Banking

Ethical Subprime Lenders

Adam Doster — Thu, 20 Nov 2008 10:35:10 -0800

As the financial crisis spread this fall, conservatives attempted to cast blame on the Community Reinvestment Act (CRA), a 1977 fair banking bill. Amid this hysteria, we talked to Ron Grzywinski, an original CRA proponent and one of the co-founders of Chicago’s ShoreBank, which has grown into the nation’s premier community development bank. How’d he do it? As he told us, his institution operated the old fashioned way:

It sounds like an advertisement but it’s the truth. We don’t do credit scoring; we do it after the fact in order to put a piece of paper in the file in case we ever do decide to sell it. We do not do variable rate loans or subprime adjustable rate mortgages. To the best of my knowledge we have never given out variable rate loans. And we meet with the borrower, and its old fashioned lending. Who is the borrower? What kind of down payment do they have? Where’s the money coming from? How real is the value of the house? Can they make these payments? All that kind of stuff. We do verification of value and of income. We lend in the markets that we know, here on the South Side and West Side of the city. [...] It’s not rocket science [laughs]. We’re just old fashioned bankers.

ShoreBank’s success influenced scores of other financial institutions to responsibly extend credit to worthy but overlooked neighborhoods. As Slate’s Daniel Gross writes today, the mortgage crisis has now provided an opportunity for the “ethical subprime lending industry” to grow:

Still, the mortgage crisis has provided an opportunity for ethical subprime lenders to expand. ShoreBank has added staffers and in August 2007 rolled out a Rescue Loan program, which aims to move borrowers out of expensive adjustable-rate mortgages into fixed-rate loans. “We really believe we can help people caught in these bad mortgages,” says Jean Pogge, executive vice president of consumer and community banking at ShoreBank. And with plenty of lenders having failed or pulled back from markets, new customers are flocking to their doors. “We’re getting demand for regular co-op loans for the first time,” says Levy of the Lower East Side Credit Union. In California, the news on housing may be unrelentingly grim, but through the third quarter, Clearinghouse CDFI made 161 loans for $48.4 million, up about 50 percent from the total in the first three quarters of 2007. Doug Bystry says, “This may be a record year for us.”

Read the whole piece here.

$170 Million Spent, $830 Million Left To Lend

Angela Caputo — Mon, 17 Nov 2008 07:40:59 -0800

One month ago, Illinois Treasurer Alexi Giannoulias announced that the state would extend $1 billion in credit to local banks to help spur lending amid the financial crisis. We checked in with his office on Friday to see who's taken him up on the offer of low-interest loans.

So far, roughly $170 million has been diverted to 30 banks located in all corners of the state -- from Collinsville to Highland Park. Only four banks asked for, and got, the maximum $25 million loan amount. As you see in this more detailed summary, some smaller institutions, like Shiloh's Catholic Community Credit Union, put in for lesser loans. Only four institutions have been turned down.

As far as the treasurer's office is concerned, the program creates a win-win scenario: Businesses and consumers have access to credit and the state earns a higher interest rate than in its normal investments. All of the one-year loans are secured with up-front collateral.

"The point here was to add a little extra capital to banks that are already healthy," spokeswoman Kati Phillips said. "We didn't want these banks to go backwards and we didn't want people to stop applying for loans."

Illinois was one of the first states to put together a stimulus program of this sort. Roughly a half-dozen others are now looking at what local resources -- from building programs to credit lines -- they can leverage to improve consumer confidence and boost employment. Stateline has more:

The state efforts come as Congress considers a national economic stimulus package in the wake of the Wall Street collapse this fall. Among the options for Congress are extending unemployment benefits, sending more Medicaid money to states to boost the health care industry and launching a major new public works initiative.

Congress could pass its package in a lame-duck session this year, or it could wait until after Barack Obama is sworn in as president next Jan. 20. In the meantime, a handful of states are pressing ahead with their own economic revival plans.

