Broke, USA

for the Fed to do the same, Calhoun said.

In time, the Fed would propose such a ban (the comments period ended on New Year’s Eve 2009, clearing the way for action). Its governors would announce new rules for the overdraft fees banks charge (in particular the overdraft protection plans in which banks automatically enroll people) and also the credit cards they issue. Again, the CRL would criticize the Fed for not going far enough on these last two issues. The failures of the Fed on credit card reform would be moot as Congress would take on the issue with passage of a credit cardholders’ “bill of rights” in 2008. The new law, which went into effect in early 2010, protects cardholders from capricious interest rate increases and clamps down on the fees card issuers can charge. “The Fed’s overdraft rules were a small step but at least a bank now has to ask if someone wants this expensive small-loan product,” the CRL’s Kathleen Day said.

Even Alan Greenspan would provide a bit of pleasure to people inside the CRL when he appeared before Congress to talk about the subprime meltdown. As far back as 2000, Greenspan showed he recognized that there was something amiss in the mortgage business. “Of concern,” he said in a speech he gave in March of that year in front of the National Community Reinvestment Coalition, “are abusive lending practices that target specific neighborhoods or vulnerable segments of the population and can result in unaffordable payments, equity stripping, and foreclosures.” Yet as a young man, Greenspan had sharpened his political philosophy in the living room of Ayn Rand, and he believed deeply in a hands-off approach to the market. “I have found a flaw” in my thinking, Greenspan confessed when appearing in front of the House Committee on Oversight and Government Reform. His free-market ideology, he acknowledged, ended up being the wrong one for the circumstances. The market didn’t self-correct, as he had assumed it would, a humbled Greenspan said in his testimony. “I was shocked,” he admitted. Kathleen Keest had been so ecstatic to see the former Fed chairman, once hailed as the world’s greatest central banker, taken down a peg or two that she had taped to her office door news articles reporting on Greenspan’s testimony.

The payday lenders, the check cashers, and others catering to those on the economic fringes had been worried that somehow a crackdown on subprime mortgage lenders could threaten the way they conduct business. They were right to worry. The centerpiece of the Obama administration’s financial reform package was an idea that Elizabeth Warren of Harvard first proposed in mid-2007: a Consumer Financial Protection Agency, or CFPA. The impetus behind this new regulatory body may have been the need to rein in abusive mortgage practices and complex products such as collateralized debt obligations that Warren Buffett had dubbed “financial weapons of mass destruction.” But this proposed, new consumer protection agency for financial products would also have jurisdiction over payday loans, the pawn business, subprime credit card companies, and pretty much any Poverty, Inc. enterprise. The CFPA consolidated enforcement into a single, stand-alone agency that would have broad authority to investigate and react to abuses. The agency would also promote better financial education. Predictably, virtually every business in this sector lined up against the Obama proposal. How could they not in the face of a new federal agency that would suddenly be poking into their business? The CFPA was “redundant,” a “waste of money” (actually, under Obama’s plan, the businesses being regulated would be assessed a fee to pay for the agency), and an “extra layer of bureaucracy.” Lynn DeVault, the Allan Jones lieutenant heading up the payday lender trade organization, told Cheklist that her group had quadrupled its federal lobbying budget.

The scope of this proposed new regulatory body was made plain by the breadth of interests aligned against it, a roster that included banks and payday lenders, of course, but also pawnbrokers, car dealers, real estate developers, the U.S. Chamber of Commerce, and even utility companies. By the time the debate over the agency began in mid-October, the financial services industry had already spent more than $220 million lobbying against Obama’s proposed agency.

