Economics

Protecting Consumers from Themselves

The trouble with the new Consumer Protection Finance Bureau

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“Holly Petraeus gets it” was the subject line of an email I (and probably several million other Americans on the White House list) got from Vice President Biden.

The email linked to her testimony before the Senate Committee on Banking, Housing, and Urban Affairs. Ms. Petraeus, who started in January as the head of the office of servicemember affairs at the newly created Consumer Financial Protection Bureau, told senators that her father served in the military for 36 years, and her husband, General David Petraeus, recently retired after 37 years. Her son and two of her brothers also served in the military.

Vice President Biden is correct that her testimony is worth a careful look. It’s not because she “gets it,” though, but because her statement offers a glimpse into the mindset of an administration that seems to view just about every private enterprise other than politically connected “green” energy companies as rapacious, every commercial transaction other than Energy Department loan guarantees as exploitative.

In her brief testimony, Ms. Petraeus managed to tar for-profit colleges, car-dealers, bankers, electronics retailers, furniture stores, and bankers.

In her section on the colleges, Ms. Petraeus said, “Because of a quirk in the Higher Education Act, military education money is very appealing to for-profit colleges, because it counts towards a requirement that for-profit colleges get at least 10 percent of their revenue from sources other than Title IV education funds administered by the Department of Education. This has led to some cases of very aggressive marketing by for-profit schools to military personnel and their familiesâ€"and these schools often market not only the educational programs themselves, but also expensive private student loans. A key focus at the CFPB is to be sure that students understand these loansâ€"and whether they will really be able to repay them. There are also serious questions about whether the education you get at many of these institutions justifies their high price.”

So long as Ms. Petraeus is raising questions about “whether the education you get at many of these institutions justifies their high price,” one wonders whether she is going to also turn her attention to non-profit colleges and universities, where tuition is often far higher than at the for-profits. Or whether she’ll take on underperforming taxpayer-backed state colleges or public high schools, where there are also serious questions about whether the education justifies the high price to taxpayers. Unlikely. The real enemy here isn’t overpriced education, it’s for-profit companies. It’s also quite something to see someone so closely associated with the U.S. military, which has a quite robust recruiting operation of its own, complaining about “aggressive marketing” by educational institutions.

The “private student loans” about which Ms. Petraeus complains compete with government loans. And the entire situation is an example of unintended consequencesâ€"the colleges are targeting the military only because Congress ordered them to find a revenue source other than the ever-expanding Pell Grants.

Next after for-profit colleges on Ms. Petraeus’s list were car dealers. “Military personnel love their wheels, and they don’t always go shopping for them in the right places. I’m sure many of you are familiar with the typical strip of used-car dealers that cluster around the gates of military installations. Servicemembers are often sold clunkers at inflated prices with high financing charges, and when the original clunker breaks down, they sometimes take an offer to roll the existing debt into another loan for yet another clunkerâ€"which may also break down,” she said.

Ms. Petraeus doesn’t mention one big reason why those used-car prices are “inflated.” It’s another unintended consequence of another federal lawâ€"in this case, the “cash for clunkers” program that took hundreds of thousands of used cars off the market in an effort to “stimulate” new car sales and improve the environment via emissions standards.

It’s not just for-profit colleges and car dealers who, in Ms. Petraeus’s telling, are out to rip off their customers. She also complains of “a whole lot of businesses looking to lend money to servicemembers for various products (which are often overpriced to start with). This can be the kiosk at the mall selling high-priced electronics at even higher financing, the rent-to-own furniture store, or the latest installment loans that manage to exist just outside the definition of payday loans as written in the rule implementing the Military Lending Act.”

Again, no mention of unintended consequences, such as the fact that off-base retailers might have to charge more than usual to make up the revenue they lose by the fact that the military itself competes with them by operating the Army and Air Force Exchange Service, which offers tax-advantaged sales from locations that are on-base.

At a certain point, you have to wonder, if these electronics are so “overpriced,” why are the soldiers buying them? Same with the “inflated” prices on the cars. It’s not as if there isn’t good information out there on car and electronics prices on the web or in any Sunday newspaper. As The Wall Street Journal editorial page’s Mary Kissel put it in a typically shrewd comment, “One thing's for sure: the administration doesn't think very highly of the enlisted man’s intelligence.”

