American Banker’s Victoria Finkle and Jeff Horwitz report on the credit card industry’s payment-protection racket and note that the Consumer Financial Protection Bureau is scrutinizing at least one major player, Discover cards, something that could spell trouble for the industry.
Customers get just 21 cents in benefits for every dollar they pay into these protections plans. The Banker says that “gross payout ratio that would be flatly illegal if the products were categorized as insurance.”
So why aren’t products that are clearly insurance categorized as insurance?
Whether the plans were insurance or banking products was more than a matter of semantics. If the products were insurance, they were subject to state rules often mandating that their price be proportional to the claims paid. But if they were banking products, they could be sold with whatever terms and pricing banks wished.
During the 1990’s, an 8th Circuit Court ruling and the Gramm-Leach-Bliley Act reinforced the OCC’s claims, moving payment protection firmly out of the “insurance” realm. The agency issued a rule in 2002 codifying its position that debt protection is a banking product and establishing certain disclosure and marketing requirements.
Gramm-Leach-Bliley. You don’t say. That ill-fated law, of course, also repealed Glass-Steagall.
As a bonus, here’s a fun quote from an industry lawyer:
“There’s a difference between not-a-good-value and valueless - it’s not like customers were buying acreage on the moon,” says Gregory Dresser, a partner at Morrison & Foerster LLP, who has helped defend banks, including Capital One, against some of the payment protection class-action complaints.
— The New York Times tells us that Greece says it will cut 15,000 government jobs to try to get more loans to stay afloat. And it notes that that’s part of a pledge to cut 150,000 government jobs in the next three years.
While the paper notes that 150,000 jobs is one-fifth of the government work force, I would have liked a bit more context: like how many people there are in Greece and how a cut like that would compare in the U.S.
Clearly, 150,000 layoffs is nothing to scoff at even here, and we have a population twenty-eight times the size of Greece’s. There are only about 11 million people there, a bit less than live in Ohio.
To have the kind of impact here that those cuts will have in Greece, the U.S. government would have to lay off a whopping 4.2 million people.
But even that doesn’t quite get at the trauma this will impose on a country that has an unemployment rate above 19 percent—more than twice what we have here, and approaching U.S. levels in the Great Depression.
— Bloomberg News calls out the Republican presidential candidates for crying wolf over inflation, which has repeatedly failed to materialize, rising just 2.4 percent last year.
The numbers are proving Federal Reserve Chairman Ben S. Bernanke’s critics wrong.
More than a year after Republicans from House Speaker John Boehner of Ohio to presidential candidate Ron Paul of Texas warned that the Fed’s second round of asset purchases risked a sharp acceleration in prices, the surge has failed to materialize. The personal-consumption-expenditures price index rose 2.4 percent for the 12 months ending in December, near the central bank’s 2 percent target.
“The statements were politically motivated,” said John Lonski, chief economist at Moody’s Capital Markets Group in New York. With unemployment stalled above 8 percent for three years, “I don’t see how anybody in their right mind could form a strong argument for persistent, rapid inflation in the United States without the participation of the labor market.”
It’s a good idea and a good story. But it’s probably not the best idea to use the word “clueless” in the headline of a news story. Leave that kind of thing to us opinion writers.
UPDATE: Bloomberg has changed the “clueless” headline, but it didn’t change it on Bloomberg BusinessWeek site, so here it is:
Bernanke-Led Economy Proves Critics Clueless About Fed Policies