We've written about the hurdles that stand in the way of Congress approving direct assistance to the states. Nonetheless, a team of governors testified before a House committee on Friday, calling for a stimulus package to help states catch up on bills associated with Medicaid, infrastructure projects, unemployment benefits and other social programs. It doesn't look like they're going to give up on these demands any time soon.

Madigan: Foreclosure Prevention Lacking

Adam Doster — Mon, 13 Oct 2008 11:43:33 -0700

It's no secret that home foreclosures are soaring. In a front-page article today, the Tribune noted that 30 percent of all U.S. mortgage holders will owe more on their homes than they are worth in just one year. Unfortunately, little is being done to help those struggling to stay under their roof.

According to a recent study (PDF) released by the State Foreclosure Prevention Working Group -- the task force consisting of 11 attorneys general -- nearly eight out of 10 "seriously delinquent homeowners are not on track for any loss mitigation outcome," a number that rose between January and May of this year. In fact, loan modification efforts for at-risk homeowners dropped by 28 percent during that stretch, the lowest number enacted since 2007. Illinois Attorney General Lisa Madigan, a leader of the commission, isn't too happy with the data.

"Unfortunately, this report shows that while the foreclosure crisis continues to intensify, lenders have not effectively sustained their efforts to help borrowers avoid foreclosure," Madigan said. "Now, nearly eighty percent of borrowers who are seriously delinquent are still not getting the help they need to try and save their homes."

What can be done? The commission and some affordable housing advocates think Madigan and California AG Jerry Brown's approach to the Countrywide settlement provides a helpful template. That loan modification plan offers $8.4 billion to Countrywide customers who were sold (or peddled, depending on one's point of view) adjustable-rate and fixed-rate subprime mortgages in order to reduce principal and interest payments. Bank of America, which now owns Countrywide, agreed to waive $56 million in prepayment penalties and $79 million in late fees, as well. Today, the commission issued a letter to 16 mortgage lending companies urging them to follow Bank of America's model. ACORN's Financial Justice Center national director Austin King agrees that such a proposal is needed:

More than any other action taken to date, this settlement provides a new model and a road map for actually fixing the problem underlying our deep economic woes, which is that too many Americans cannot afford the mortgage. Through interest rate reductions to as low as 2.5 % and principal write-downs, Countrywide will restructure mortgages so that borrowers are not paying more than 34% of their income toward all housing costs. Critically, this agreement also takes the first step toward addressing the coming crisis with resetting Payment Option ARMs, negatively amortizing loans where borrowers can choose monthly payments that increase their overall debt.

In other foreclosure news, Madigan stood by Cook County Sherriff Tom Dart's controversial plan to implement a moratorium on foreclosure evictions, mentioning that Dart is helping to enforce an Illinois law that requires a renter to be notified 120 days before being kicked to the curb. And Barack Obama announced today he supports a 90-day moratorium on foreclosures that would apply to banks receiving capital through the $700 billion rescue plan.

Tom Dart Interviewed On MSNBC

Josh Kalven — Fri, 10 Oct 2008 11:16:35 -0700

After appearing on CNN yesterday and getting a shout-out from Rachel Maddow last night, Cook Co. Sheriff Tom Dart showed up on MSNBC Live this morning to discuss his decision to suspend foreclosure evictions. Talking about the practice of evicting unsuspecting renters because their landlords were being foreclosed upon, Dart said: "I'll be quite honest with you, I was no longer going to be a party to this injustice." Watch it:

For more on this, read today's Tribune editorial, as well as Archpundit's thoughts on the issue.

The Last Word On The CRA: An Interview With Ron Grzywinski

Adam Doster — Thu, 09 Oct 2008 17:55:22 -0700

Searching for a politically convenient scapegoat to the nation’s mortgage meltdown, conservatives have focused their attention on the Community Reinvestment Act (CRA), a law passed by former President Jimmy Carter that requires banks to lend throughout the communities they serve. As the theory goes, CRA regulations placed tremendous pressure on banks to extend loans to people who were unfit to borrow, leading to an explosion in subprime mortgages and eventually a rash of foreclosures.

Chicagoan Ron Grzywinski, a co-founder of ShoreBank, thinks this argument is hogwash. And he should know.