A lot of these issues could be avoided with a little consumer education. Holly Petraeus’s husband David is an Eagle Scout. Among the required merit badges for the Eagle award is one called Personal Management. The first requirement is “Choose an item that your family might want to purchase that is considered a major expense…. Develop a written shopping strategy for the purchase identified …. Determine the quality of the item or service (using consumer publications or ratings systems). …Comparison shop for the item. Find out where you can buy the item for the best price. (Provide prices from at least two different price sources.) Call around; study ads. Look for a sale or discount coupon. Consider alternatives. Can you buy the item used? Should you wait for a sale?” There’s nothing in there about getting the government to prevent someone from overcharging.

None of this is to say that every businessman serving military customers is a perfect example of moral rectitude or business integrity. Laws against fraud should be enforced. But it doesn’t do anyone any favors to teach soldiers that the private sector â€" their likeliest source of post-military employment â€" is out to get them.

Ira Stoll is editor of FutureOfCapitalism.com and of the just-launched NewsTransparency.com.

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  1. Colleges? I thought that industry was of the protected classes in Maobamaville?

    1. Hence the for-profit distinction. Can’t have those uppity newcomers muscling in on the education racket.

      1. Ah, like the “online universities”, Hillsdale College and such?

        1. None of this is to say that every businessman serving military customers is a perfect example of moral rectitude or business integrity. Laws against fraud should be enforced. But it doesn’t do anyone any favors to The Pursuit of Happiness that the private sector ? their likeliest source of post-military employment ? is out to get them.

          1. Again, no mention of unintended consequences, such as the fact that off-base retailers might have to charge more than usual to make up the revenue they lose by the fact that the Four Leaf Clover Bracelet itself competes with them by operating the Army and Air Force Exchange Service, which offers tax-advantaged sales from locations that are on-base.

        2. Many trade-schools are “for profit”. They teach awful stuff like how to make a living as a welder or electrician.

  2. Americans are just too fucking stupid to protect themselves…..look who they have been electing the last few decades.

  3. This is really upsetting to see. Whatever Holly’s qualifications, it’s clear that part of the reason she was selected was to help keep David Petraeus on the Obama team. The problem, of course, is that the entire Obama administration is infested with dingbats, and her being a spokesperson for them makes her a spokesperson for dingbats.

  4. None of this is to say that every businessman serving military customers is a perfect example of moral rectitude or business integrity. Laws against fraud should be enforced. But it doesn’t do anyone any favors to teach soldiers that the private sector ? their likeliest source of post-military employment ? is out to get them.

    But..but..in our post 9/11 world, the military is an protected class. Heroes. They killed Bin Laden. We must thank them for their service, every day, all the time. 9/11. Service. Heroes.

    1. Speaking as somebody who spent time at Fort Bragg, the private sector is out to get you. Fayetteville appears to exist to separate GIs from their money as quickly as possible.

      Learning how to deal with that yourself is an important life lesson, however.

      1. Fayetteville appears to exist to separate GIs from their money as quickly as possible.

        As does the entire nation of South Korea. The point is 19 and 20-year-olds do stupid things. As you said, you need to learn these lessons yourself, whether you’re in the military, in college, or went straight to the workforce.

      2. ‘The entire business world appears to exist to separate everyone from their money as quickly as possible.’
        FIFY.
        Every ad is designed to make you spend money. It is *your* job to decide whether you want to spend that money.
        Of course, this is unlike government; it doesn’t *ask* you to spend money, it *tells* you to, at the point of a gun.

  5. The business of America is fucking with business.

  6. Its Garth!

  7. told senators that her father served in the military for 36 years, and her husband, General David Petraeus, recently retired after 37 years. Her son and two of her brothers also served in the military.

    And this is relevant, how?

    1. Dunno. My eyes are starting to scar over from that photo though. Y’know, it’s not like David Petraeus is Hollywood handsome or something but Jaysus! how did that happen?

      1. Mare Winningham rumored to play her in the inevitable Lifetime movie.

    2. It firmly establishes that she’s never once depended on private industry for her livelihood, and therefore is the perfect person to be in charge of regulating it.

      Welcome to the 21st Century, when lack of experience is considered a qualification.

  8. I remember earning that merit badge. My mother wanted to buy a boat, so I did some research around town. Eventually, I realized it was cheaper to chop down a tree and build it myself, thereby earning several merit badges at once.

