Economy

CFPB Catches American Express Breaking the Law

American Express customers will receive $85 million in refunds for deceptive practices

(Flickr/Images_of_Money)
After a slow start, the Consumer Financial Protection Bureau (CFPB) is beginning to live up to consumer advocates' hopes and Wall Street's fears. On Monday, the new federal regulator announced a steep penalty and fine against American Express for ripping off their customers. Three subsidiaries of the credit-card company will have to refund $85 million to around 250,000 customers. As a result of the investigation—conducted by the CFPB, the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board (FRB), the Office of the Comptroller of the Currency (OCC), and the Utah Department of Financial Institutions—American Express was fined an additional $27.5 million that will be divvied up between the various regulators' coffers. Investigators found that American Express deceived customers at a number of steps, starting from the initial sale of a credit card. Customers were told they would receive extra points, totaling $300, by signing up for a "Blue Sky" credit card, but the...

They Work Hard for the Money

(AP/Mel Evans
(AP/Mel Evans) Cargo containers are stacked on the deck of the Mediterranean Shipping Company's vessel at Port Newark in Newark, New Jersey. As work becomes increasingly a matter of machines building or moving other machines, workers either lose their jobs or—if they are fortunate enough to keep their jobs—become vastly more productive. Productivity surged in the U.S. during the early years of the current downturn when companies laid off workers by the millions and replaced them with machines. Revenues per employee at the S&P 500, the Wall Street Journal reported, rose from $378,000 in 2007 to $420,000 in 2010. And yet, the wages and benefits of employed Americans experienced no corresponding increase as workers’ productivity rose. Indeed, over the past quarter-century, as economists Ian Dew-Becker and Robert Gordon have reported, all productivity gains have gone to the wealthiest ten percent of Americans. In the quarter-century following World War II, by contrast, productivity...

How Obama Beats Romney

(AP Photo/Alan Diaz)
DENVER, COLORADO —By the time his motorcade pulled up to Magness Arena on the campus of the University of Denver at 6:40 local time Wednesday evening, October 3, the president knew he had 20 minutes to make a decision. The campaign of his opponent, Governor Mitt Romney, had so deteriorated that, for his part, Barack Obama understood there was a sound argument on behalf of running out the clock and not taking any great risks. The president is typically a prudent man, right up until the moment he does something notably risky, such as ordering the mission that killed Osama bin Laden in spite of virtually all of his inner circle advising against it (except CIA Director Leon Panetta). Now, with only moments until the debate began, the president could anticipate what might well be moderator Jim Lehrer’s opening question, for which the Obama campaign had prepared an innocuous response, counting on the near certainty that Governor Romney would offer a response even more useless. But another,...

Reaping What Elections Sow

(Flickr/ BKM_BR)
In 2010, Tea Party mania influenced elections at every level—congressional races and governorships, most famously. But the biggest impact was on state legislatures, where 21 house or senate chambers flipped from Democratic to Republican control. In states like Texas, Republican majorities turned into supermajorities; in the Texas House, Democrats were no longer needed to make up a quorum. All the legislative energy was on the side of Tea Party Republicans. They made sweeping, historic changes—to labor laws, to health care, to reproductive rights, and, most of all, to state budgets and public school funding. In a few weeks, voters in most states will be choosing new lawmakers again. They'll make their decisions based in part on how they believe the incumbents governed over the last two years. But because of the massive scale of changes ushered in by Tea Party Republicans, it's going to be extremely difficult—if not downright impossible—for voters to judge the effects of those changes...

Your Credit Score Could Be A Fake

Say you want to buy a house or a car and you need a loan to do it. You do what every personal finance site recommends and obtain a free copy of your credit report from annualcreditreport.com . Then, urged on by the ads from TransUnion, Equifax, or Experian—the “big three” credit reporting firms that compile the reports—you opt for not only the free report but also shell out for what the companies promise is your actual three-digit credit score . A number! Now, you may think, I know what the auto lenders and banks making mortgages really think of me. I have a sense of what rates I qualify for and what type of car or home I can afford. There’s just one problem: the score you paid for is likely not the same one potential lenders will use to assess you . In fact, it could be way off. What many consumers don’t realize is that they have no single “credit score”— FICO alone has more than 49 different scoring models . And new research from the Consumer Financial Protection Bureau (CFPB) finds...