In 1976, Grzywinski proposed the idea for the CRA and later became the only banker to testify on Capitol Hill in favor of the legislation, drawing criticism from many of his colleagues in the banking industry. His courage paid off. Once enforced, the CRA brought safe, sustainable investments to communities long-ignored by traditional financial institutions, spurring an increase in homeownership rates as well investment in affordable housing, small businesses, and community facilities. And contrary to the revisionist line of attack, the lenders subject to CRA have engaged in less of these dangerous lending practices – not more.

Grzywinski has witnessed at close range the power democratizing credit can have on underserved communities. Measuring success by development and conservation goals -- rather than simply earnings -- the once-floundering ShoreBank he operates (based in Chicago’s South Shore community) has transformed into the nation’s premier community development bank. In Chicago alone, ShoreBank has invested $3 billion, financing improvements to churches, homes, health clinics, and the construction or rehabilitation of 52,000 affordable housing rental units.

With an eye toward the environment, they now finance the decontamination and redevelopment of abandoned manufacturing sites, provide information to real estate borrowers on ways to improve buildings’ energy efficiency, and operate nation’s first environmental development bank. Grzywinski has consulted with some of the leading micro-financers globally, including former President Bill Clinton and 2006 Nobel Peace Prize winner Muhammad Yunus. On top of all that, the South Side institution has assets worth $2 billion and netted $5.3 million in profits last year.

Less than 12 hours after he returned from a bank opening in Belarus, I had the chance to speak with Grzywinski about community banking in Chicago, the origins of and impetus for the CRA, and the difference between responsible and irresponsible lending. Here’s an edited version of our discussion on Wednesday.

AD: First off, can you describe the economic and social climate in South Shore when you acquired the bank in 1973. What type of changes were taking place in the neighborhood and how did that affect the lending practices in the community?

RG: The late 1960s and early 1970s was a time of riots in Chicago. Neighborhoods were being abandoned; many parts of the near South side and West sides were being torched. The adjacent neighborhood of Woodlawn was one of those neighborhoods that probably had 75 percent of its housing stock torched. Nobody was ever indicted, but the housing went down. South Shore was threatened because it had a similar housing stock – about 75 percent of the stock then, and now, is multi-family walk-up buildings built between 1910 and 1930 – and it had experienced rapid racial change that started in about 1963. The two census points between 1960 and 1970 went from 100 percent white to 70 percent black.

So the expectation was, if that’s what happened to Woodlawn, that’s what’s going to happen to South Shore. And the South Shore National Bank, which had been here since 1939, had experienced a 50 percent drop in its deposits between 1968 and the time we got here. It tried to relocate to downtown Chicago, out of what banks euphemistically called “deteriorating market conditions” -- otherwise known as racial change -- but was denied permission in December of 1972, probably the first time a bank was denied in U.S. history.

We bought the bank on August 23, 1973. There were four of us: two African American men, Milton Davis and James Fletcher, Mary Houghton, and myself. ... We bought this failing bank with the idea of using it to rebuild the neighborhood. So that was the beginning.

AD: Can you talk a little about what you and your colleagues wanted to change about the way business was being conducted in the neighborhood?

RG: We knew that there was a lot of discrimination and prejudice in the system and that redlining was fairly rampant. At one point, it was official policy of the FHA [Federal Housing Administration] to redline neighborhoods based on various conditions, with the most prominent one being racial minorities. And so what we knew from our prior experience was that there were many credit-worthy borrowers in these neighborhoods with whom we had had good success. So starting in the South Shore neighborhood, we were interested in demonstrating to the larger banking community that there was good business on market terms and conditions that could be done. The basic idea was using the banking system to rebuild urban neighborhoods without being dependent on deep public subsidy.

AD: What kind of success has your bank had ensuring both economic and environmental sustainability? What are a few achievements that you’re most proud of to date?

