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BFCSA: US Senator Elizabeth Warren, "Unsafe at Any Rate"

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US Senator Elizabeth Warren, the Massachusetts Democrat-Harvard law professor-proposed six years ago the creation of a US federal agency to protect consumers of financial products in this 2007 article asserting--

"If it’s good enough for microwaves, it’s good enough for mortgages. Why we need a Financial Product Safety Commission.. it could eliminate some of the most egregious tricks and traps in the credit industry.. and for every family who avoids a trap or doesn’t get caught by a trick, that’s regulation that works." 

Yesterday, Richard Cordray was confirmed as chief of US Consumer Financial Protection Bureau. Ms Warren, told reporters before the vote..“It is a truly historic day.. there’s no doubt that the consumer agency will survive beyond the crib.. the American people will have a strong watchdog in Washington."

So, do we really come from a land down-under.. or simply upside-down when it comes to ensuring a roof over our heads protected from bank$ters greed & misery...

 

 Issue #5, Summer 2007

Unsafe at Any Rate

If it’s good enough for microwaves, it’s good enough for mortgages. Why we need a Financial Product Safety Commission.

It is impossible to buy a toaster that has a one-in-five chance of bursting into flames and burning down your house. But it is possible to refinance an existing home with a mortgage that has the same one-in-five chance of putting the family out on the street–and the mortgage won’t even carry a disclosure of that fact to the homeowner. Similarly, it’s impossible to change the price on a toaster once it has been purchased. But long after the papers have been signed, it is possible to triple the price of the credit used to finance the purchase of that appliance, even if the customer meets all the credit terms, in full and on time. Why are consumers safe when they purchase tangible consumer products with cash, but when they sign up for routine financial products like mortgages and credit cards they are left at the mercy of their creditors?

The difference between the two markets is regulation. Although considered an epithet in Washington since Ronald Reagan swept into the White House, the “R-word” supports a booming market in tangible consumer goods. Nearly every product sold in America has passed basic safety regulations well in advance of reaching store shelves. Credit products, by comparison, are regulated by a tattered patchwork of federal and state laws that have failed to adapt to changing markets. Moreover, thanks to effective regulation, innovation in the market for physical products has led to more safety and cutting-edge features. By comparison, innovation in financial products has produced incomprehensible terms and sharp practices that have left families at the mercy of those who write the contracts.

Sometimes consumer trust in a creditor is well-placed. Indeed, credit has provided real value for millions of households, permitting the purchase of homes that can add to family wealth accumulation and cars that can expand job opportunities. Credit can also provide a critical safety net and a chance for a family to borrow against a better tomorrow when they hit job layoffs, medical problems, or family break-ups today. Other financial products, such as life insurance and annuities, also can greatly enhance a family’s security. Consumers might not spend hours pouring over the details of their credit card terms or understand every paper they signed at a real estate closing, but many of those financial products are offered on fair terms that benefit both seller and customer.

But for a growing number of families who are steered into over-priced credit products, risky subprime mortgages, and misleading insurance plans, trust in a creditor turns out to be costly. And for families who get tangled up with truly dangerous financial products, the result can be wiped-out savings, lost homes, higher costs for car insurance, denial of jobs, troubled marriages, bleak retirements, and broken lives.

Consumers can enter the market to buy physical products confident that they won’t be tricked into buying exploding toasters and other unreasonably dangerous products. They can concentrate their shopping efforts in other directions, helping to drive a competitive market that keeps costs low and encourages innovation in convenience, durability, and style. Consumers entering the market to buy financial products should enjoy the same protection. Just as the Consumer Product Safety Commission (CPSC) protects buyers of goods and supports a competitive market, we need the same for consumers of financial products–a new regulatory regime, and even a new regulatory body, to protect consumers who use credit cards, home mortgages, car loans, and a host of other products. The time has come to put scaremongering to rest and to recognize that regulation can often support and advance efficient and more dynamic markets.

Do You Have Credit Problems?

Americans are drowning in debt. One in four families say they are worried about how they will pay their credit card bills this month. Nearly half of all credit card holders have missed payments in the past year, and an additional 2.1 million families missed at least one mortgage payment. Last year, 1.2 million families lost their homes in foreclosure, and another 1.5 million families are likely headed into mortgage foreclosure this year.

