The nation’s premier financial literacy organization, the JumpStart Coalition for Personal Financial Literacy, which sponsored Financial Literacy Day on the Hill this week, still includes as a corporate partner the subprime lender CompuCredit. TWI last fall drew JumpStart’s attention to CompuCredit’s past problems, which include reaching a $114 million settlement with the Federal Deposit Insurance Corporation and the Federal Trade Commission over charges that CompuCredit and two partner banks deceived hundreds of thousands of customers by failing to properly disclose upfront fees and credit limits on their cards, thereby sinking customers further in debt.

I checked with JumpStart Executive Director Laura Levine recently — and CompuCredit remains a partner, benefiting from the attention of National Financial Literacy Month. For now, JumpStart also continues to employ as a consultant retired Experian executive William Cheeks, who also consults for CompuCredit, Levine said.

Here’s Levine’s explanation: “Our governance committee has been working to develop partner criteria and some other policies, including conflict of interest. Our board was reluctant to take action on CompuCredit or any other partner without specific criteria to base it on. This was a discussion topic at our November board meeting and the board asked the committee to do some more work on it and bring it back. That’s really the progress update for now.”

Moving along… For those worried about subprime lenders from rent-to-own stores to payday lending operations sponsoring financial literacy efforts in communities — and gaining unearned respectability for their efforts — the good news is that the latest research shows those education efforts don’t really work, according to several consumer finance experts I talked to. So while it may be frustrating to see rent-to-own stores sponsoring computer labs in schools, the positive spin is that the tactics aren’t effective. Teaching financial literacy as part of the curriculum beginning in elementary school goes much further.

That’s important, because the current and most popular model for financial literacy efforts now remains corporate partners kicking in for financial literacy events, a reality that has led some critics to contend that financial literacy is tainted overall — and that it’s nearly impossible for a confused consumer to find unbiased, professional guidance. For Financial Literacy Day on Capitol Hill yesterday, just as an example, sponsors included Capital One, Experian and HSBC-North America.

All this matters because, as this CNBC segment points out, there’s still a belief out there among some that a lack of financial literacy, more so than predatory lending, fueled the housing crisis. Financial literacy — even when sponsored by a payday lender or a financial services firm that issues high-rate credit cards — becomes the answer, instead of regulation, in this view.

Just something to keep in mind as Congress continues fighting over financial regulatory reform and financial literacy month winds down.

You might get a feel for how consumer protection would be handled under the Fed.

We were curious: During the boom, did former Fed Chairman Alan Greenspan ever go to the meetings? Maybe rub elbows with consumer advocates who were sounding the alarms over high-rate subprime mortgages?

Our researcher, Rachel Hartman, got some limited info from the Fed. From 2000 to the end of his term in 2006, Greenspan never attended a single CAC meeting.

Edna Sawady, CAC chairwoman: Last month, the Board issued a proposed rule to implement the provisions of the Credit Card Act that go into effect on February 22, 2010. I’m sure you will get a kick out of the date, because you’ll hear a lot of discussion of what’s going to happen on February 22, 2010. I’ll just give you a sneak preview — don’t go to the grocery store.

Kevin Rhein, Wells Fargo executive: Or buy gas or anything else.

Hmm. The new regulations became law Feb. 22. I didn’t see long lines at gas stations and grocery stores as consumers found their credit cards being denied. Did you?

Keep in mind, this is an organization created to help give guidance to the Fed on consumer protection.

See more for yourself, as the Fed posts public transcripts of all the meetings on its website.

The Council, which has generally drawn little public attention, was created by Congress in 1976 as the public’s link to the Fed, and it includes about 30 members, representing consumer advocates, the financial services industry, government, and academia. The CAC’s purpose is to give input and advice to the Fed on consumer protection issues. It meets three times a year.

Of course, the financial crisis — and the Fed’s inaction on regulating subprime mortgages — probably gives a clear glimpse into just how effective the CAC has been. Some 18 former and present members of the council earlier this month urged Sen. Christopher Dodd (D-Conn.), who chairs the Banking Committee, to fight for an independent consumer financial protection agency. They pointed out that the Fed largely ignored their worries about high-rate mortgages, credit card fees, and other lending abuses — not to mention their recommendations to remedy them over the years.