RG: Well, the bank is modestly larger – about 60 times larger – than when we started [laughs], so it’s gone from a $40 million failing bank to a $2.4 billion bank. It’s expanded to other domestic locations and since 1983 has been doing a lot of work in developing countries with local development banks … We started working with the Gramean Bank in 1983 -- that’s where Muhammad Yunus just won the Nobel Prize -- and we did that for over a decade. We started working in Poland in 1990, eighth months after the change of governments there, too, so that’s the international side.

On the domestic side, in addition to growth and size, every year for the last decade we put out about four times the shareholder’s capital in the form of new development credit around the U.S. The cumulative total that’s gone out is about $3.5 billion. But if you talk about other things we’re proud of, the bank has operated profitably every year since the first year. We created in 1995 and 1996 the nation’s first environmental development bank – it’s a wholly-owned subsidiary that was founded in a small Washington town at the mouth of the Columbia River with offices in Portland and Seattle. We’ve been able to bring the whole business of conservation into our Midwest banks -- we have significant programs now on home energy conservation loans that are tied into rehab.

And then a year ago, we started in Chicago the Rescue Loan Program, which is designed to reach out to people who are not our customers but who have been disadvantaged by these explosive ARMs [adjustable rate mortgages], these loans given to people with no credit reports, no jobs, no anything. What were finding is about 70 percent of those borrowers qualify for fixed rate conventional mortgages, so we’re doing a lot of outreach in the neighborhoods to get people familiar with that and that’s going quite well. We also created and run the Center for Financial Services Innovation, which has now become the national go-to place for the large financial institutions who are trying to help banks reach the “underbanked” in the U.S., which is a significantly larger amount of the population than you might imagine. And then along the way I was able to testify in favor of the Community Reinvestment Act, which is getting a bit of flak these days.

AD: That had to be a lonely time for you, as the only banker in the nation to stand up and speak to Congress in favor of the bill.

RG: Well, it seemed like the right thing to do then and it seems like the right thing to have done now.

AD: From a broader historical perspective, would you consider CRA a success? Has it fundamentally changed the way banks see markets in cities?

RG: If you go back to that time, there was a lot of concern about redlining in general. You can put it all in the context of the changes that were going on in the country. In my mind, it’s all a part of voting rights and civil rights and opening up society and anti-Vietnam protests and all of that. So it was within that context that there was growing awareness and community organizing around the issues of redlining and the damage that was being caused by it. [National Training and Information Center co-founder] Gale Cincotta, here in Chicago, who is now deceased, was a national leader of that, but they did a lot of organizing to create awareness that this kind of redlining was not right and proper and that it was bad business.

The opportunity to think through the way that the banking industry might get involved came during a conference in which people who thought that Jimmy Carter was going to get elected wanted to create a new federal organization which would be a community development bank. I was one of a handful of people who were invited. In the meeting, I suggested to that it didn’t make much sense to make another federal bureaucracy because it would just mean that all the resources would be focused in a narrow funnel. What we really had to do was figure out a way to release the energies of the nation’s banking system in a responsible and profit-oriented way. Nobody was especially interested in that except for one guy, [American Prospect editor-in-chief] Bob Kuttner, who at the time was on Sen. [William] Proxmire’s [D-WI] staff on the Senate Banking Committee. Bob happened to be there, and I didn’t know him, but he was interested in the idea, so we chatted a little bit about what the potential was for banks. He went away and I didn’t hear anything more for close to a year, but then he called one day and asked if I would come and testify. Thankfully, it got passed and became a law. […]

But contrary to all this stuff that anybody against it has ever said, there is never any suggestion by anybody that banks should be making irresponsible loans. And the last time, about five years ago, when somebody got fairly far in Congress and tried to ditch CRA, the big banks all testified in favor of it.

AD: Do you think the regulations are still important today? What do you think the lending landscape would look like without CRA?

RG: Well, I don’t know. That makes for good speculation. Despite what I just said, getting involved in public policy isn’t what ShoreBank does a lot of. I think in this current environment, it’s very hard to say what it would or will look like. Because it’s easy for the story to get clouded up and make it look like the regulating banks under CRA were the cause of the problem.