  9. The JAG corps have staff that are supposed to handle fraud claims for soldiers. And if they aren’t, there are a ton of plaintiff’s lawyers who would be happy for the publicity of helping out soldiers go after slimy used car dealers. Out entire non-criminal legal system is based around private enforcement, which might actually be workable if we funded that rather than funding retarded government agencies.

  10. “Military personnel love their wheels, and they don’t always go shopping for them in the right places. I’m sure many of you are familiar with the typical strip of used-car dealers that cluster around the gates of military installations. Servicemembers are often sold clunkers at inflated prices with high financing charges, and when the original clunker breaks down, they sometimes take an offer to roll the existing debt into another loan for yet another clunker?which may also break down,” she said.

    Apparently, the only member of the military that this particular dingbat has ever met is her husband.

    If she had actually spoken to the enlisted men who are the “prey” of these eeeebbiiil car salesmen, she’d know what I know: they’re morons, which is one reason they’ve joined the military and volunteered to die for no sensible purpose in barren sand-toilets like Iraq and Afghanistan. No amount of legislation is going to stop these people from being complete pea-brains.

    Every single male member of the Armed Forces under 40, whom I’ve ever met or heard of through friends, has chosen to bankrupt himself (or if married, his entire family) on a brand-new, ugly-assed ‘Murrikan “muscle car.” They don’t read ratings or consumer information (they don’t read, period), they don’t bother to shop around for better financing; they don’t care about vehicle reliability, fuel consumption, safety, practicality, comfort, design, or quality of construction; and they don’t listen to anyone’s advice but that of the other greenshirted jingoistic mouth-breathers in their barracks.

    Last week, the moron greenshirt who just married my best friend’s daughter bought himself a brand-new, fully-loaded 2012 Jeep Liberty. To purchase this, the moron rolled over a 14% loan on the piece o’shit Jeep Cherokee he was driving, that basically fell apart before it was even five years old. That’s right, 14%, not a typo. Before the evil, predatory car salesman would accept the trade-in of the worthless Cherokee, however, Moron had to scrape off the 11 (again, not a typo) jingoistic pro-military/veteran bumper stickers off the Cherokee. I think some of the bumper stickers might actually have been holding the Cherokee together, at that point.

    Thank God for our troops! If it weren’t for people that dumb and easily parted from their (our) money, entire local industries, such as car dealerships, strip clubs, and check-cashing/quick-loan stores, might fail.

    1. That’s interesting. Because when I was in the army, I did no such thing.

      My best friend, who is still in the army, did no such thing. In fact, he’s still driving his 2005 Civic.

      Anecdotes FTW!

    2. Wow.

      Not at your story.

      At you.

      1. Yes, wow! Somebody who doesn’t worship our brainless Proud Heroes who are “defending our freedoms” by getting blown to bits in places like Iraq or Afghanistan, which have never had anything to do with our freedoms whatsoever. Wow, somebody who dares to question the “Hero” label we assign to these willfully illiterate hillbillies!

        1. Wow dude , your like … so cutting edge. Do you have a magazine I can subscribe to?

          dick

          1. Why would you want a magazine? You can’t read or write.

            1. “Why would you want a magazine? You can’t read or write.”
              From someone who can’t think.

    3. What a cockbreath.

    4. Hah! I bought a POS MG Midget in Millington, TN right out of boot camp. An anecdote that completely destroys your entire hypotheses.

      Most guys I knew in the service had old cars because none of us could even get predatory lending because of our crap wages.

    5. I was in the army for 10 years. I have never, to this day, owned a “new” vehicle. I’ve never had or applied for a credit card, either, in 32 years of unclean living. I’ve never taken out a loan for anything beyond a couple of thousand dollars for an old beater truck to replace the one before it. And I’m in no manner exceptional…I’m more of the rule, by and large.

      Now, if you want to say that a larger proportion of young enlisted soldiers are careless with money and easily drawn to poor decision-making than are their civilian peers, you may in fact be right. I’d hazard to say you are. A LOT of soldiers are in the military because they didn’t have other options, it’s true. I’ve had to tell more than one soldier what a dumbass he was for paying exhorbitant interest rates on a car above his income level.

