As 2011 wraps up, let’s look back and reflect on the good, the bad and the ugly when it comes to personal finance.
One of the good things was the opening of the Consumer Financial Protection Bureau, which will promote financial education and write federal rules to combat unfair, deceptive and abusive financial practices and products.
The bureau, despite not having a director, has been busy. I’m a huge fan of its “Know Before You Owe” initiative aimed at helping people understand the consequences of the debt they take on. The agency began collecting public comment on a simplified credit-card agreement, and it’s testing two prototypes of mortgage disclosure forms to simplify the paperwork consumers have to tackle at the closing table.
Partnering with the Education Department, the bureau has drafted a one-page shopping sheet to help students better understand the type and amount of financial aid they qualify for, and to allow them to compare college offers. The bureau is also looking more closely at the private student-loan industry.
Also on the good side, the federal government began requiring all post-secondary institutions that participate in Title IV federal student-aid programs to begin posting a net price calculator on their Web sites. The net price is what a student might have to earn, save or borrow to go to his or her selected school. I’m hoping the calculator will help families reduce the debt they take on.
There was a hallelujah moment when Bank of America backed off plans to charge certain customers $5 a month for using their debit cards to make purchases. See, your voice does count.
I also rejoiced when Maryland joined a growing number of states in which judges must demand greater proof from debt buyers before allowing them to sue consumers to recover alleged obligations. State courts have become burdened by collection cases.
The Maryland Court of Appeals directed debt-collection companies to present better proof of an existing debt. Companies also have to show that they own the debt they are trying to collect.
Still more good news: The Federal Reserve Bank of New York said overall consumer debt dropped about $60 billion to $11.66 trillion in the third quarter.
But the bank report also had some bad news. As consumers were cutting their mortgage and credit-card debt, they apparently were loading up on student loans. In the third quarter, total student-loan debt was $865 billion. That figure exceeds credit-card debt, which was $694 billion in the second quarter and $693 billion in the third. The New York Fed report is only the latest to reach a certain conclusion: Student-loan debt is reaching stratospheric heights. If families continue the current borrowing trend, total student-loan debt will soon reach $1 trillion.
The Census Bureau also delivered some bad news this year. Median household income was down in 2010. And the poverty rate increased. There were 46.2 million people living in poverty last year, up from 43.6 million in 2009 — the largest number in the 52 years for which poverty estimates have been published, the bureau said.
The ugliness of 2011 was displayed by the 44 Republican senators who wrote to President Obama in May, threatening to block anyone from taking the helm of the Consumer Financial Protection Bureau unless certain structural changes were made to how the agency was run. The changes they want will only weaken the bureau.
Because of this foolishness, Obama never nominated Elizabeth Warren to head the agency, although she should have been tapped because she came up with the idea for it. The person who was selected, Richard Cordray, a former attorney general of Ohio, is more than qualified. But the Republicans stayed true to their word. The bureau still has no director.
The blocking of Cordray was not only ugly but also unnecessary. For the first time, we have consumer-protection powers consolidated into one agency. In the letter sent to Obama, the senators claimed that they support strong and effective consumer protection. What a crock. If they truly want consumers to have a powerful advocate to prevent financial abuses, they would allow a director to be confirmed.
I know many people are still toughing things out and will continue to struggle in the coming year. But some good things happened in 2011 that will help give consumers a better grasp of their finances and protect them from no-account con artists.
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