Good News, Bad News on the Economy

The Obama administration got good news and bad news on the economy Thursday. The bad news: The Commerce Department revised the economic growth rate downward, to just 1.3 percent in the second quarter of 2012, down from an earlier estimate of 1.7 percent. That’s close to stall speed, not nearly enough to generate enough jobs or income growth. To add to the administration’s bad day, durable-goods orders dropped 13.2 percent in August. The good news: The Labor Department revised the job-creation numbers upward, including an impressive 386,000 in March. (But March was a long time ago.) Housing prices finally hit bottom, according to several reports, and have started to rebound. Still, these are not good numbers. If the government doesn’t radically change its economic policy, we will face a protracted slump for years to come. The only thing that could alter the trajectory is fiscal policy—not the grand bargain to cut the deficit that Messrs. Bowles, Simpson, and a platoon of corporate CEOs...

Pain in Spain

(AP Photo/Andres Kudacki)
The European authorities seem determined to drive the continent into a repeat of the Great Depression. The European Central Bank keeps playing a cute game designed more to impress the Germans than the financial markets or to provide real relief. Mario Draghi, ECB president, offers to buy unlimited amounts of the bonds of states that are being pummeled by speculators, but then undercuts his own offer by conditioning it on punishing austerity. In Spain, in the days after Draghi’s latest pronouncement, the rate on government bonds briefly fell, but is now rising again as markets realize that Draghi’s conditions make it impossible for any elected government to accept the offer. Meanwhile, unemployment is rising to record levels and Spain’s depression keeps feeding on itself. Draghi’s game reminds me of a battery-operated novelty toy I had when I was a kid. It was a mysterious box with a switch. When you turned on the switch, the lid opened, a mechanical hand came out of the box, and...

Richie Rich Aces the SAT

(Flickr/sacmclubs)
(Flickr/sacmclubs) A California high schooler takes the Scholastic Aptitude Test (SAT). The College Board released its data on 2012 SAT scores on Monday, and beneath the headlines (which tallied how much SAT scores have slipped as more and more students take the test) was a revealing picture of the influence of students’ household income on their performance. The influence couldn’t be more decisive. The board measured household income in increments of $20,000—starting with students from households making $0 to $20,000 annually, then $20,000 to $40,000, all the way up to $160,000—then an increment of $40,000 ($160,000 to $200,000) and then a final category of more than $200,000. And SAT scores rose considerably at every step in the income scale. The poorest students, from households making less than $20,000 had a mean combined score of 1322 out of 2400; the next highest, 1397; then 1458, then 1497—all the way to a score of 1722 for students from households making more than $200,000...

What Will Obama Do about Income Inequality? Not Much.

New data from the Census Bureau shows that the tepid recovery is exacerbating income inequality and pushing ordinary Americans into tougher economic circumstances. Here is the Los Angeles Times with more detail : The median household income, after adjusting for inflation, dropped 1.5% in 2011 from the previous year to $50,054. That is now 8.1% lower than in 2007, when the recession began late that year. […] The share of people falling below the poverty line—$11,702 for a single person under age 65 and $23,201 for a family of four—had increased steadily since 2006, when the rate was 12.3%. The census report said there were about 46 million poor people in the U.S. last year, essentially the same as in 2010. […] The latest census report showed that households with incomes in the 20th to 60th percentile saw their share of overall incomes fall last year to 23.8% of total income. Meanwhile, households in the top 20% saw their share of the total pie climb to an all-time high of 50%. With the...

Voters Getting Mixed Signals from the Market

(AP Photo/Richard Drew)
Until not long ago, there was a widespread assumption that the economy could well be Barack Obama's undoing. After all, no president since Franklin Roosevelt had been re-elected with unemployment as high as it is now, so if Obama were to prevail, it would take an unusual combination of factors that usually matter only on the margins—the skills of the respective candidates, a foreign crisis or two—to allow him to win. But then something strange happened. The political scientists who think about these things began releasing their forecasts (all of which rely heavily on economic variables), and it turns out that most of them project that Obama will win after all. According to these models, the economy isn't doing so bad after all. It's enough to make Republicans tear their hair out. James Carville may have been right when he put a sign reading "It's the economy, stupid" on the wall in Clinton campaign headquarters in 1992. But what we mean when we say "the economy" is good or bad, up or...

What the Heck Is Quantitative Easing?

