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Czar Nicholas II of Russia

Car Czar Consulting says: Just what we don’t need – more redundant expense!

Note to the President: Put money in the hands of consumers and businesses  by cutting taxes, so , in turn, they can spend it and end this Depression!

The Minority Leader of the House says it best in the video below: It’s out of control!

President Obama

Administration sends Congress consumer legislation
Administration: Consumer agency will boost enforcement, make financial products understandable

June 30, 2009 WASHINGTON (AP) — President Barack Obama asked Congress on Tuesday to create a new agency to police the fine print on consumer products like credit cards and mortgages and determine what fees, penalties and interest rates are fair.

The Consumer Financial Protection Agency would be in charge of regulating those products in the same way other government agencies regulate the safety of drugs, food and toys.

Obama said Americans are demanding it.

“Those ridiculous contracts with pages of fine print that no one can figure out — those things will be a thing of the past,” the president said in a statement accompanying the 152-page draft bill. “And enforcement will be the rule, not the exception.”

The CFPA is part of Obama’s broader plan to increase oversight of the financial industry and eliminate regulatory gaps believed to have contributed to the economic crisis.

The agency would be dedicated to protecting consumers when buying mortgages, using credit cards and taking out high-rate “payday loans.” It also would monitor terms set on savings, checking and debit card accounts, including overdraft charges.

Under the plan, lenders would be required to be up front about their products and compare them to less risky, “plain vanilla” options. The agency potentially could require a kind of warning label on such financial products as mortgages with payments that suddenly balloon in size.

The agency’s reach would not extend to investment products like mutual funds and other services already regulated by the federal government. Instead, it would focus on regulating a market that so far has mostly escaped it. Predatory lending is blamed for contributing to the housing crisis that roiled Wall Street and resulted in a $700 billion taxpayer bailout for banks.

Democrats in Congress have embraced the idea of a consumer financial watchdog as a way of showing voters they are on their side during tough economic times. Republicans and bankers, however, already are balking and gearing up for a fight.

“This isn’t only bad government but big brother lurking at everyone’s doorstep,” said Tom Quaadman, executive director of the U.S. Chamber of Commerce’s center for capital markets.

Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, called the proposal one of his highest priorities and said his panel would take up the bill in July.

Sen. Christopher Dodd, who faces a tough re-election fight next year, also vowed to steer the proposal through the Senate Banking Committee he chairs despite staunch opposition from the banking industry.

“It is unbelievable that some of the same irresponsible actors that helped create the current financial mess would argue that we are doing too much for consumers,” said Dodd, D-Conn.

Republicans counter that setting strict rules on the consumer market will limit options for buyers and potentially increase the cost of financial products as banks try to make up for lost revenue.

Rep. Spencer Bachus of Alabama, the top Republican on the House Financial Services Committee, said the bill could give consumers a false sense of security when it comes to selecting financial products.

“The proposed CFPA appears to be premised on the idea that Washington is better at making financial decisions for all Americans than leaving that choice up to individual Americans,” he said.

Proponents of the agency say its creation doesn’t have to mean fewer products on the market.

Elizabeth Warren, a Harvard University professor who long has advocated creation of a consumer-protection agency, said she envisions a system that would allow products to remain available as long as lenders are up front and concise about their terms.

“Most of the bad products were marketed by trickery,” she said.

Likewise, Treasury Department officials said the agency’s goal wouldn’t necessarily be to lay a heavy hand on industry. The legislation explicitly requires the CFPA to consider the burden any new rule would place on a financial institution and whether it would restrict consumer access to credit.

Compliance would be enforced through penalties, but the CFPA also would require an annual operating budget, which has yet to be disclosed. The agency would be independent of other government agencies that now share those oversight duties and take away some power from some, most notably the Federal Reserve.

The agency would be run by a five-member board with four members nominated by the president and confirmed by the Senate. The fifth member would be the director of the new National Bank Supervisor, the merged agency the administration is proposing to create to take over bank regulation duties.

Associated Press writers Martin Crutsinger and Jim Kuhnhenn contributed to this report.

FICO Scores Show Flaws as U.S. Banks Cut Credit Lines

June 30 (Bloomberg) — When Sharii Rey, a paralegal in Portland, Oregon, had her credit limit reduced by JPMorgan Chase & Co. earlier this month, she said it would hurt her 760 credit score. That’s not the bank’s problem, she was told. It’s FICO’s.

After Rey’s $42,500 credit line was cut to $12,000, her debt relative to available funds almost quadrupled. This so- called utilization rate is a large component of the FICO formula and a higher ratio can lower a score. Rey, 62, is concerned a new FICO score will squash her ability to borrow.

Congressman Luis Gutierrez, an Illinois Democrat, says the FICO formula, the most widely used by U.S. lenders, has flaws as banks decrease loans to consumers, regardless of individual risk profiles. At least 30 million Americans had their credit limits reduced arbitrarily during the second half of 2008, FICO estimates. In the first quarter, New York-based JPMorgan and Citigroup Inc. and Bank of America Corp. in Charlotte, North Carolina, slashed $320 billion from credit lines, according to a report by former Oppenheimer & Co. analyst Meredith Whitney.