Families’ troubles are compounded by substantial changes in the credit market that have made debt instruments far riskier for consumers than they were a generation ago. The effective deregulation of interest rates, coupled with innovations in credit charges (e.g., teaser rates, negative amortization, increased use of fees, cross-default clauses, penalty interest rates, and two-cycle billing), have turned ordinary credit transactions into devilishly complex financial undertakings. Aggressive marketing, almost nonexistent in the 1970s, compounds the difficulty, shaping consumer demand in unexpected and costly directions. And yet consumer capacity–measured both by available time and expertise–has not expanded to meet the demands of a changing credit marketplace. Instead, consumers sign on to credit products with only a vague understanding of the terms.

Credit cards offer a glimpse at the costs imposed by a rapidly growing credit industry. In 2006, for example, Americans turned over $89 billion in fees, interest payments, added costs on purchases, and other charges associated with their credit cards. That is $89 billion out of the pockets of ordinary middle-class families, people with jobs, kids in school, and groceries to buy. That is also $89 billion that didn’t go to new cars, new shoes, or any other goods or services in the American economy. To be sure, the money kept plenty of bank employees working full-time, and it helped make “debt collector” one of the fastest-growing occupations in the economy. But debt repayment has become a growing part of the American family budget, so much so that now the typical family with credit card debt spends only slightly less on fees and interest each year than it does on clothing, shoes, laundry, and dry-cleaning for the whole family.

Industry practices would change as well. Corporate profit models based on marketing mortgages with a one-in-five chance of costing a family its home would stop. Personal responsibility will always play a critical role in dealing with credit cards, just as personal responsibility remains a central feature in the safe use of any other product. But a Financial Product Safety Commission could eliminate some of the most egregious tricks and traps in the credit industry. And for every family who avoids a trap or doesn’t get caught by a trick, that’s regulation that works........"

read more[pages 2 thru 6].....  2007 article

 

 
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Comments

  • doyla66
    doyla66 Saturday, 20 July 2013

    US Bank$ters comment--- "At least they had the shot, sometimes people have to be given the opportunity to fail....."

  • doyla66
    doyla66 Saturday, 20 July 2013

    About the Senator: Elizabeth Warren, Democrat-Massachusetts (US)

    Senator: Assistant to President; bankruptcy expert; author 100+ articles; 9 books/2 best-sellers, The Two-Income Trap & All Your Worth;

    Elizabeth Warren is a senator from Massachusetts; born in Oklahoma City, Oka., June 22, 1949; attended George Washington University, 1966-1968; graduated University of Houston, B.S., 1970; graduated Rutgers University, J.D., 1976; elementary school speech pathologist; law professor; bankruptcy expert; author of more than one hundred articles and nine books, including two national best-sellers, The Two-Income Trap and All Your Worth; Leo Gottlieb Professor of Law, Harvard University; Senior Advisor to the National Bankruptcy Review Commission 1995-1997; chair, Congressional Oversight Panel for the Troubled Asset Relief Program 2008-2010; Assistant to the President and Special Advisor to the Secretary of the Treasury for the Consumer Financial Protection Bureau 2010-2011; elected as a Democrat to the United States Senate in 2012 for the term ending January 3, 2019.

  • doyla66
    doyla66 Saturday, 20 July 2013

    Fragile Borrowers - Handle With Care

    If there were true competition and freedom to choose in Banking, that Bankster would lose a bunch of clients for such a stupid remark.
    Not everyone has the emotional, intellectual, educational silver spoon in the mouth upbringing and the self-esteem to be able to come back alive from the trauma of what, for Mum & Dad borrowers, can be a major life threatening level of stress due to financial failure, inhumane treatment by Bank staff and total breakdown.
    If these borrowers were natural gamblers, if they did have the where with all to roll with the punches, they'd probably be making a living playing the tables in Nevada - or Wall Street.

  • doyla66
    doyla66 Saturday, 20 July 2013

    BTW great find, Andy.
    Why does it take governments so long to get moving on these matters of great importance?

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