It’s a little worse than that. Some members also say the CAC is supposed to the consumer’s voice, but things never quite worked out that way. Their specific complaints: Over the years, industry officials outnumbered the consumer representatives at the meetings. Consumer reps felt their concerns weren’t heard.  And the industry reps used their memberships on the CAC to lobby for their positions against regulation.

Dodd’s latest proposal calls for the CFPA to be an independent entity within the Fed — but existing bank regulators would have veto power over some of its decisions, including a Fed representative. That’s left more than a few regulatory reform watchers concerned.

I’m going to follow up with some public transcripts of CAC meetings — you can judge for yourself.

A customer applies for a payday loan in Sacramento. (The Sacramento Bee/ZUMA Press)

When states from New Mexico to Illinois passed payday reform laws over the past few years, it seemed as if the movement to curb short-term loans with interest rates that sometimes reached 400 percent or more was gaining steam. In Ohio and Arizona, voters even took to the polls to approve the rate caps on payday lenders, regardless of threats that the industry would close its doors if it had to lend money at 36 percent interest or less.

But instead of shutting down, payday lenders in some of the same states that passed reforms continue making payday loans – and sometimes at higher rates than before the laws were enacted, according to public policy experts and consumer advocates who follow the payday industry. Most major payday lenders still are in business, using loopholes in existing small loan laws or circumventing new laws entirely to continue charging triple-digit annual interest rates, in some cases as high as nearly 700 percent, advocates contend. Lenders issue loans in the form of a check, then charge the borrower to cash it. They roll into the loan a $10 credit investigation fee — then never do a credit check. Or they simply change lending licenses and transform themselves into car title companies, or small installment loan firms, while still making payday loans.

[Economy1]“In Ohio, New Mexico, Illinois and Virginia, every major payday lender is violating the intent of the law,” said Uriah King, senior policy associate with the Center for Responsible Lending. “I’ve been involved in public policy issues for a long time, and I’ve never seen anything like this.”

“It is kind of astonishing. The more I look into it, the more brazen the practices are. Payday lenders, as a trade association, have consistently circumvented the intent of legislative efforts to address their practices.”

Payday lenders strongly refute that contention. Steven Schlein, a spokesman for the Community Financial Services Association of America, a payday lending trade group, said it’s simply untrue that payday lenders are circumventing the law in Ohio, or in any other state. “That argument is untenable,” he said. “It just shows you that our critics are really just anti-business.”

The dispute over Ohio’s payday lending practices began after voters upheld a 28 percent interest rate cap on payday loans in November of 2008, and many payday lenders began operating under several small loan laws already on the books. The legislature approved the cap in the spring of 2008, and payday lenders fought back with the voter referendum, but failed.

The small loan laws, which have been in existence for decades, are intended to govern installment loans, not single-payment, two-week payday loans. Payday lending opponents say the lenders are exploiting those laws to avoid the 28 percent rate cap. Lenders contend they are legitimately licensed by the state to make the small loans.

Some 800 of the Ohio’s 1,600 payday lending stores have shut down since rates were capped – and the rest are “trying to make a go of it” by adhering to the small loan laws, said Ted Saunders, CEO of CheckSmart Financial Co., a national payday lender with more than 200 stores in 10 states. “We’re lending money for far less than we did when all this started,” he said. “This is not business as usual. The activists just want to put us out of business entirely.”

Those activists are pushing the Ohio legislature to move once again, to close the loopholes in the loan laws by placing them all under the 28 percent cap. More than 1,000 payday lenders already have gotten licenses to make short-term loans under the old small loan laws, which allow for high origination fees and other charges, according to a report by the Housing Research & Advocacy Center in Cleveland.

Under those laws, for a 14-day loan of $100, lenders can charge an origination fee of $15, interest charges of $1.10, and a $10 credit investigation fee, for a total amount of $126.10, or a 680 percent annual interest rate.