“Reductions to a consumer’s line of credit based upon the lending institutions’ overall appetite for risk has little or no bearing on a consumer’s own risk of default,” said Gutierrez, chairman of the House Subcommittee on Financial Institutions and Consumer Credit.

An individual’s FICO score is based on factors that aren’t directly related to JPMorgan’s decision to lower a credit limit, said Paul Hartwick, a spokesman for the biggest U.S. bank by market value.

Scaled-Back Lending

Banks have scaled back lending during the deepest U.S. recession in five decades. The Federal Reserve’s quarterly survey of senior loan officers released May 4 showed about 65 percent of banks lowered credit limits on new or existing credit-card customers, compared with 45 percent in the January survey. Consumer credit, which includes credit card and auto loans, was $2.52 trillion in April, according to a Fed report released this month.

“The collapse of the economy raises serious questions about the credit industry’s reliance on credit scores,” said Ed Mierzwinski, consumer program director at the U.S. Public Interest Research Group in Washington. “Are the scores as predictive as FICO swears they are?”

Scores based on models established by Minneapolis-based FICO, formerly known as Fair Isaac Corp., are used to gauge a consumer’s financial health. The scores, which range from 300 to 850, affect the ability to get credit cards, mortgages and insurance products, as well as the rates borrowers pay for them.

Founded in 1956

FICO was founded by Bill Fair, an engineer, and Earl Isaac, a mathematician, in 1956 and the FICO score is now used by 90 percent of the 100 largest U.S. banks. Mortgage lenders use the scores, which rank borrowers according to the likelihood of default in the next 24 months, in more than 75 percent of all residential mortgage originations, according to FICO.

“FICO scores have held up quite well in terms of predictive accuracy,” said FICO Chief Executive Officer Mark Greene, 54, a former economist at the Fed. “It’s not obvious to me that having the score change because of limit cuts is the wrong thing. The bank’s action may signal a riskier environment and the view that you are a riskier consumer.”

Mortgage-finance companies Fannie Mae and Freddie Mac use FICO scores when backing loans, which helps FICO keep its market dominance, said Ken Lin, chief executive officer and founder of San Francisco-based Credit Karma Inc., a Web site that offers free credit scores to consumers.

Fair’s Couch

Experian Group Ltd. in Dublin, Equifax Inc. of Atlanta and Chicago-based TransUnion LLC have their own versions of the FICO model that they sell to lenders. FICO relies on data from the companies to create its formulas.

The formula, which evaluates payment and credit history, utilization, new loans and types of credit in use, is updated every two to three years, said Ethan Dornhelm, who works with about 40 FICO scientists in San Rafael, California, about 30 minutes north of San Francisco. Fair’s leather tobacco-colored couch, where he used to lie in the 1970s while devising the model, is displayed in an office lobby.

The FICO 08 system, introduced in May 2007, refines previous models by limiting the effect of authorized users who artificially increase scores and separating chronic late payers from consumers who have isolated late payments, said Lisa Nelson, FICO’s vice president of global scoring. Borrowers who have higher utilization rates will receive fewer points, she said.

‘Fear for Enamel’

Rey, the paralegal, said she was counting on a credit “cushion” in case she was affected by the decline in the economy. She said she fears she won’t be able to buy a new home and car because her reduced FICO score will mean higher interest rates on the loans.

“I have been gritting my teeth so hard, I fear for the enamel,” Rey said.

Nationally, FICO score distribution has remained fairly stable with the median at about 720, according to a FICO study of Equifax data. Consumers are monitoring their spending habits more closely, said Tom Quinn, vice president of scoring at FICO.

Credit-limit cuts that didn’t follow customer actions such as late payments affected about 11 percent of consumers from April to October 2008, according to the FICO study. The median FICO score for this group was unchanged at 770, Quinn said.

Limits Running Down

“The emphasis on utilization rates when you’re not running up debt and instead limits are running down makes FICO scores much less reliable,” said Josh Frank, a senior researcher at the Center for Responsible Lending in Durham, North Carolina.

Ken Jett, a 42-year-old licensed mental-health counselor, keeps his 12 credit cards in his desk. He said he hasn’t used them since February because he’s concerned about his credit score that has already dropped to 683 from 720.

“My score is no longer a good glimpse of who I am, credit- wise, because it looks like my cards are maxed out and I’m a risky borrower,” said Jett, who’s based in St. Louis. “But nothing has changed in my credit-risk profile except for an arbitrary $25,000 limit cut.”

Job Losses

Gutierrez, the congressman, said he’s planning a subcommittee hearing on credit scores before the end of the year.

FICO’s first-quarter revenue from scoring operations fell 21 percent to $31.1 million from a year earlier, as fewer consumers applied for mortgages, auto loans and credit cards. Almost 550 FICO employees have lost their jobs since 2008 as earnings decreased, said Craig Watts, a company spokesman. The stock rose 5 cents to $15.46 at 4:01 p.m. in New York Stock Exchange composite trading. It has declined 8.3 percent year to date.

“Is FICO an accurate predictor of risk?” said Evan Hendricks, publisher of “Privacy Times,” a Washington-based newsletter and author of “Credit Scores & Credit Reports.” “It’s the worst system around, except for all the rest,” said Hendricks, taking a line from former U.K. Prime Minister Winston Churchill.

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