FEDERAL AGENCY A NEW THREAT—that was the headline in the fall 2009 issue of Cheklist. The author of the article checked in with the check cashers, a pawn chain, and a payday proprietor. There may have been a time when the poverty industry wasn’t a single entity so much as splintered, competing interests fighting over the same clusters of customers. But the pawnbrokers became check cashers and the check cashers ventured into payday, as did rent-to-own. And more recently the payday lenders started getting into check cashing, money orders, refund anticipation tax loans, and any other business that might bring in additional revenues. They all learned the same tricks for maximizing revenues from the same sources, each category of business grew plump with profits due to the same set of broader economic factors: stagnating wages while home and health prices soared, the loss of good-paying manufacturing jobs, the widening gap between the wealthy and those on the bottom half of the wage pyramid that economists have been observing for thirty years. If nothing else, the fight against a new consumer agency underscored the unified nature of the country’s Poverty, Inc. sector—and its clout. JPMorgan Chase underwrites the loans for a large share of the instant tax market, the country’s biggest banks funded the growth of the payday industry, and pretty much every large investment bank has had its hand in one of these businesses or another. And what are overdraft fees, which generated $24 billion for the banks in 2008 according to the CRL, but another way a business is feasting off those living on the financial margins?

“If it was just us, we’d get killed here,” payday spokesman Steven Schlein said of Obama’s proposal for a consumer agency. But the interests of his clients and the country’s largest financial institutions are aligned. “Our hope is that the banks will beat this bill back,” Schlein said. As written, the Consumer Financial Protection Agency Act of 2009 didn’t give this new agency the power to cap interest rates. But it was Schlein’s great worry, and the worry of many within the Poverty, Inc. field, that an interest rate cap will be slipped in at the last minute or tacked on to a completely unrelated piece of legislation.

Obama said he wanted a financial reform package signed by the end of 2009 but that deadline came and went—and with it the Democrats’ filibuster-proof majority in the Senate. The House had done its part, authorizing the CFPA in legislation it dubbed the Wall Street Reform and Consumer Protection Act. Barney Frank, the liberal congressman from Massachusetts and chair of the House Financial Services Committee, had angered consumer activists by granting the federal government the power to preempt the states from regulating the national banks in some circumstances, but President Obama, anxious to see legislation pass by year’s end, immediately issued a press statement lauding the committee for its swift action.

The House bill passed without a single Republican vote. A rival proposal passed out of the Senate Banking Committee, chaired by Connecticut’s Christopher Dodd, but with health-care reform taking center stage and other issues crowding out the agenda, the full Senate failed to vote on the measure by year’s end. Then, shortly into 2010, Dodd announced he would not be running for reelection, introducing another X factor into the debate. Early in 2009, the Los Angeles Times had reported that Dodd had raised more than $44,000 in campaign funds from high-interest lenders like payday and pawn, and later that spring there were news accounts of the senator eating dinner with members of the industry group representing the online payday lenders. Despite a reputation for being too cozy with the banks and other financial institutions under his committee’s jurisdiction, or perhaps because of it, Dodd announced his support for a consumer regulatory agency shortly thereafter. What the lame-duck senator might do now that he wasn’t worried about raising more money or winning votes—and whether Obama’s proposed new agency could survive a filibuster threat—was anyone’s guess.

Ameriquest would be the first big subprime lender to flop. Its ignoble end in mid-2007 came when the company posted a curt message on its website informing people it would be taking no new applications for loans. Its assets would be sold, fittingly, to Citigroup. JPMorgan sold off much of its subprime mortgage holdings at the start of 2007 and, not long afterward, H&R Block and General Electric put its subprime mortgage units up for sale. But, finding no buyers, the two companies shut them down and absorbed the losses. Wells Fargo made a similar announcement, and New Century, which made $37 billion in loans in 2006, declared bankruptcy the next year. In 2008, Bank of America purchased Countrywide and JPMorgan Chase bought Washington Mutual. What was left of the subprime lenders boiled down to billions of dollars in debts and a raft of legal cases, including the lawsuit the city of Baltimore filed against Wells Fargo accusing the bank of steering black customers into subprime loans even when they qualified for lower-rate mortgages and home equity lines of credit. (A federal judge dismissed the charges against Wells at the start of 2010.) Perhaps the most shocking news of all came when HSBC announced, in March 2009, that it was shutting down Household Finance, despite the $14 billion it had paid for the company just a half-dozen years earlier.

Yet no bank seemed to take it on the chin as hard as Citigroup. Citi would remain on government life support longer than most of its competitors, and the stock price of this once-mighty global institution that as recently as