David Rothstein, a researcher with Policy Matters Ohio, an advocacy group that pushed for payday lending limits, said testers for his group found that lenders sometimes told borrowers certain loan amounts, such as $400, were not allowed. But they could borrow $505. Loans over $500, according to the small loan laws, allow lenders to double origination fees to $30. Lenders also often issued the check for the loan from an out of state bank, but said borrowers could cash it immediately if they did so at their store – for another fee, often 3 to 6 percent of the loan total. Testers contended employees at some of the stores laughed as they explained the procedures, saying they were only trying to get around the new law.

In other cases, lenders directed borrowers to go get payday loans online, where rates can be higher.

“The General Assembly, in a bipartisan manner, passed a strong law on these loans and the governor signed it,” Rothstein said. “Then, the industry took it directly to the voters, who reaffirmed support for the law by some 60% despite the millions of dollars spent by the industry to overturn the law. This is a slap in the face. They are absolutely disregarding the spirit of the law that was passed.”

Saunders, however, said consumer advocacy groups promised that low-cost payday lending alternatives would pop up once the law was passed – but that hasn’t happened. Instead, there’s been an increasing demand for payday lending services by strapped consumers. “Should we be further eliminating access to credit in a bad economy?” Saunders asked. “We exist because we’re still the least expensive option for a lot of people.”

People hit by high overdraft fees from banks or faced with late charges on multiple bills sometimes decide that taking out a payday loan can be a cheaper alternative, he said.

Based on those kinds of arguments, the debate in Ohio now has shifted from how to best enforce the new law to arguing again over the merits of payday lending. Payday lenders are contending that curbing payday lending in a recession hurts low-income borrowers, and results in job losses. Lawmakers have yet to move on the latest bill to end the loopholes. King, of the Center for Responsible Lending, said that while payday reform advocates have fought in the past to make sure new laws were followed, Ohio marks the first time where the payday lending debate seems to have started over entirely.

“I haven’t seen that elsewhere,” he said. “Ohio is something new. I think there is some degree of frustration as to why we are redeliberating every aspect of this issue. It’s made a tough issue even tougher.”

Ohio isn’t alone in dealing with pushback from payday lenders, even after laws are passed.

In Virginia, payday lenders responded to laws passed last year to limit their fees by reinventing themselves as car title lenders, while still essentially making payday loans, said Jean Ann Fox, director of financial services for the Consumer Federation of America. Car title loans are high-rate loans usually secured by the borrower’s car.

State officials ordered payday lenders in December to stop making car title loans to borrowers who already had a car title loan outstanding, and to start filing liens on borrowers’ vehicles, as is the usual practice with car title loans.

In New Mexico, the state attorney general sued two small installment lenders, contending they used a legal loophole to continue charging extremely high rates on short term loans – in some cases, more than 1,000 percent. In both New Mexico and Illinois, the payday lending lobby supported reform laws, but then began using the small loan laws once the new limits took effect, CRL’s King said.

For other states, such as North Carolina, Pennsylvania, Georgia, and Oregon, state lawmakers or the attorney general had to go back and tighten laws or ramp up enforcement after initial payday reform legislation failed to rein in high fees. In Arkansas, an effort to end payday lending wound up involving the state Supreme Court and an aggressive campaign by the attorney general.

In Ohio, Saunders said payday lenders will be gone entirely if lawmakers move to limit their use of the small loan laws. The additional fees allowed by those laws, he said, are “the cost of doing business,” and companies like his can’t realistically operate without them. His solution is to launch a statewide financial literacy campaign, in which CheckSmart will provide an expert to train nonprofit groups and churches and provide them with a variety of resources to help consumers with budgeting and saving issues. The campaign won’t involve marketing payday loans or pushing any products. Saunders said he took on the idea after several lawmakers during the 2008 debate told him his firm needed to have a higher community profile. Providing financial literacy help, he said, will highlight CheckSmart’s good corporate citizenship.

“In 2010, financial literacy is a big part of what we’ll do going forward,” he said. “It’s not a conflict of interest. We’re going to be giving good, sound financial advice for free. I have nothing to hide. Look, no amount of financial literacy would solve every person’s financial shortfalls. If consumers were being served by other sectors, we wouldn’t be here. This is a way of saying, ‘We’re the good guys.’”

