B USI N ESS
THE BULLETIN • Thursday, September 23, 2010 B3
P F Starting on right foot: 7 tasks for new consumer bureau chief By Ron Lieber New York Times News Service
Kimberly P. Mitchell / Detroit Free Press
Lawrence Jackson, left, and his wife Cynthia Nichols-Jackson, of Belleville, Mich., used retirement savings to pay bills when he was out of work. Here, he jokes that he’d never leave his beloved wife … because her retirement nest egg is bigger.
Boomers ‘freaked’ about retirement Many who felt secure just a few years ago have seen savings, income get wiped out ing to Federal Reserve data and Moody’s Analytics. That’s a 25 DETROIT — A decade ago, percent drop. Put another way, boomers felt they had the map the data show Americans lost to early, cushy retirement. Then about five years of value. Their they watched their fortunes die wealth fell back to 2004 levels. According to Moody’s Econalong the side of the road. Talk to nearly anyone from the omy.com, the net worth of the baby boom genbaby boom genereration dropped ation — whether about 25 percent they are 48, 55 or “There’s a lot of from the end of 62 — and you’ll people who were 2007 to mid-2009, hear how they got from $30 trillion clobbered when hoping to retire down to $22.6 their company cut but basically can’t. trillion. While it jobs or how they is now growing panicked when You’ve only got 10 boomthe market tanked good working years slowly, ers were still out and sold investabout $5 trillion ments at rock-bot- left, and you don’t in the first quartom prices — and even have a job.” ter of this year. how they can’t beThough the lieve the numbers — Walter Metzen, stock market has on their financial bankruptcy attorney rallied, many statements now. Americans are “The baby boomers are freaked out. They’re even worse off, and the net just freaked out,” said James Jen- worth of U.S. households is still kins, president of Jenkins & Co., down nearly $11 trillion when an accounting firm in Southfield, compared with early 2007. Mich. He has seen clients go from having $1 million in a retirement plan to half that — and then lose Fooled by the bubble a job on top of that. For many boomers, there is no So instead of sliding comfort- other choice but to take Social ably into their next phase of life, Security benefits at age 62 — inmany boomers find themselves stead of waiting for full benefits aging anxiously. at 66 — just to have the cash to cover expenses, said Michael Astrue, commissioner of Social A world turned Security. upside down It’s not a place where many Diane Fernandez, 58, tears up boomers imagined that they when talking about how things would be. The trouble with goare, compared with how she ing through an economic boom imagined they would be at this — such as the tech bubble or the point in her life. housing boom — is that it can “People don’t want to talk fool you into thinking you don’t about it,” she said. “They’re too need to save. proud.” When boomers were in their Fernandez lives in Ferndale, 40s, what should have been their Mich., still has a mortgage on prime saving years, they looked her home and drives a car with at rising stock and home values a sign slapped on the door that and thought they were set for says: “How’s Your Economy? life, said Mark Zandi, chief econWhat’s your Plan B?” omist for Moody’s Economy. It’s a marketing effort for com. But they actually needed to health-oriented skin care prod- be saving more and borrowing ucts, but the sign also describes less. her life — and the lives of so “The timing of the tech boom, many others who thought just a from that perspective, was very few years ago that they were at unfortunate for the boomers,” or near retirement. Zandi said. After all, in the late ’90s, makAll that inflated wealth disaping money was as easy as buying peared in severe back-to-back a house, or mailing a check to a bear markets. mutual fund or setting a little exOn top of that, many boomers tra aside in your 401(k). Soaring have depended on themselves real estate prices and double- — not an experienced money digit gains in the stock market manager — to turn their forled many to feel they would be tunes around. Some heeded the set to retire in their 50s. advice of commentators such as “You saw some people mak- Fox News host Glenn Beck, who ing money they never dreamed often told listeners to get out of of,” said Bill Stewart, principal the markets and buy gold. and chartered financial consul“He urged people to sell pretant for Rehmann, a tax consult- cisely when stocks were at rocking and financial service firm in bottom levels,” said Eric Tyson, Troy, Mich. who wrote “Personal Finance And then the world turned up- for Dummies.” side down. And many boomers got hit About $17.6 trillion in U.S. with the extra whammy of loshousehold net worth vanished, ing jobs or taking pay cuts in if you compare wealth in the what should have been primesecond quarter of 2007 with the income years, making it imposfirst quarter of 2009, accord- sible to save for retirement.
By Susan Tompor Detroit Free Press
Stretched thin “Right now, I have nothing,” said Lawrence Jackson, 52. Jackson spent what retirement savings he had paying bills when he was out of work. He also invested about $5,000 in his own business, Pinnacle Contractor Services in Detroit, which offers business support to building-trades contractors. Jackson had a fairly stable career in banking until 2000. Then he would get a job and get hit by cutbacks. He worked at Michigan National Bank, First Independence Bank, First of America and later for a fund that specialized in making loans to nonprofits. He had been making about $70,000 a year. Now, he’s making about $50,000 a year at the Downriver Community Conference in Southgate, helping people get loans from the U.S. Small Business Administration. Half of his pay after taxes each month goes toward the $1,600 mortgage payment on a house in Belleville, Mich. He jokes that he won’t be leaving his wife, Cynthia NicholsJackson, because she has more retirement savings. A nurse at the University of Michigan hospital, she also pays the $700a-month bill for the second mortgage on the home, which the couple bought in 1997 for $250,000. “The house across the street just sold for $99,000,” Lawrence Jackson said. He maintains a good sense of humor but doesn’t laugh when he says he might need to work until 70 or 75. “God willing, if I’m healthy, I’m going to keep going,” Jackson said. “I can be scared or get worried, or I can just keep working.”
