information about the mortgage products available to them, creating “a simplified, standardized borrower metric (similar to APR)” for home mortgages. A 10 percent universal mortgage credit would apply to homeowners who don’t itemize their deductions; Obama says this would equal an average of $500 a year for 10 million homeowners. Obama would also create a fund to help homeowners escape foreclosure through refinancing, funded in part by penalties on fraudulent lenders.

Obama was an early critic of mortgage fraud and abusive lending practices. With Sen. Richard Durbin (D-Ill.), he sponsored the Stopping Transactions which Operate to Promote Fraud, Risk, and Underdevelopment (STOP FRAUD) Act, which would criminalize mortgage fraud on the federal level and increase funding to federal and state law enforcement to fight it. The STOP FRAUD Act is currently in committee and has not become law. He also proposes allowing bankruptcy courts to modify the mortgage payment of an individual in bankruptcy; Obama calls the current bankruptcy law “outdated” and says that it shields the subprime mortgage industry from the consequences of its “dangerous and sometimes unscrupulous” business practices.

John McCain on the Mortgage Crisis (Issues Page)

Sen. McCain’s main mortgage-related plank calls for a “HOME Plan” that would help distressed homeowners trade in an unmanageable mortgage for a less expensive one with payments they can afford. McCain’s plan would have more restrictive terms than Obama’s: eligibility is limited to “[h]olders of a non-conventional mortgage taken after 2005 who live in their home (primary residence only); can prove creditworthiness at the time of the original loan; are either delinquent, in arrears on payments, facing a reset or otherwise demonstrate that they will be unable to continue to meet their mortgage obligations; and can meet the terms of a new 30-year fixed-rate mortgage on the existing home.” The part about proving creditworthiness is a bit troubling: What happens to people who were duped by predatory lenders into taking on mortgages they couldn’t afford? It’s not clear. McCain’s plan also involves lenders voluntarily agreeing to write down delinquent mortgages to the current market value of the home, which lenders have not historically shown a great willingness to do.

On the law & justice front, McCain has called for the Justice Department to form a Mortgage Abuse Task Force to investigate potential criminal wrongdoing in the mortgage industry and prosecute any offenders. The task force would also offer assistance to state attorneys general as they investigate and prosecute mortgage abuse cases on the local level.

For more on the candidates’ proposals and differences on mortgage-related issues, watch this video report from the Associated Press:

Coming next week: The Candidates on Credit Card Issues

I can think of many reasons that bankruptcy is a terrible subject for someone running for president. It is very technical (hard to wedge into a sound bite). It is depressing (no one wants to think about going bankrupt). It will annoy big-money interests (financial services gave big money to pass the current bankruptcy laws).

Savvy handlers would advise against it. So why would Obama make bankruptcy relief a visible part of his platform?

…Obama has history. He voted against the bankruptcy bill. He voted in favor of the amendments that would have eased the effects of the amendments. But his real history is deeper. He was a community organizer who saw first-hand the effects of aggressive lending. He was a state legislator who felt the impact of federal pre-emption on his ability to protect the citizens he represented.

That makes sense. When Obama was in the Illinois state senate, he represented a district on the South Side of Chicago, a diverse region with a long working-class history. Individual bankruptcy is an alien concept to the economic elite who populate K Street and the corridors of Congress, but it’s a very real issue for the kinds of people Obama has represented throughout his political career. It’s been a while since we’ve had a figure on the national scene who was as well equipped to address debt and bankruptcy issues as Obama is.

Barack Obama on Bankruptcy (Issues Page)

Sen. Obama has made bankruptcy issues a talking point in his campaign. Here he is speaking in Powder Springs, Georgia last week about his proposals to make bankruptcy law fairer and to fast-track the bankruptcy process for military families, among other reforms:

This speech echoes a number of familiar themes for Obama, who has been prominent on bankruptcy and lending issues since he arrived in the Senate in 2005. He voted against the Orwellian “Bankruptcy Abuse Prevention and Consumer Protection Act of 2005,” a horrible piece of legislation that has made it harder for millions of Americans to seek bankruptcy protection, and he accuses Washington—and John McCain in particular—of standing up for the interests of big banks and credit card companies instead of for the American people. He is harshly critical of the loophole in the current bankruptcy law that allow bankruptcy courts to modify the loan for a borrower’s second home, but not their primary home.

Obama proposes to reform the bankruptcy laws to make it easier for individuals to seek debt relief when they file for bankruptcy protection due to medical expenses. He also wants to raise the homestead exemption and enact other reforms that would make it easier for seniors to keep their homes.

John McCain on Bankruptcy

Sen. McCain’s record on bankruptcy issues is not good. He voted for the 2005 bankruptcy bill, calling it “an important step toward a fair and balanced approach to restoring personal responsibility to our federal banking system.” As the bill was being debated, Senate Democrats introduced a number of amendments in an effort to reduce the punitive impact it would have on working families. McCain voted no on almost all the amendments, even ones that would have extended some protections to individuals whose financial problems were due to medical problems or identity theft.

McCain’s economic issues page say nothing about bankruptcy. He does mention the subject on a page devoted to veterans’ issues, touting his support of an amendment by Sen. Jeff Sessions (R-Ala.) that would have protected veterans from being denied bankruptcy claims if they incurred their debts while on active duty—an amendment Obama voted against. However, what McCain doesn’t mention is that this amendment was a watered-down response to an earlier amendment offered by Sen. Richard Durbin (D-Ill.), which Sessions criticized as “overly broad.”. McCain voted against the Durbin amendment; Obama voted for it.

Coming next week: The Candidates on Mortgage and Foreclosure Issues