WSJ EDITORIAL: CAMPBELL: This Federal Proposal on Car Loans is a Lemon
Monday, 29 April 2013 09:50
WSJ OP-ED: CAMPBELL: This Federal Proposal on Car Loans is a Lemon
A consumer protection agency recommends that lenders guess the race and sex of applicants.
There were many contributors to the 2008 financial crisis—including unsound housing loans and mortgage-backed securities, Fannie Mae FNMA +0.73% and Freddie Mac, FMCC +0.98% excess leverage by major financial institutions, and regulatory failures. Car and truck loans were not among the problems, and their lenders in any event pose no "systemic" risk to the financial system.
And yet, amazingly, the Consumer Financial Protection Bureau—a creature of the Dodd-Frank Act, which was passed to correct and prevent the causes of, and problems that led to, the 2008 crisis—wants to change the way car loans are made. The CFPB's proposal is a noxious attempt to solve a problem that doesn't exist and is likely to make a mess of one part of the consumer-loan industry that works.
Currently, if you apply for a car loan through a bank, credit union or one of the car manufacturers like Ford Motor Credit or Toyota Financial, you are judged on matters such as your credit score, income and debt. The financial institution won't know your race or ethnicity or even necessarily your gender. It will approve or disapprove the application and offer you an interest rate based on the data. That's just as it should be.
But it is not good enough for the CFPB. In a quest to make sure that all individuals falling within the "protected classes" under the Equal Credit Opportunity Act get the same interest rate as those who are not covered by it, the agency wants financial institutions to guess your race, ethnicity and gender based on your name and the address on your application. Put bluntly, they want lenders to profile you.
It sounds bizarre. But during a conference call on March 21 to congressional offices explaining how auto lenders were supposed to comply with the Equal Credit Opportunity Act (as outlined in CFPB's Bulletin 2013-02), agency staff advised us that they would recommend that financial institutions use "proxies to give probabilities of the race, ethnicity and gender of borrowers" to guess if an applicant falls into a protected class, or not, for the purpose of setting interest rates. In other words, they would like lenders to use stereotypes associated with your name and location in order to monitor compliance with equal-opportunity requirements.
Does that mean a person named Jefferson who lives in the Bronx is to be presumed an African-American, but not a Jefferson in Wichita? Is Taylor Rosenstein living in Miami a woman or a man? He or she must certainly be Jewish, right?
What I just wrote is absurd and looks offensive. But it is exactly what the CFPB's advice would effectively require.
Under this scheme, banks and finance companies would employ highly questionable methods to presume the race and gender of each applicant and assess whether the interest rates they offer are discriminatory.
This guidance is not just stupid, it is incredibly offensive and contrary to standards of fairness and equality upon which our society is based. One can only imagine the legal and other costs it would entail if lenders tried to put it into practice.
The auto industry is one of the economy's bright spots right now. There is no need to knock it off track by diverting resources toward fixing a problem that doesn't exist, resources that might otherwise be used to make credit more available for consumers who want to buy a car. The percentage of consumer complaints on car loans was and continues to be very low, especially when compared with home loans.
The CFPB should withdraw this outrageous and abusive guidance immediately and focus on helping consumers in those areas in which the need for reform truly exists.
Mr. Campbell, a Republican congressman from California, is chairman of the House Financial Services Subcommittee on Monetary Policy and Trade.
This piece, exclusive to The Wall Street Journal, may be accessed online by clicking here.
The Hill: Fisker’s Sale to Chinese Firm Better than Collapse
Tuesday, 05 March 2013 08:59
From Rep. John Campbell (R-Calif.)
March 5, 2013
I understand why Sens. John Thune (R-S.D.) and Chuck Grassley (R-Iowa) are upset about the possibility of Fisker Automotive being sold to a Chinese company (“Thune, Grassley against Fisker sale to Chinese company,” Feb. 20), but I respectfully disagree with their conclusions.
It is clear that Fisker needs substantial capital partners in order to remain solvent and continue operations. I did not support the Obama administration’s green energy loan program and still believe it was a bad idea. However, the fact of the matter is that the best way for Fisker to pay the taxpayer back is by means of raising capital through a strategic partnership.
Now, I’d much rather that partnership be made with an American company. However, if a foreign partner makes Fisker viable and prosperous, the establishment of that partnership then is clearly in the best interest of the American taxpayer — not to mention those that hold the many jobs that Fisker creates in this country.
OC Register - CAMPBELL: We're Not Paying Our Own Way
Monday, 28 January 2013 10:04
Future generations will bear much of the cost of today’s entitlement
By JOHN CAMPBELL / For the Register
I often write about things fiscal, financial and economic. Given that I am a CPA and sit on three committees in Congress that deal with money (Budget, Financial Services and Joint Economic), this is to be expected. But, I am not all about money. And, the nation's problems are not all about money. As big a problem as our debts and deficits are, they are emblematic of deeper and actually more significant moral and cultural issues.