I think part of what [Chicago Tribune columnist] Clarence Page and others have pointed out is that probably about 75 percent of the what are called subprime mortgages were done by mortgage brokers and not by regulated banks. In his Boston Globe piece this morning, [Harvard University’s Joint Center for Housing Studies director] Nicolas P. Retsinas makes a point that almost 250,000 people worked at mortgage brokerage firms and they all focused on selling mortgages -- the solvency of the borrower was secondary. What you had was a whole industry that had absolutely no skin in the game. They were just writing and peddling stuff … and there was nobody checking. It was just reckless stuff -- sell it, make your fees, and move on. And people have no down payments and they were told they could own a home – why wouldn’t they?

AD: How are the loans that your bank gives out to lenders who might also qualify as subprime different from some of these peddled loans from the bigger mortgage firms?

RG: We do it the old fashioned way. It sounds like an advertisement but it’s the truth. We don’t do credit scoring; we do it after the fact in order to put a piece of paper in the file in case we ever do decide to sell it. We do not do variable rate loans or subprime adjustable rate mortgages. To the best of my knowledge we have never given out variable rate loans. And we meet with the borrower, and its old fashioned lending. Who is the borrower? What kind of down payment do they have? Where’s the money coming from? How real is the value of the house? Can they make these payments? All that kind of stuff. We do verification of value and of income. We lend in the markets that we know, here on the South Side and West Side of the city. There’s no magic about it. And our numbers right now in our homeowner portfolio are just about where they have historically been. They are up a touch, but that’s mostly the economy. It’s not rocket science [laughs]. We’re just old fashioned bankers.

AD: After the success of your bank and the high-profile success overseas of the Gramean Bank, do you think the community banking movement has blossomed in America as you would have hoped or expected? And if not, do you think the mortgage meltdown here could push some energy in that direction?

RG: I think that it probably has not blossomed here the way that we had hoped that it might. What has blossomed is just much more consciousness and awareness on the part of banks and others to become involved one way or the other. What are some of the other things that have happened? There’s been an entire Community Development Financial Institutions industry created, which are licensed by the Treasury Department. About 50 of them are commercial banks. There’s a much larger number of non-bank financial institutions that lend in communities, too. And the well-managed ones do quite well. They don’t get the leverage that commercial banks have but they raise money, they get loans from large banks, they get loans from individuals and they use those monies to finance community development activity. […]

When you start down a path, you never really know where it’s going to end. We’d probably like to see more truly dedicated community development banks than we have seen, but in terms of availability of credit and other financial resources, I think there is a lot there …. And when you do it the right way, with good management, these things are doing pretty well.

In this country, it’s unclear what the end will be for our current financial and market situation. I think when everything gets shaken out, were going to be back where we have been – that there is a need for credit and financing done the right way, for qualified small businesses, homeowners, everything else. That’s what’s needed.

Countrywide Settles Lawsuit Filed By Madigan

Adam Doster — Mon, 06 Oct 2008 09:01:56 -0700

When Attorney General Lisa Madigan sued Countrywide Financial in June for engaging in deceptive mortgage lending practices, her goal was "to help homeowners now." It now appears she's done just that:

Countrywide Financial Corp., the home mortgage lender acquired by Bank of America Corp. in July, will offer interest rate and loan principal reductions plus other distressed borrower relief valued at $8.4 billion to settle consumer fraud complaints from 11 states.

The accord, which includes relocation assistance for homeowners whose homes have been or are about to be foreclosed, will affect about 400,000 customers and resolves lawsuits filed by attorneys general in Illinois, California, Connecticut and Florida and complaints from seven other states, according to attorneys general Lisa Madigan of Illinois and Edmund G. ``Jerry'' Brown of California.

While the bailout negotiations dominated the news last week, Madigan and her fellow attorneys general came to an agreement with Bank of America late last week. The deal establishes the nation's first mandatory mortgage relief program, making sure monthly payments do not exceed 32 percent of a family's household income, and should help 21,000 Illinois residents keep their homes:

"We will have the first-ever mandatory loan modification program. We're going to be using this as a model for other lenders," Madigan said. "Our goal was to keep as many people in Illinois as possible in their homes." [...]