Ticking clock As a bankruptcy attorney in Detroit, Walter Metzen, 47, has seen boomer engineers who can no longer find jobs that pay $100,000, and older couples who got into trouble buying a bigger home. “There’s a lot of people who were hoping to retire but basically can’t,” Metzen said. “You’ve only got 10 good working years left, and you don’t even have a job.” When Fernandez retired after 25 years with the phone company, she didn’t intend to quit working. Six years ago, she took her pension in a lump sum and invested it with a financial adviser. Losing money as stock prices tumbled, she thought she could do better by picking up rental properties in metro Detroit on the cheap. But now she wonders how long she can keep them. Her original Plan B was to make money on investments — plus a few thousand dollars a month as a massage therapist. “I envisioned this flood of people,” Fernandez said. “And it just didn’t happen.”
So she got the job. What should she do with it? The appointment of Elizabeth Warren to oversee the establishment of the Consumer Financial Protection Bureau, announced Friday, makes it pretty obvious how special the circumstances were that surrounded it. Consumer groups hoped she would become director, the job title named in the law that created the bureau. But the White House chose a more indirect appointment — making her an assistant to the president — to avoid a confirmation battle with lawmakers who argue that she’s a bank-slaying radical. Whatever she’s called, however, there is plenty of work awaiting her. A couple of big pieces of recent legislation have accomplished a lot already. The Card Act, for instance, made it much harder for people under the age of 21 to get credit cards and required banks to get permission before letting consumers spend more than their credit limits (and charging them lots of fees for the privilege). The financial overhaul law that created the bureau, meanwhile, also ushered in new mortgage rules. Mortgage brokers and bankers, for instance, can no longer earn bonuses for putting people in higher-priced loans. Consumer advocates and industry experts still see plenty of questionable corporate practices worthy of Warren’s attention. I asked her to provide her own priority list, but she declined. “Thanks for the offer,” she wrote in an e-mail, “but I can’t say anything about anything.” So, with the experts’ help, I came up with a list of seven tasks she might turn to first. Opponents will challenge her authority to take on these sorts of things, but she’ll probably have her way with some of them given her history of tenaciousness.
Student loans Universities often don’t know how many loans students have applied for. That makes it much harder for them to provide counseling, say, to let students know that they’re still eligible for additional federal loans that are cheaper or have better terms than private ones. So every lender could report every private student loan to a student’s college or university.
This is not controversial; banks themselves are in favor of it, as Lauren Asher of the Project on Student Debt noted this week. That makes this move an easy call for the bureau.
Default disclosure If 10 or 20 or 50 percent of all students at a particular institution are defaulting on their student loans, students ought to know that before choosing to take on their own pile of debt. So the bureau could ask every college and university to disclose its students’ federal and private loan default rates on its financial aid applications and enrollment forms, along with averages from a group of similar schools. This way, students will know the odds before they take on debt to attend, say, a for-profit trade school.
Free credit scores The basic problem in the credit reporting world is that consumers still don’t have free, unlimited access to the information that companies and employers use to judge them. For some time now, consumers have been able to get one free copy of their credit report each year from the three biggest credit bureaus that produce them, Equifax, Experian and TransUnion. But each of those companies also creates its own version of the FICO credit score, the mystifying figure that many lenders use to judge applicants. Given that lots of companies judge consumers purely on their scores without ever looking at their underlying credit report, people ought to be able to get their scores free once a year as well.
Another option for scores If free scores do not become available, John Ulzheimer of Credit.com would like to see a centralized bazaar where all scores that lenders tend to use are available for sale to consumers. He would force the credit bureaus to disclose their market share, too, so consumers buying scores would know which were most popular with lenders.
Lender guidance Or how about making it easier on consumers who want to
see their data before landlords, lenders or employers do so? Those parties could disclose, upfront, which credit scores or reports they plan to check. That way, consumers can do their own checking ahead of time and perhaps delay applying until they’ve made improvements or fixed errors in their credit reports. Nobody’s asking for proprietary underwriting criteria here, just the sources of data. Disclosing it hardly equates to the revelation of state secrets.
Business credit cards There’s a big loophole in the Card Act, namely that not all cards are covered by it. Small-business credit cards of various sorts are exempt, which means banks that issue them don’t have to follow new rules that limit how quickly card companies can raise interest rates or fees. But many consumers see no difference between the commercial card products and the ones consumers use. Some card companies, in fact, seem to encourage the fuzziness by sending applications for small-business cards directly to consumers’ homes. In the second quarter of 2010, card issuers sent about 60 million promotions for small-business and other similar cards to consumers’ homes, according to Mintel Comperemedia. While that’s a small fraction of the 1 billion total card solicitations that landed in residential mailboxes in that period, plenty of consumers don’t realize that they are supposed to be business owners before applying for these cards. So shouldn’t the “business” cards also be covered by legislation that protects consumers’ cards? The consumer bureau could probably erase this false distinction pretty quickly.
More 45-day warnings Ulzheimer also urged the new bureau to require card companies to give consumers 45 days’ notice before lowering their credit limits, the same amount of warning they now must give before increasing an interest rate or annual fee or other charge. After all, a lower limit could cause a drop in your FICO score, which can be a problem if you’re applying for a mortgage. Or how about 30 days at least?