For some time now, we have heard of those who Tom Brokaw dubbed "the greatest generation," those who sacrificed through a world war to vanquish fascism and imperialism and leave a stronger America for their children. We can go back further to speak of the generation that took the risks to establish this country in the late 18th century or of the generation that fought the Civil War. In each case, said generation sacrificed in order to leave a better and more prosperous country of opportunity for their children.
But, what are we doing now? What will be the legacy of my generation? Our debt and deficit crisis is largely caused by giving ourselves health care and retirement benefits without paying for them. But, we "deserve" them. We are "entitled". We paid for them. The problem is that none of that is true. I have paid Medicare taxes my entire working life, and I started earning a paycheck when I was 16. I am 57 and, therefore, eight years away from Medicare benefits. In spite of that, I have only paid in one-third of the cost of the benefits I will likely receive. The rest, fully two-thirds of every doctor visit or medical procedure, will be borrowed. That means my kids will have to figure out how to pay for it.
No one receiving Medicare now or about to receive it has paid anywhere near the full cost. The same is true of Social Security, although those numbers are not as lopsided. And, we all want to care for the indigent, but we do not pay enough taxes to cover Medicaid expenses, either.
So, as a society, we have decided that we want a bunch of stuff right now so that our standard of living will be higher. And, we don't want to pay for it. Instead, we demand that people in the future pay for it through less opportunity and lower expectations and a lower living standard. Instead of sacrificing to leave the next generation a brighter future, we are rewarding ourselves more than is our due and leaving the next generation with less opportunity, lower expectations and a lower living standard. It is selfish. It is just plain wrong.
The financial markets are also a part of the problem right now. Markets today are dominated by traders, rather than investors. Those traders have a very short-term outlook. They are interested in the next week or maybe, at most, the next quarter. So, they want any accommodation that preserves their outlook for a few months and the heck with the long-term future. Short-term markets will hate what we might have to do to fix the problem. But, we must start becoming less concerned about the next three weeks in order to build a brighter future for the next three decades.
In the final analysis, that's really what this debt-limit fight is about. The president and his allies want to give you something for nothing. That's the source of their political strength. You get health care and retirement and education all for free because you are "entitled" to it and somebody else will pay for it. The problem is that those other "somebodies," like the "rich" and the "corporations," don't have even 10 percent of the money necessary to pay for it. So, the people paying will be your children. And, they will pay dearly.
I understand that the world moves on, and things change. But, some principles are enduring. Whatever happened to the idea that you are entitled to nothing that you don't earn or show yourself to be deserving of? What about the idea that, no matter how grand or how modest my station in life is, I want my kids to have it better?
Our debt and this president's perpetual trillion-dollar deficits are not just bad economic policy – they are morally reprehensible. We have to make a stand. Barack Obama will be president for four more years. We are better to make that stand now, even if it means we all have to suffer the trauma of going past the debt limit, rather than condemn our children to the consequences of a future collapse.
FlashReport - CAMPBELL: California’s Eminent Domain Heist
Friday, 14 September 2012 11:06
FlashReport - CAMPBELL: California’s Eminent Domain Heist
Posted by Congressman John Campbell
It will not surprise anyone reading this that serious problems persist in the housing sector. Many solutions have been proposed, including several pieces of legislation I have introduced in Congress, to help homeowners, completely reform our housing finance system and fix the housing crisis. Most of the proposals out there are focused on struggling homeowners trying to make the next payment and are about the greater good of the country. However, you may or may not be surprised that a couple of California cities have decided to not waste a good crisis, to paraphrase the now infamous axiom, realizing there is a lot of cash to be made off underwater homeowners.
In an astonishingly expansive and untenable interpretation of eminent domain authority, several local governments, notably San Bernardino, have proposed plans to override private property rights through a scheme that is specifically designed to make money for over-leveraged cities. This scheme is being sold as assistance for hurting homeowners, but it is purely a ploy to use federal tax dollars to seized distressed home loans and force unconventional, yet profitable loan modifications.
However, not only will cities and counties benefit from this wealth redistribution plot, private consulting firms and vulture hedge funds purporting to be experts on eminent domain have partnered with local governments in order to profit from this abuse of power, as well. For example, In San Bernardino’s case, San Francisco-based Mortgage Resolution Partners (MRP) is the “philanthropic” entity poised to “assist” all of these struggling homeowners. Even more egregiously, the underwriter for the unpaid principal balance in their scheme will not be private financiers, as proponents for the eminent domain plan claim, but the American taxpayer.
So, how would this work? Here’s a quick scenario: Under the MRP proposal, and under the program being considered by the San Bernardino Joint Powers Authority (JPA), the JPA would pay investors 85% of the underlying home’s current appraised value after the loan has been seized. The loss on that will be borne by the original investor in the loan, which is likely you, a taxpayer, through your retirement account. This loss could be very substantial, even running into the billions of dollars. The JPA would then set the unpaid principal balance of that loan to 95% of the underlying home’s current appraised value. The 10% difference, or spread, is used to line the pockets of overleveraged cities, crony consultants, and predatory hedge funds. And, adding insult to injury, these entities would then immediately sell the same loan back to you, guaranteed by the FHA.