The bulk of the settlement—$8.4 billion—represents the reduction in principal and interest payments for Countrywide customers who hold adjustable-rate and fixed-rate subprime mortgages. In addition, Countrywide expects to waive $56 million in prepayment penalties and $79 million in late fees. The firm will pay $150 million to people already forced out of their homes and another $60 million in relocation costs for people in the process of being forced from their homes.

It's no suprise that Countrywide -- by far the largest subprime lender in Illinois -- decided to settle out of court, considering that Madigan's case was reportedly air tight.

Illinois Vs. Countrywide Financial: Open And Shut?

Adam Doster — Fri, 19 Sep 2008 08:03:03 -0700

Next week, Attorney General Lisa Madigan will visit Boston and learn to which federal court her lawsuit against the former mortgage giant Countrywide Financial will be assigned. As you may remember, Madigan filed a suit against Countrywide in June for engaging in deceptive lending practices. Does she have a shot of winning? The Reader's Whet Moser points us to an excellent Columbia Journalism Review piece by Dean Starkman that suggests Madigan's case is pretty tight. The whole article is worth your time, but here is one choice excerpt after the jump in which Starkman explains how "the evidence is becoming overwhelming of a profound structural shift in the U.S. lending industry -- one that institutionalized widespread deceptive practices and outright fraud perpetrated on borrowers":

And while they are only allegations, few would argue with California when it asserts that the more onerous the terms of a loan for the borrower—e.g. higher rates, prepayment penalties, etc.—the more global bond investors would pay for it; and is it really in doubt that everyone in the loan-supply chain, including the sales force, got higher pay the more onerous the terms? Or, as California puts it: “The value on the secondary market of the loans generated by a Countrywide branch was an important factor in determining the branch’s profitability and, in turn, branch manager compensation.”

Such incentives would logically set the table for the creation of vast call centers—“loan factories,” where retail sales staff were trained in “high-pressure” sales tactics, complete with scripts, cold calls, databases, etc., to “steer borrowers into riskier loans,” as California alleges. The eighty-one-page Illinois complaint, filed June 25, similarly describes a culture in which traditional banking values were turned on their heads and were aimed overwhelmingly toward “selling” loans, which is the opposite of traditional underwriting.

From 2004, Countrywide led the market in rolling out new “products” that were basically bureaucratic ways of approving a loan to anybody. The complaint said Countrywide threatened to fire underwriters for (my emphasis) “attempting to verify a borrower’s ability to pay.” [...]

The mortgage mania appears to have entered its Baroque phase sometime around 2004. That year, Countrywide approved a brokerage known as One Source Mortgage, Inc., owned by five-time felon Charles Mangold, which proceeded to embark on “rampant” fraud, Illinois says, including the wholesale doctoring of loan files.

Durbin Seeks Payday Loan Cap

Adam Doster — Mon, 21 Jul 2008 09:04:00 -0700

Devised as a short-term fix for cash-strapped borrowers, the virtually unregulated payday loan industry has become a key player in the U.S. economy, locking hundreds of thousands of Americans into a vicious cycle of high-interest debt. The industry's growth has been rapid, as well. In Illinois alone, payday loan storefronts outnumber McDonald's franchises. But as more Americans buckle under the weight of housing and health care costs, Sen. Dick Durbin says it's time to implement fair usury laws to protect consumers from predatory lenders:

U.S. Sen. Dick Durbin (D-Ill.) has taken aim at the high-interest-loan industry, introducing a bill proposing to cap rates charged for payday loans, car title loans and other forms of consumer credit at 36 percent annual interest.

Payday lenders typically charge anywhere from 200 percent annually to five times that figure depending on laws in states in which loans are obtained.

In effect, the bill would sweep aside rates higher than 36 percent annually in states where higher percentages now apply, but would not affect those with lower rates.