While consumer advocates may not see it that way, attempts in Ohio to limit charges on short-term loans also have been hampered by confusion over who should take the lead – the governor, lawmakers, the attorney general, or state agencies, Rothstein said. As that fight goes on, the question of how much people in financial peril should have to pay for a short-term loan remains as unresolved as ever, in Ohio and in many other states.

President Barack Obama (WDCpix)

Only a year ago, hopes were high that a big push by the government to stop foreclosures would be a great success, living up to its billing as “Help for America’s Homeowners.”

Last January started out with a foreclosure moratorium, allowing time for the Obama Administration to put the final touches on Making Home Affordable — its $75 billion signature program aimed at helping 3 to 4 million homeowners. After bailing out banks and the financial system, the administration turned its efforts to borrowers on the verge of losing their homes. The program rolled out with fanfare in the spring.

[Economy1] But as 2010 begins, it is already clear that Making Home Affordable has fallen far short of its goals, with only 31,382 permanent loan modifications completed by Nov. 30. Last year, lenders were doing far more loan modifications on their own, before the Obama plan was launched. And although foreclosures show no signs of slowing down — the total number of foreclosures is predicted to reach 13 million during the next five years — no one is expecting a dramatic turnaround in helping people keep their homes. The only way the administration will get significant numbers of loan modifications done will be to bring back failed bankruptcy cramdown legislation, or to put billions of dollars into a mass effort to rework loans — neither of which seems politically feasible.

That means 2010 will likely be another year in which only a small number of loans get modified each month, while administration and mortgage servicers continue pointing fingers at each other for the impasse, some industry experts say. The only bright spot ahead for the government’s foreclosure prevention may be that down the road, foreclosures eventually will slow of their own accord. To use the Vietnam analogy, that will allow the Treasury Department to declare victory and get out of the loan modification business for good.

“I don’t hold out a great deal of hope that the administration will do more” to complete more loan modifications, said Patricia McCoy, a University of Connecticut law professor who studies financial services regulation. “There’s just no political will for that.”

As the program falters, a move to blame borrowers for problems with the effort has grown.

When difficulties with Making Home Affordable became apparent early on, servicers began contending that borrowers were refusing to provide income verification and other paperwork to quality for permanent modifications. Under Making Home Affordable, eligible borrowers first receive a three-month trial modification. In order to convert it to a permanent modification, they need to provide servicers with pay stubs and other documentation, as well as making all their trial payments.

Before the program began, servicers voluntarily completed 120,000 permanent loan modifications per month during the first quarter of last year, according to Alan White, a Valparaiso University law professor who studies loan modifications. Once the Obama administration’s program rolled out, those totals dropped to about 70,000 per month, as servicers worked to switch borrowers into Making Home Affordable. According to Treasury Department figures, nearly 700,000 trial modifications under Making Home Affordable were underway by the end of November. But with fewer than 32,000 converted to permanent modifications, it means a net drop of permanent loan modifications since the Obama plan began.

The voluntary plans by servicers, however, were called “extend and pretend” plans by critics, who said servicers simply were setting up repayment plans with late fees and other charges rolled into them, without ever actually reducing a borrower’s debt. Re-default rates on those loan modifications have been high as a result. Making Home Affordable has been more aggressive about lowering a borrower’s monthly payment, and the government is pressing servicers to switch to using its program — one reason why Making Home Affordable permanent loan modifications are lagging behind. In addition, some borrowers simply can’t qualify for the government’s program because they are too far underwater on their mortgages.

But unless a surge of permanent loan modifications suddenly occurred in December, the New Year will begin with fewer loans permanently reworked than during the same period a year ago. Treasury officials said in November that 375,000 trial loan modifications were scheduled to expire by the end of December, but it was unclear how many would be converted into permanent plans. Then, on Dec. 23, the government announced it would order servicers to give borrowers more time to complete trial loan modifications before kicking them out of the program.