A look at the history behind the Fed's latest move

(Flickr/Talk Radio News Service)
Last week, the Federal Reserve announced a third round of quantitative easing, or what is referred to as QE3. This is an open-ended purchase of $40 billion a month, along with a commitment to keep rates low until “a considerable time after the economic recovery strengthens.” Many economic commentators are saying that this is a serious change in economic policy. In order to understand why this is so important to our economy now, it might be helpful to go back to an academic debate about Japan in the 1990s. The era from the early 1980s through the financial crisis was referred to as the “Great Moderation.” It was common for economists to assume that the Federal Reserve and other central bankers could control the economy effortlessly, basically picking the unemployment rate they wanted. Prominent economists who studied macroeconomics, the field created during the Great Depression to study economic crashes, thought everyone in the discipline should pack up and go home. Robert Lucas, a...

Romney’s Bigger Lie

Lots of Republican conservatives, Paul Ryan and Bill O’Reilly among them, have taken the position that even if Mitt Romney’s rhetoric was clumsy, his point was basically right. Some Americans pay taxes; others collect benefits. But his basic claim was total baloney. When you count income taxes, payroll taxes, excise taxes, and highly regressive state and local taxes, the typical lower income working American pays about one-fifth of his or her income in taxes—more than Mitt Romney! According to a study by Citizens for Tax Justice, the bottom fifth of the income distribution paid 17.4 percent of their income in state and local taxes. The second-poorest fifth paid 21.2 percent. There are in fact about 18 percent of Americans who pay neither federal payroll nor income taxes. They are overwhelmingly the unemployed and the low-income elderly, neither of whom pay payroll taxes. As pollster Celinda Lake observes, Romney’s big lie is very important to refute. Even if voters reacted negatively...

#OWS Is Not the Liberal Tea Party

The progressive movement is the real counterpoint to the Tea Party, and it was made much stronger by the 99 percent's successful attempt to change the conversation on inequality.

(AP Photo/Seth Wenig)
At an event this weekend marking the one-year anniversary of Occupy Wall Street, I was reminded why the success of these protests was so improbable in the first place. It wasn’t just that we’d tried this sort of thing before and it had never worked. It wasn’t the predominance of anarchists, whom we were all accustomed to dismissing as the irrelevant fringe at progressive protests. It was also the smell. New York City smells bad enough on its own. But put populists in a public encampment for a few days, and it stinks. After months, it’s repulsive. I was an early skeptic of Occupy Wall Street. “I want to know what democracy looks like, not what it smells like,” I wrote at the time. This was a roundabout way of criticizing the movement for its lack of polish, its incoherent leadership structure, its fuzzy demands—all that chaos that was swarming around Zuccotti Park. On its face, Occupy was a Type-A organizer’s worst nightmare. Yet, despite the odds that stood against it, Occupy Wall...

Two-Faced on Taxes

Chart of economic growth from New York Times.
A lot of the debate we have in America about economics (like many issues) ends up being statements of principle masquerading as analysis of empirical reality. And maybe this is my bias talking, but it seems like most of this comes from the conservative side. For example, it's now become disturbingly common to hear conservatives say that when you cut taxes, total tax revenues actually go up, since the tax cutting creates an explosion of economic growth that brings in lots of new revenue. This idea has zero empirical support. It isn't that cutting taxes can't increase growth somewhat, it's just that it doesn't increase it enough to make up for the lost revenue. Yet no matter how many times economists demonstrate that cutting taxes doesn't actually increase revenue, Republican politicians continue to claim that it does. This is widely known as the " Tax Fairy ," since believing in it makes about as much sense as believing in the Tooth Fairy. But conservatives would certainly like it to...

Killing Dodd-Frank Softly

To block financial regulations, industries and their congressional allies delay, delay, delay—and if necessary, sue.

(Flickr/Emmanuel Huybrechts)
(Flickr/Emmanuel Huybrechts) On August 16, a group of 32 members of Congress—27 Republicans and 5 Democrats—sent a seemingly innocuous request to Richard Cordray, the director of the Consumer Financial Protection Bureau, regarding a new rule on international money transfers. "We urge you to delay the effective date of these rules and to undertake a comprehensive study of their impact before moving forward to avoid irreparable harm to consumers," they wrote. The regulation, set to go into effect in January, will force companies to disclose the full extent of the fees they charge when people send money overseas. While the letter raised concerns about the rule, the members of Congress didn’t ask the CFPB to scrap it; instead, they entreated Cordray to hold off on the rule until January 2015. Simple enough on the surface. But it is part of a broad, systematic effort by the banks and their allies to delay implementation of the Dodd–Frank Wall Street Reform and Consumer Protection Act, the...

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