What Today’s Fed Testimony Means for Your Money

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What Todays Fed Testimony Means for Your Money


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If you’re a teacher in Alabama, stick your money in your mattress before you …

If youre a teacher, bus driver, or lunchroom worker in Alabama, let me give you some advice about your dues to the Alabama Education Association.

Keep it in your pocket. Save that money. Or spend it on groceries or a nice night out, but dont give it to AEA, because youre not getting what youre paying for – not anymore.

At least I dont think you are.

Last year, the AEA board made a promise to you, its members. It would conduct an audit of the organizations finances, and when that audit was complete, it would make it public.

Last week, that same AEA board received that audit, which was overseen by the National Education Association, as well as another personnel audit which asked employees in the organization what their work lives were like. Whatever the results of that audit, it was enough for the organization to begin the termination process for its executive secretary and treasurer, Henry Mabry.

But heres the thing – thats all we know about it because the board went back on its promise to make that information public, and that tells you most of what you need to know about the organization right now.

I dont know what the audit says, but heres what I do know. AEA has been bleeding money, putting its reserves into investments so risky that Merrill Lynch refused to have anything to do with them anymore. When investment bankers take a step back, thats a pretty good clue that youre dealing with something seriously toxic.

Meanwhile, long-time employees have fled AEA or been fired. In their place, Mabry hired expensive outside consultants. Infiscal year 2013 alone, it spent $3.8 million on these consultants, and the organizations 2014 tax records are not yet available to see what has happened since.

Also, AEAs political cash has gone to mysterious companies that have post office boxes in other states, but no websites.

Last week, an Alabama Republican Party committee accused the partys former chairman, Bill Armistead, of working with several political operatives to funnel AEA money into several campaigns without the party executive committee knowing about it. Take a second to think about what that means – the game of political money laundering is alive and well, no matter whether it was legal.

Altogether, AEA blew through $7 million in campaign cash last year, with mediocre results.

Last September, only a month before he died, AEAs previous long-time chief, Paul Hubbert, wrote the board members to alert them of these problems, but the most alarming thing about his letter should be this: He had to alert them, when it was their job to already know. Hubberts letter is chiefly evidence that AEAs internal controls had failed.

The simplest way to sum it all up – its a damn mess.

Everyone has a messy room or closet that would make them blushif company opened the door. Maybe its a stuffy attic full of boxes that never got unpacked, or a shed full of junk.

But AEA has worse. It has a basement full of ugly, smelly things – mold, termites and radon gas. Its no wonder they dont want the outside world to see it.

But it must. Whoever is in charge there (that, itself, is a place to start) must shine a light down there and tell the members what theyre dealing with.

Because Ive seen this sort of thing before – at Jefferson County, at HealthSouth, at my alma mater, Birmingham-Southern. Ive seen this type of story unfold, and that experience tells me this – until they come clean about their mess, theyll never get it under control.

The sad thing is that AEA members need a champion in Montgomery now more than ever. Alabama Senate pro tem Del Marsh wants to expand the states scholarship program to put more children into private schools, and many lawmakers want to open the door in Alabama to charter schools. At the same time, the state has a gaping hole in its General Fund, and there are not many lawmakers on Goat Hill who would rather raise taxes than rob the Education Trust Fund to patch it.

And then former state Sen. Roger Bedford – whose name is the definition of a crooked Democratto many Alabamians – says he might be interested in the top AEA job.

Things for AEA are getting worse, and I cant tell you when they will get any better.

So, if youre a teacher, bus driver, or lunchroom worker in Alabama, stick those dues in your pocket or stuff that money under your mattress.

Without a functional, competent and transparent AEA, pretty soon youre going to need it.


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Disaster loans could help businesses heal from storms

Small-business loans from the US government helped homeowners and businesses recover after tornadoes struck Massachusetts last year and following the Boston Marathon bombing. Now, companies reeling from the loss of business from this winters unusually heavy snows may be able to tap that kind of aid to recover.

The little-known series of disaster loans from the Small Business Administration is one of the key sources of help that Massachusetts officials are asking the federal government to provide to help the state recover.

Continue reading below


Europe Weans Itself Off Bank Loans

Europeans are catching up to Americans in their use of peer-to-peer lending, the online funding method designed to sidestep banks and tap individual lenders directly for their cash. But its playing a very different role on either side of the Atlantic. In the US, a platform like Lending Clubtypically helps individuals fund pet projects or personal needs — lining up Rebecca, Durham NC with $5,000 at 9.98 percent interest to pay off credit cards. In the UK, by contrast, websites likeFunding Circleare providing funding for genuine businesses — 40,000 pounds ($62,000) to Guy in Bradford, say, to modernize his yarn business.These web-based platforms could serve as a much-needed bridge between bank loans and capital markets.