Servicers have responded to the lack of progress so far by suggesting that borrowers are refusing to turn in income and other documentation because they probably lied about their incomes to qualify for their current mortgages. Liar Loans, or loans that required no documentation of income or assets, have been cited as a major culprit in the financial collapse, as some borrowers began defaulting on them just a few payments into their mortgages beginning in 2006.

Guy Cecala, publisher of Inside Mortgage Finance, which covers the lending industry, said the mortgage firms and servicers were skeptical from the start that any loan modification plan would work. “No one ever thought seriously that this would put a dent in the problem,” he said.

Now the industry is likely to fight back against any criticism not by doing more loan modifications, but by blaming borrowers, as well as the Obama administration, for a faulty program. All this may add to a backlash and moral hazard charges of helping out homeowners who may have lied to buy bigger homes than they could afford, while other homeowners who may have lost their jobs struggle to meet their mortgage payments, he said.

“I hear people saying all the time, that all the administration is doing is offering help to the people who deserve it the least,” Cecala said.

Housing counselors and attorneys find that argument infuriating. Already struggling to get servicers on board with Making Home Affordable, they now also face dealing with a shift in a public perception toward blaming the borrower.

Diane Thompson, an attorney with the National Consumer Law Center, said the situation has gotten so ridiculous that servicers are simply looking for excuses to deny loan modifications.

“I met with a woman who oversees a counseling program in St. Louis, and she told me that the most common reason for denials now is that the borrower’s hardship isn’t permanent — surely at some point in time the borrower will get a new job,” she said. “And of course servicers continue to lose documents at an astounding rate.  Any counselor I talk to is almost seething with frustration.  I’ve had counselor after counselor in recent weeks tell me, “They’re just stalling.”

“I think there’s a bit of a face-off developing between the administration and servicers.  My impression is that servicers find the program burdensome and so would like to see it fail, but would prefer not to be held accountable for that failure.  And the administration, of course, would prefer to see the program succeed.  Whether this results in a scrapping of the program or a major reworking of it, I have no idea.”

White, of Valparaiso, thinks the situation is even more dire.

“I would give it another month or two to see if they can do any better, but if not, it is definitely time to try something else,” he said of Making Home Afforable loan modifications. “As far as blaming the homeowners, that is really sad.  From all reports I hear from housing counselors and legal aid lawyers, the servicers are losing the documentation.  It is hard to believe that 75 percent of borrowers on temporary mods are making their payments but that they can’t come up with two pay stubs and a hardship statement.  I think we are dealing with a massive failure and breach of contracts by the servicers.”

The administration will handle this by continuing its current tactic of singling out for public condemnation servicers who aren’t doing enough loan modifications. But that approach hasn’t worked so far, and it’s not likely to be any more successful this year, said Kathleen Engel, a Suffolk University law professor and expert on mortgage securitization.

“A shame list may work when country club members don’t pay their dues, but I don’t think it works with servicers and lenders,” Engel said. “If it did, they wouldn’t have been making and financing abusive loans all these years.”

What might work would be a massive, multi-billion dollar effort to get loans modified on a large scale, said Cecala, of Inside Mortgage Finance. But there would be little political support for spending that kind of money on troubled homeowners. Since the Obama administration sat back last year and declined to throw its weight behind mortgage cramdown legislation that ultimately failed, the White House is not expected to suddenly turn around and once again push for legislation to let bankruptcy judges modify mortgages to keep borrowers in their homes.

And not everyone agrees on the right approach to jumpstart the program. McCoy, for example, said she considers loan modifications a “one size fits one” option that can’t be done a mass scale.

As a result, Cecala sees an entirely new direction in 2010 — lenders will enlist debt collection agencies to aggressively go after homeowners who walk away from their underwater mortgages. Or lenders will move to ensure a borrower’s credit remains impaired for a decade or more, should they walk away. In the meantime, the Obama administration will likely talk a good game, and keep criticizing servicers, while only small numbers of homeowners end up with lower payments.

In the end, Cecala said, the only thing that will become clear is that “there’s plenty of blame to go around” for a program that began this time last year with lofty expectations, and then fell painfully short.