The bill will certainly face intense opposition from the financial services community, who fought tooth and nail for the bankruptcy bill "reforms" of 2005 and have consistently impeded legislation to tighten usury laws. But several years ago, Congress imposed a similar 36 percent annual interest cap on most loans for military personnel and their families. If it's good enough for soldiers, why not borrowers nationwide? Consumer advocates praised Durbin's move:

"It sets the bar," said Lynda De Laforgue, co-director of Citizen Action/Illinois. "It is really important because it says that this is the direction we are headed."

Image used under a Creative Commons license from Flickr user taberandrew.

Countrywide In Illinois

Josh Kalven — Wed, 25 Jun 2008 15:54:13 -0700

On various business-oriented blogs today, I've seen a lot of griping about the news that Illinois Attorney General Lisa Madigan is suing Countrywide Financial for engaging in deceptive business practices. Some of these complaints have called into question Madigan's decision to target Countrywide, pointing out that the company is one of numerous bad actors in the financial sphere. Others have chalked Madigan's move up to political grandstanding.

But it's important to remember that, in terms of Illinois alone, Countrywide is the biggest fish in the pond. From The New York Times:

For 2004 through 2006, Countrywide was the largest lender in Illinois, selling about 94,000 loans to consumers in the state, the complaint said. The company operated about 100 retail branch offices in Illinois and its loans were offered by many mortgage brokers licensed to do business there. Countrywide also purchased loans through a network of 2,100 correspondent lenders in the state.

GOP Blocks Illinois Law Professor From Giving Senate Testimony

Adam Doster — Fri, 13 Jun 2008 10:56:17 -0700

University of Illinois law professor Bob Lawless was all set to deliver a statement before the Senate Judiciary Committee on an important topic yesterday -- how the Supreme Court's decisions on cases affecting the the financial services industry revoke state protections against deceptive lending practices. The deregulation of the credit card industry is a prime example:

The Supreme Court ruled in 1978 that banks could charge the maximum interest rate determined by state legislatures in the banks’ home states, not the interest rate of the states in which they do business. Unsurprisingly, credit card businesses moved to Delaware and South Dakota—two states with virtually no interest caps—thus rendering state usury laws worthless.

Twelve years ago, the court applied the same logic to the size of fees a bank can charge. Congress has refused to step in at the federal level, enabling the industry’s thorough deregulation.

With the freedom to act on their own accord, banks have implemented an array of confusing and punitive measures that bilk cash from clients.

But just as Lawless began his remarks, Sen. Sheldon Whitehouse (D-RI) was forced to shut down the hearing after an unnamed Republican senator invoked Senate Rule XXVI, a rarely-enforced procedural requirement that all hearings come to a close within two hours of the Senate convening for the day.

What was there to hide? On the blog Credit Slips, Lawless recounts what was discussed before the hearing was gaveled. It's testimony that would send shivers down the spine of any politician beholden to the financial services industry.

We heard heart-breaking testimony from Bridget Robb, a 34-year old mother who nearly died in front of her 6-year old daughter while receiving repeated electric shocks because of an electronic lead in a pacemaker the manufacturer knew to be defective but for which had given no notice. Because of a U.S. Supreme Court decision protecting medical device manufacturers, Ms. Robb has been stripped of the right to sue for damages because of the harm she has received. We also heard from Maureen Kurtek, a 44-year old mother whose insurer denied her coverage for necessary medical treatment although it knew her previous insurer had authorized the same coverage on three previous occasions. As a result of not receiving a needed, Ms. Kurtek nearly died, had half of her right foot amputated, lost five fingertips, and suffers from numerous painful conditions. Again, Supreme Court decisions strip Ms. Kurtek of the right to sue. Professor Tom McGarrity was there from the University of Texas to provide expert commentary on how the Supreme Court's preemption decisions led to these results. I was there to discuss how the same trends toward centralized federal regulation in the financial services area similarly deprived consumers of important protections.

As Mary Kane writes at The Washington Independent, there's one solution to this sort of congressional spinelessness: "Maybe next up for the Committee should be considering how to keep Republican partisans from abusing Senate procedural rules to protect their own agendas."