This is wrong, this is abusive, and I believe this is unlawful. Therefore, I have introduced H.R. 6397, The Defending American Taxpayers from Abusive Government Takings Act, which would stop reckless city and county governments from enacting profiteering schemes that seek to cash in on the plight of underwater homeowners through the arbitrary seizure of private home loans. The Defending American Taxpayers from Abusive Government Takings Act will preserve and uphold the rule of law, protect the taxpayer from abusive crony capitalism, and defend against misguided wealth redistribution conspiracies.
While the legality of a city or county’s use of eminent domain for this purpose is tenuous and yet to be determined, it is equally unclear if Fannie Mae and Freddie Mac would be guaranteeing or purchasing loans modified through these programs. It is also unclear if non-qualified borrowers will have their modified mortgages held in portfolios or securitized. Additionally, the unsubstantiated nature of these eminent domain programs presents significant risks of corruption, theft, waste and abuse of power. For example, by the terms of the program, it would appear to be in a city’s financial interest to appraise the properties underlying seized mortgages as low as possible in order to increase their potential profit. Most assuredly, these programs will dramatically hurt the markets they are employed in as they will virtually destroy private lending in these cities and counties for years to come.
There is no question that we need to take steps to assist American homeowners in distress, but these steps must not undermine rule of law, must not engage in deleterious and abusive practices, must protect the American taxpayer, and must not further degrade the housing market. The eminent domain programs in question are atrocious, corruptive, irresponsible and unconstitutional. We do need to fix the housing sector, but it must be done in a way that does not break the law and does not enrich undeserving, politically-connected entities in cities and counties with unsustainable budget deficits.
OC Register - CAMPBELL: Europe's lessons for the U.S.
Monday, 16 July 2012 09:21
America can see the wreck ahead and still has time to avoid it.
By Rep. John Campbell
Unless you have been hiding in Attorney General Eric Holder's "Fast and Furious" file cabinet, you know that trouble is brewing in Europe. Real big trouble. None of us knows where it will go from here, but I can see no good outcome.
The experiment of monetary union without fiscal or political union has failed. Most of the solutions European leaders are discussing will simply delay the inevitable. Using debt that you have no plan to repay in order to pay other debts that you can't repay doesn't work with mortgages and will not work with governments. And, it is hard to even describe the political challenges they have over there. Look at the gridlock we have here with one country, one culture and two political parties. Now, imagine having 17 countries, dozens of cultures and more like 100 political parties.
Whenever the European crisis hits and however it is manifested, the U.S. will be affected. How much is impossible to predict at this point. But, there is a way that we can actually benefit from the problems in Europe.
Here are four lessons we can learn from Europe, a list of what not to do. Unfortunately, each example is still on somebody's "to do" list in Washington:
- Socialism does not work: Socialism in Europe and in this country always starts the same way – promise people free health care and free retirement and free housing and whatever free stuff wins political favor. Some claim that the "rich" will pay for it all. But, the rich do not have enough money. They may have enough to pay for the very poor, but not for everyone. So, the socialists borrow the money. That way, they are still giving the populace free health care. But, at some point you can't borrow the money anymore because the people you are borrowing it from realize that they can never be paid back. This is the tipping point at which socialism fails. Past this point, you have to tax the people to whom you promised the "free" stuff in order to pay for their "free" stuff (those people are the middle class). The people understandably don't want to give up their free stuff or have to pay for it. But, they will have to do one or the other. And, an entire generation will suffer.
- Don't delay fixes: Many of the debt problems of European countries were apparent years ago. But, they kept putting off the solutions for the reasons above. As a result, they got to a point at which the depth of the problem had eliminated the efficacy of most possible solutions. America has a debt problem. The problems in Europe have actually bought us some time as we remain "the cleanest shirt in a dirty laundry bag." But, not much time. The government has run up a trillion-dollar deficit in every year of Barack Obama's presidency, and will continue to do so under his current budget proposal. This cannot happen or we will descend into decades of economic darkness and reduced living standards. We need to get on it now.
- Don't try to fix it all at once: Big spending cuts and big tax increases imposed on a fragile economy will trigger recession. Such is the case in Europe and would be here. We should not fix our deficit in one year, even if we could find the political will to do so. We should move to a balanced budget over five to eight years with a combination of cuts, reforms and growth. The economy would not adapt well to the shock of pulling $1.3 trillion out of it in one year. And, if we take our time, the markets will react very favorably.
- Don't fool yourself: Some believe that socialism in Germany has worked, but they are missing something. The euro has been enormously helpful to Germany because it allowed the citizens of Greece and Spain and other less-productive countries to buy German goods using an overvalued common currency. If Greece (or any other country) leaves the eurozone, their new, lower-valued currency would greatly reduce the wealth of their population and will buy a lot fewer German goods. Germany has been enjoying a bubble supported by the euro, which undervalued German goods and overvalued the ability of others in Europe to buy them. Were this bubble to burst, Germany's output and, therefore, its social programs, would also come under strain. Germans will be the last people in continental Europe to feel the pain, but they will feel it.
We should never fool ourselves into false security when the basis of our security is unstable. Europe is in trouble. The United States will follow if we follow the same path.
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