      But to say that it’s ALL of them, or even a majority, exposes you simultaneously as ignorant, a liar, and/or a bit of a douche.

      As for your pathetic rants about how stupid enlisted people are, I’d be happy to compare my own intelligence to yours, by whatever standard of intelligence you wish. I’m no Norman Einstein, but your childish worldview speaks volumes to your proficiency level with regards to critical thinking.

  11. “Children, capitalism is baaad, mmkay?”

  12. NEWSFLASH!!!!

    Businesses charge whatever people are willing to pay!

    ~~~~~~~~~~~~~~~~~~~~~~~~

    That being said, can anyone comment on the idea that GI’s may be limited by the proximity of vendors and time time constraints between deployments? I can see that being an argument, but it seems like I am always hearing about GI’s having loads of time to kill. Thoughts?

    1. “GI’s may be limited by the proximity of vendors and time time constraints between deployments?”
      Any more than anyone else? And there’s this new thing called ‘the web’ which sort of kills claims of proximity.

  13. The dims wanted to destroy Petraeus has a potential candidate for Republicans. They have done that. Wonder how much Holly liked the dims calling her dad General Betrayus?

  14. Those car dealerships were overpriced piles of shit long before cash for clunkers existed. When I bought my first car they saw me coming from a mile away. Starry eyed, I bought a 1995 Camaro with 120,000 miles on it for $8500 at 17% interest. This was in 2001, and I was 19 years old with zero financial experience.

    A few years later they passed a law banning usurious loans outside of military bases. Most of the car dealerships folded overnight.

    1. “A few years later they passed a law banning usurious loans outside of military bases. Most of the car dealerships folded overnight.”
      And then they passed a law outlawing poverty and everyone got rich overnight!

    2. Please tell us how it feels to be such a failure as a moral agent that the government has to look out for you.
      Does your mommy still tell you what to eat?

      1. Did you understand interest rates when you were 19 years old? Did you never get overly excited about a shiny object that you probably couldn’t afford? The used car dealers were in fact preying on the weak and stupid. It’s like offering a child a lifetime supply of candy if they agree to sign away 50% of their future earnings to you. I learned a life lesson and moved on.

        And no, my mommy doesn’t tell me what to eat. Thanks for asking though. Appreciate the concern.

        1. “Did you understand interest rates when you were 19 years old?”
          Yes, I did. Didn’t you?

          “Did you never get overly excited about a shiny object that you probably couldn’t afford?”
          Yes, and since I couldn’t afford it, I didn’t buy it.

          “The used car dealers were in fact preying on the weak and stupid.”
          And now the weak and stupid go elsewhere to prove they’re weak and stupid?
          And those who weren’t weak and stupid and who cut good deals for what they wanted; where do they have to go now?
          How much of their freedom are you willing to deny so the weak and stupid have to find new places to express their weakness and stupidity?

          1. So you knew how to calculate an APR with monthly compounding in order to find the effective interest rate? If you did then you’re some wicked smart genius and received a far better education than I did at the top ranked private school I attended.

            Did I ask for a bailout? No. I said I learned an important life lesson and moved on. That car loan ate up 1/3 of my monthly paycheck, not including insurance and maintenance. It sucked, but I didn’t miss a payment.

            I just find the notion that military personnel deserve to get fleeced because they are supposedly stupid, and because their paycheck comes from the government, to be absurd. Since when did preying on the weak and stupid become libertarian goals? I thought we all moved past the Ayn Rand worship.

            1. you don’t have to calculate APR to get the effective interest rate. APR is the effective interest rate. It is printed on the Truth in Lending form you signed. On a car loan, since there are no closing costs, it’s the same as the note rate.

            2. “I said I learned an important life lesson and moved on.”

              If the gov’t had ‘protected’ you from the usurious lender how would you have learned that lesson?

              Perhaps later in life, on a much more expensive loan… like maybe an adjustable rate mortgage with nothing down on a house you wouldn’t otherwise be able to afford?

            3. “Since when did preying on the weak and stupid become libertarian goals?”

              Talk about completely missing the fucking point.

  15. Holly Petraeus, or Holly Betray-us? See what I did there?

  16. So you knew how to calculate an APR with monthly compounding in order to find the effective interest rate? If you did then you’re some wicked smart genius and received a far better education than I did at the top ranked private school I attended.