Crowdfunding

A report by Cambridge Universitys Judge Business School estimates that the European market foronline alternative lending– encompassing everything from reward-based crowd funding to business loans — has the potential to reach 7 billion euros ($7.9 billion) this year, a near sevenfold increase in just three years:

Whats most interesting is how peer-to-peer lending (or P2P, for short) is developing as a genuine source of business capital, not just a way for bands torecord their next albumor designers to tryreinventing the cupboard. The UK, the biggest P2P market in Europe with more than 2.1 billion pounds of outstanding loans, two-thirds of lending goes to companies, one-third to individuals, according to theP2P Finance Association. The Cambridge study, which surveyed 255 lending platforms covering more than 85 percent of the total European market, estimates non-UK lenders have provided 385 million euros of early stage, growth and working capital to almost 10,000 European start-ups and SMEs (small and medium-sized enterprises) during the past three years, with more than half of that cash provided in 2014. Moreover, business lending is by far the fastest-growing segment:

Peer-to-peer business lending grew by 272 percent between 2012 and 2014, reward-based crowdfunding grew by 127 percent, equity-based crowdfunding grew by 116 percent and peer-to-peerconsumer lending grew by 113 percent in the same period.

Ive written previouslyabout the overreliance of European SMEs on bank funding, which inhibits their access to investment capital at a time when bank balance sheets are constrained. The European Central Bank has explicitly acknowledged that its quantitative easing program is designed to channel funds to SMEs. And earlier this month, European Union Commissioner Jonathan Hill revealed his proposals to create a unifiedCapital Markets Unionto make it easier for smaller companies to use the equity and debt markets for funding.

But it might be easier to focus on expanding P2P. Moodys Investors Service says there are ways to turbocharge the markets growth. It notes that financial institutions, professional money managers and institutional investors, as well as individuals, are getting involved in P2P funding. In a report this week, Moodys suggests that securitization — the process of bundling small loans into a single transaction to create a liquid, tradable security of sufficient size to become a viable investment for fund managers — could accelerate an expansion. Almost $1.2 billion of such US loans have already been corralled into rated securities, according to Moodys, the most recent being a $327 million transaction issued earlier this month by US P2P lender Prosper Marketplace. The rating company sees securitization as a propellant:

Securitisation could drive more funds toward European P2P lending. By tapping investors in the rated securitisation market, P2P lenders could attract larger investment volumes or lower their funding costs and hence increase their scale and the amount of lending they provide. Investors that are looking for exposure to SMEs or consumer but are prohibited from investing directly in P2P loans would be able to invest indirectly through securitisation.

But European institutions could play a critical role, too. Suppose that the ECB allocated part of its asset-backed purchase program explicitly to P2P securitizations. Existing platforms that seek to connect lenders and borrowers could repackage the loans into viable capital-markets instruments for purchase by pension funds and the like. The total volume of funds available for companies in the marketplace would increase. Granted, it will be critical to maintain safeguards to prevent lenders from getting fleeced. But provided thats the case, it seems like a combination of old-school financial engineering and new-fangled Internet connectivity could deliver a modern solution to the problem of financing small companies.

To contact the author on this story:

Mark Gilbert

at magilbert@bloomberg.net

To contact the editor on this story:

Cameron Abadi

at cabadi2@bloomberg.net


SBA turns to credit unions to boost small loans to small businesses

The Small Business Administration in enlisting credit unions in its fight to provide more small-dollar business loans.

The SBA signed a three-year agreement with the National Credit Union Administration to make more credit unions aware of the SBAs lending programs through webinars, examiner training and data resources.

This partnership could boost the SBAs efforts to serve business owners and potential entrepreneurs in communities that are underserved by traditional banks. Boosting businesses in these communities through small-dollar loans is a top priority for SBA Administrator Maria Contreras-Sweet. So far this year, 61 percent of the agencys flagship 7(a) loans have been for $150,000 or less, up from 58 percent a year ago.

Credit unions are a natural fit for these types of SBA loans, Contreras-Sweet said.

Millions of Americans have used their credit union to finance their car, home or childrens education, she said. We want to empower credit unions to finance small business startups too.

Plus, credit unions are a good fit for reaching underserved communities, such as minority business owners, because they are some of this nations most trusted mission-based lenders, Contreras-Sweet said.

Credit unions already are minor players in SBA lending — in fiscal 2014, credit unions made $303 million in loans through the SBAs flagship 7(a) loan program, up from $263 million the previous year. But that was just a small fraction of the 7(a) programs total of $19.2 billion in 2014.

But SBA credit union lending could grow dramatically under the new initiative, which targets loans of under $50,000. There are nearly 6,600 federally insured credit unions. If 1,000 of these made 10 additional SBA loans of $50,000, that would boost lending to small businesses by $500 million.

There is a vast untapped capacity for credit unions to make more SBA loans, said NCUA Chairman Debbie Matz. This initiative will help us unlock that capacity and put it to work for credit unions, their members and their communities.

Congress restricts the amount of business lending that credit unions can do to 12.5 percent of their total assets. Credit unions have been pushing Congress to raise that cap, contending it limits their ability to serve small businesses and discourages many credit unions from even going into business lending. Lobbying by banking groups has kept this legislation from passing.

But loans of $50,000 or under dont count toward the business lending cap. Also, the government-guaranteed portion of SBA loans dont count toward the cap. SBA guarantees range from 50 percent to 90 percent of the principal of each loan.

Contreras-Sweet also thinks credit unions could be a good source of financing for encore entrepreneurs, people whove worked all their lives in one career who decide to strike out on their own.

SBA will backstop the loans, and credit unions long-term relationships with their members put them in an ideal position to assess their character and creditworthiness, she said.


Adriana Cohen: Put your money where your mouth is

When it comes to equal pay for women, liberal pols practice a do-as-we-say-not-as-we-do policy.

Look no further than President Obama, who gives speeches that women should have equal pay for equal work. The White House even designated Aug. 26, 2013, Womens Equality Day. Sounds great! Who doesnt love a raise and equal opportunity in the workplace?

But when we look closely at his own staff in the White House, we discover women are paid much less than their male counterparts. In fact, they only make 88 cents to the mans dollar, the American Enterprise Institute reported last year. Why? Because Obamas given most of the top-paying jobs to the guys.

Wow! Talk about feeding the public a big bag of baloney.

Expected Democrat frontrunner Hillary Clinton is also one to talk.

Last April she tweeted, 20 years ago, women made 72 cents on the dollar to men. Today its still just 77 cents. More work to do. #EqualPay #NoCeilings.

Now flash forward to today shes reportedly given the top jobs, and salaries, on her exploratory presidential campaign staff to men.

But thats not all.

Back when she was a US senator for New York, reports are now surfacing that she paid women on her staff only 72 cents to a mans dollar. Proof shes no champion of women.

Like the president, she only delivers empty soundbites to stroke her supporters and drum up money for her campaign.

If the president, or Clinton, sincerely meant what they said about equal pay, theyd be giving equal access and opportunity to the top jobs on their staffs to women. Why bother when they can fool voters and get away with phony blather?

Thankfully, theres still some press and media in this country who hold politicians accountable.

Heres the deal. Many politicians will say almost anything to get elected. Making fake campaign promises is nothing new … for either party.

From now until the 2016 presidential election, candidates like Hillary Clinton will pretend they champion womens issues including wage equality. Dont believe it all.

If top jobs and salaries on Clintons current staff are primarily going to men now, will a White House staff look similar if shes elected? If today is any indication, the answer is yes.

Voters would be smart to take a look under the hood before they vote.

Adriana Cohen is co-host of Boston Herald Drive on Herald Radio and WMEX 1510 AM weekdays from 7-9 am Follow Adriana on Twitter @AdrianaCohen16.


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Payday Loans Entrap the Most Vulnerable

By Galen Carey

As our economy continues to improve, there is a crushing weight holding many back: payday loans. While state and local leaders have taken up the cause in certain jurisdictions, this is a national problem that requires Congress to act. Unscrupulous lenders lure those who are already facing financial hardship into a debt trap from which it is very difficult to escape.

Drawn by slick marketing, desperate borrowers are induced to accept unfavorable terms they may not fully understand. The cost of a typical payday loan exceeds 300 percent annual percentage rate. By requiring full repayment from the next paycheck, payday lenders virtually guarantee that the borrower will be forced to ask for a new loan, with additional fees and interest, to pay back the old one.