    I could have done the APR in 9th grade. Went to a public school but I am 56 years old.

  17. So you knew how to calculate an APR with monthly compounding in order to find the effective interest rate? If you did then you’re some wicked smart genius and received a far better education than I did at the top ranked private school I attended.

    Did I ask for a bailout? No. I said I learned an important life lesson and moved on. That Gem Jewelry ate up 1/3 of my monthly paycheck, not including insurance and maintenance. It sucked, but I didn’t miss a payment.

  18. The reason for all the shady operations outside military bases is a bunch of 18-20 year old males, straight out of high school with a steady paycheck, no financial experience, and periods of high stress where they feel like they have to live in the moment.

    1. Also, bases/posts tend to be located fairly remotely (particularly overseas, where most of the stuff they buy comes from Halliburton/KBR enterprises) and there isn’t a lot of competition. In a truly free market, someone would say, “Hey, why don’t I sell stuff to soldiers at a mere 50% markup rather than 100%?”

      Of course, that’s still not a free market as that soldier’s wages were paid with tax dollars, but meh.

  19. 18-year-olds in the Army are, by and large, fucking idiots compared to the readers of Reason or, say, Holly Petraeus or anyone over the age of 30. They spend their money on the dumbest shit imaginable. (I’ve been stationed with Navy, Marines, and Air Force, and while this is mostly true of other branches, I’m less comfortable stating it as fact for branches I didn’t serve in.)

    But if the government believes they are smart enough to consent to sign a 5 year contract that could likely get them killed (or “smart” enough to vote for the politicians who create agencies like this) then I’d assume they are “smart” enough to spend their money however they see fit.

    If they are really set on doing this, I’d much rather they just spent the money on consumer finance/education classes for soldiers. I’m not opposed to that (assuming that my money has already been stolen through taxes and is going to be spent on one or the other). Frankly, high school-age kids would benefit from that regardless, but mandatory education isn’t really something that jibes very well with liberty.

    1. “…the government believes they are smart enough to consent to sign a 5 year contract that could likely get them killed…”

      Yes, but the gov’t CARES about them. It wouldn’t write a contract that isn’t ‘fair.’

      “…I’d much rather they just spent the money on consumer finance/education classes for soldiers.”

      They already do. I was a First Sergeant for my last three years in the Air Force. One of my primary jobs was dealing with what we in leadership called ‘problem children,’ the 20% of personnel on whom we spent 80% of our time dealing with.

      At the top of the list of ways young service members get themselves in trouble is through what the military calls ‘financial irresponsibility.’ Those who demonstrate a lack of skill or judgement in managing their personal finances are reprimanded and ordered to attend courses by trained counselors to learn about budgeting, managing a checking account, evaluating loan contracts, etc. And because these courses often take the individuals away from their primary duties, everyone in the unit knows about what’s going on.

      Indeed, responsibly managing one’s finances–including the hazard of purchasing on credit a car one cannot afford–was a common topic at the frequent mandatory personnel meetings where the troops get their ‘tone and direction’ from the commander.

      This is no more a problem for young military members than it is for any group of young people. And because relationships between coworkers in the military–especially between the grunts and their first-line supervision–are by needs and nature on a much more personal level than most other work environments, there are many older and wiser folk ready, willing and able to offer advice on life they learned the hard way.

      If anything, I’d be willing to bet there are a higher percentage of ‘victims’ among the general population than in the ranks of the relatively protected military.

      Another frequent ‘protect the military’ political topic that chapped my ass was the food stamps gambit. It goes like this:

      “We don’t pay our young troops enough. Why, do you know there are young airmen who are eligible for food stamps?”

      What they never say is the military is very picky about who it recruits. In fact, having children will pretty much eliminate you from consideration unless your enlistment agreement makes you eligible for a couple of stripes out of boot camp. That’s because the military knows an E-1 or E-2 does not earn enough to support a family.

      But, once your in, you are free to get married and have as many kids as you want. Or worse, you can marry someone who already HAS kids. So when an airman, who knows exactly how much money (s)he makes, assumes more responsibility than (s)he can afford it’s because the military doesn’t pay enough… Yeah right!

  20. This is just service members wanting free or subsidized shit. Fuck them – with extreme prejudice.

  21. thank you a lotsssssssssssssss

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