This violates the underwriting standards applied to virtually every other type of loan. Payday loans perpetuate a cycle of debt, poverty and misery.

Three quarters of the fees payday lenders bring in come from borrowers, mostly low income, who have taken out 10 or more loans in a single year. More than half of all payday loans are renewed or rolled over so many times that consumers wind up repaying at least twice the amount they originally borrowed.

We have just come through the busiest season for payday lenders. Their ads promise an easy solution to the pressure of unbudgeted holiday expenses.

Parents understandably want to buy their children Christmas presents, and the lure of readily accessible extra cash masks a real threat to their financial health.

The reality is that a short-term loan almost always creates a debt that the borrower cannot repay in two weeks. Interest and fee payments balloon while the principal remains unpaid. The debt burden often continues long after the Christmas toys have been broken and discarded.

Last October, the National Association of Evangelicals addressed the devastating impact of payday loans with a resolution calling for an end to predatory lending. We are asking churches, charities, employers and government agencies to work together to help our members, neighbors and co-workers in ways that do not exploit them and lead to further misery. Other religious groups, including the Southern Baptist Convention, have made similar appeals.

The Bible prohibits usury, exploitation and oppression of those in need, and there is growing evidence that payday loans, as they are currently structured, often violate biblical justice. Predatory lenders who oppress the poor incur the wrath of God (Exodus 22:21-27). They should apply their expertise and resources to developing stronger communities rather than tearing them down.

Every family needs a rainy day fund to cover unexpected expenses from time to time. Churches should teach the spiritual disciplines of tithing and saving that position members to provide for themselves and generously care for others when special needs arise. It is our responsibility as neighbors and as churches to save and give generously, to provide the neediest among us with every possible opportunity to achieve and succeed. Churches, charities and employers should support households in their communities in times of crisis so as to prevent neighbors from being drawn into long-term debt.

In 2006, Congress passed bipartisan legislation capping the rates on loans issued to service-members at 36 percent annual interest. We need similar leadership from Congress today so that all Americans are protected from financial predators. The Consumer Financial Protection Bureau, an agency established to monitor the increasingly complex array of financial products offered to the American public, plans to unveil a new rule in coming months. We hope the bureau thoroughly investigates the payday industry and establishes just regulations and that Congress supports this process. State agencies should do the same. We need common sense guidelines such as requiring that loans be made at reasonable interest rates, and based on the borrower’s ability to actually repay.

Credit can change lives. It can be a source of opportunity or cause of devastation. How we use and safeguard this powerful tool is our choice. Caring for and lifting up our neighbors is our responsibility.

Galen Carey is vice president of Government Relations for the National Association of Evangelicals. 

The 114th: CQ Roll Calls Guide to the New Congress

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Payday loans thwart regulators

Borrowing money at an annual interest rate of 2,320 percent? Hard to believe, but that’s what state officials say was charged to one California consumer who took out an online payday loan last year.

Charging excessive interest is just one of numerous illegal loan practices perpetrated by unscrupulous online payday lenders, who pop up almost as quickly as state officials try to squash them.

This week, the state Department of Business Oversight announced it had pounced on 18 payday-loan companies in 2014, accusing them of violations that include operating without a license, making loans that exceed the state’s legal limit and charging customers “outrageous” fees. All but three were online lenders, who typically operate beyond the state’s reach.

“It’s an ongoing problem we continue to battle,” said DBO spokesman Tom Dresslar. “They’re charging outrageous fees. They pop up out of nowhere.”

Some online payday lenders operate from as far away as Costa Rica, the West Indies and Malta. Given their elusive online presence, Dresslar said, it’s a problem “that’s really tough to suppress.”

That’s why the DBO is urging borrowers to think twice before answering the enticing online ads from unlicensed payday lenders. They lure distressed consumers with catchy names like CashInAWink.com, EZPaydayCash.com, PaydaySOS.com or CashJar.com, and with promises of “instant cash” and easy access: “Bad Credit OK, Apply Now!”

“Payday borrowers are in dire straits. They’re just trying to get over a hump. It’s a significant consumer-protection problem,” Dresslar said.

Online payday loans can be extremely costly and risky. Because the lenders require debit access to your bank account, they can illegally withdraw funds without permission. And some may sell or steal your personal financial information, says the DBO.

The DBO says most consumers are unaware that a payday loan in California cannot exceed $300 and that fees cannot be more than 15 percent of the principal amount. That means on a $300 loan, consumers cannot be charged more than $45 for a loan that’s typically due in two weeks’ time.

Jacquie McCarley, 33, a Bay Area tech recruiter, said she filed numerous complaints after taking out two payday loans from Cloud 9 Marketing LLC, an online company based in Wilmington, Del. The first time, in 2012, she took out “a super-short loan, literally to float me through the weekend” and paid it back in less than a week. According to McCarley and the DBO’s investigation, she was charged $30 for every $100, a rate that is double the state’s legal maximum. A few months later, she took out a second payday loan and agreed to extend the payments over two months. She said she was charged numerous late fees, which the law prohibits. Ultimately, McCarley owed more in fees – $600 – than the actual loan amount of $200.

“It made me very angry they’re preying upon at-risk people,” McCarley said.

Cloud 9 is one of the online lenders that the DBO ordered last year to stop making loans and repay borrowers. The DBO was unable to serve its order because the company doesn’t have a physical office.

Last August, Dresslar said, the DBO sent letters to eight of the country’s top online search engines, including Google, AOL, Yahoo and Bing, asking them to block from their sites a list of 31 online lenders that are not licensed in California.

The response? “Underwhelming,” Dresslar said. Only one – Yahoo – responded, and it deferred any action to its parent company.

The DBO is making the appeal again, Dresslar said. It’s also revising state regulations that govern the payday loan industry.

Last year, the DBO went after 18 payday lenders with varied sanctions. In some cases, it levied fines or ordered companies to repay fees to borrowers. One company, Quick Cashing Inc. based in Los Angeles, was ordered to pay $30,000 in penalties, void all transactions, return principal and “disgorge” fees back to consumers. A hearing in the case is set for Monday.

As for the loan with the whopping 2,320 percent APR, the DBO said it was issued by Brighton FNL, an unlicensed online lender operating from Salt Lake City. It did did not specify how much the borrower actually paid.

Problem payday lenders – the online variety – have bedeviled state authorities for years. In 2013, DBO spokesman Mark Leyes likened it to “whack-a-mole,” because online companies get shut down, only to change their name and pop back up.

“If it’s a storefront payday lender, you walk in and look someone in the eye,” said Leyes. “But when you go online, you don’t know who you’re dealing with, where they’re located or what their intentions are.”


Small Business Originations Rise at P2P Lender

This story was updated early Wednesday to reflect the company’s explanation of two return metrics used in its earnings report.

Peer-to-peer small business lender OnDeck Capital reported a greater loss than analysts estimated in the fourth quarter but grew its loan originations by triple digits. In its first quarterly earnings report, it also disclosed lower funding costs and an increase in small business loans purchased by institutional investors.

OnDeck reported a GAAP net loss of $4.3 million, or 13 cents per share, for the quarter, which included “the adverse impact of a $2.1 million non-cash charge related to the increase in fair value of warrants outstanding prior to the IPO.” The earnings loss was smaller than a year ago, when OnDeck reported a GAAP net loss of $5.6 million, or $1.78 per share. Gross revenue hit $50.5 million for the quarter.


Staples to pitch business loans in partnership with Lendio

Staples Inc. will introduce a lending program aimed at small businesses this week, opening up a new source of revenue as the market for office supplies slows.

Staples will provide more details on the new Staples Business Loans program when one of its executives rings the Nasdaq Stock Markets opening bell on Wednesday, according to a statement Tuesday. Staples is teaming up with Lendio, a website that matches borrowers with lenders, Kimberly Brown, a Lendio spokeswoman, said in an e-mail earlier this month.

Lendio, which has a similar partnership with the UPS Store, is part of a new crop of companies that say they can use technology to make loan underwriting cheaper and quicker, enabling them to approve borrowers that are turned down by banks. The Salt Lake City-based company sells leads — information about potential borrowers — to lenders instead of making loans itself, Chief Executive Officer Brock Blake told Bloomberg Businessweek in 2012.

The push into business loans by Staples follows a $6.3 billion deal this month to acquire Office Depot Inc. If the transaction clears a review by the US Federal Trade Commission, it will leave the office-supply industry with one major chain.

While the Office Depot takeover is expected to draw scrutiny, regulators have been increasingly willing to approve mergers between retailers because of heightened competition online. Office Depot, which released fourth-quarter results on Tuesday, reiterated that it expects the deal to be completed by years end.

Brown and Carrie McElwee, a spokeswoman for Framingham, Massachusetts-based Staples, didnt immediately respond to requests for comment on the lending program.