Our recent era of “self regulated” financial services seems to have a way of converting scams into large - scale businesses. Payday lending, for instance, has emerged through blind spots in state and federal law, and has been a scourge for working people across America. Anecdotally, one hears there are now more payday lenders in the US than there are McDonalds restaurants and Starbucks shops combined.

It looks like another predatory business, birthed through loopholes, is starting to plague struggling Americans: credit consolidation services. With prices rising, jobs more scarce, and credit terms tightening, it is easy to understand the importance of credit consolidators for people seeking a responsible way to right a tilting financial ship. But an illuminating article in the Wall Street Journal about predatory debt-relief (Debt Relief Firms Attract Complaints, Eleanor Laise, 10/14/2008) shed light on the perils that folks face when trying to responsibly manage their debt. According to the article:

“Debt-settlement companies generally advise their clients to make monthly payments into a special account instead of paying creditors. The firm promises to use the accumulated cash to settle debts for pennies on the dollar. They often charge hefty up-front fees, and their tactics can trash customers’ credit scores, boost their tax bills and leave them in greater debt than when they started…Meanwhile, creditors aren’t getting any payment, so interest and late fees accrue, debt rises and clients get a steady stream of calls from creditors and collection agencies. They may even have their wages garnished.” Click here to view the entire article.

Adding injury to injury, many of the firms referenced in the article abuse the tax exempt status of a nonprofit by funneling cash back to a for- profit owner. Instead of acting the way most nonprofits do – helping the community, they make money for parent companies at tax payers’ expense. Aside from being fraud, this kick-back scheme also taints the fine work of real nonprofits that help struggling debtors through services provided with integrity, quality and transparency.

All signs point to even harder financial times ahead. State and federal officials need to ensure that predatory debt consolidators feel the heat of regulation and enforcement. Americans literally cannot afford the alternative.

How would you define the point at which a family is poor in this country? How about in San Francisco? Most people are shocked when they learn how the federal government measures poverty. If you’re unfamiliar with this number you too will be shocked. Especially if you are a Californian.

According to the Feds, a family of three has to be earning under $17,600 per year to be poor. Let’s put this into perspective: The average family income in San Francisco is $94,000 per year, according to HUD, and the average is about $50,000 per year for the entire United States. But there is no allowance to adjust poverty levels locally. In addition to being unfair, this is unreasonable.

The Federal Poverty Rate is an absolute dinosaur of policy tool. It might even be funny if its obsolescence didn’t make it so harmful for tens of millions of poor Americans. Mayors across the nation have long bemoaned this discrepancy – because it has shortchanged cities of cash they’ve needed to serve the huge number of poor people the federal government won’t recognize, due to where the poverty line rests.

But it appears local efforts at redefining a definition of poverty, by Mayors, has created some new momentum at the national level.

A September 1st, 2008 NY Times article describes a meaningful, bi-partisan effort in Congress to redefine the poverty line. According to the article, “Democrats and Republicans alike say [the federal policy level] is hopelessly outdated…This month, Representative Jim McDermott, the Democrat from Washington who is the chairman of the House subcommittee on income security, plans to introduce legislation that would require the government to develop a more modern and accurate method to determine who is poor.” For more click here.

What is now unclear is how the staggering $700 billion price tag on the bailout package might make reasonable legislators think twice before they expand the universe of people who become eligible for federal aid.

I recently had the opportunity to participate in a working group tasked with identifying strategies that encourage CalWORKs clients to take full advantage of asset building programs and services. As mandated by AB 1078 (Lieber), a bill that was signed into law earlier this year, the California Department of Social Services (CDSS) assembled this large working group in Sacramento recently.

As I’ve reflected on this day, I’ve been struck by the promise this group has and what a shift this conversation represents. I was heartened that asset-building was finally being officially integrated in the state’s approach to helping low income families get ahead.

Representatives from the public and nonprofit sectors working on local, county, and state levels engaged in lively discussions to identify effective administrative and legislative strategies that encourage CalWORKs families to take advantage of

Earned Income Tax Credit (EITC), a refundable tax credit that is among the nation’s most effective tools in helping families leave poverty;

Save or invest part of their EITC funds;

And, leverage their savings through matched savings programs such as Individual Development Accounts (IDA)

The upshot of this group will be a formal report to elected officials. Findings and recommendations made by EARN and APIC along with other public and nonprofit organizations will be outlined to the legislature and released December 1, 2008. We hope creative conversation like this grow within California and in states around the nation.

Recent Census Bureau data finds that incomes declined and poverty increased for low -and middle - income Californians in 2007.

This reversal in trend is exacerbated by steadily increasing unemployment rate. In July 2008, California’s unemployment rate reached 7.3% —the highest level in 12 years. That’s not all; to cope with the current economic downturn, employers are cutting workers’ hours. This has profound implications in a state where nearly 29% of its households are asset poor - in other words, living paycheck to paycheck. Because many households lack the savings necessary to weather unexpected financial emergencies like job loss, we are seeing more and more families turning to public assistance programs like CalWORKs, Food Stamps, and Healthy Families program to make ends meet.

As California faces what many economists expect to be an extended period of slow economic growth, it seems our state’s workers and their families have little to celebrate this Labor Day.

To learn more, download California Budget Project’s new report, Labor Day 2008: Little to Celebrate.

FDIC, which took over IndyMac last month, has unveiled an ambitious plan this week to help thousands of troubled IndyMac borrowers repay their mortgages and stay in their homes. The FDIC will be mailing out about 25,000 loan modification proposals to borrowers whose mortgages it currently owns and services.

This plan aims to assist 37% of IndyMac’s seriously delinquent borrowers by conditionally modifying the loan into a fixed-rate mortgage with an interest rate capped at 6.5%. Once the modification offer reaches the borrower, all they need to do is sign the new agreement, send a check for their new mortgage payment, and information necessary to verify income.

“Keeping borrowers in their homes is the optimal low-cost choice,” says Sheila Bair, Chairwoman of the FDIC.

Recent FDIC research finds that sales of performing loans to outside investors recover 87 cents on every dollar, compared to 32 cents for nonperforming loans.

The large-scale nature of this new program hopefully signals a paradigm shift in the way regulators and banks assist borrowers. Analysts predict dozens of small bank failures in the next two years. If successful, this loan modification plan could be FDIC’s new strategy in the event of a similar bank takeovers.

To learn more click here and here.

A new documentary produced by the California Reinvestment Coalition (CRC) entitled “Mo’Money, Mo’Money, Mo’Money” shows how foreclosures destroy the dreams of California families and threaten the stability of small businesses, city governments, and neighborhoods.

The film reveals how this disaster could have been avoided if regulators and government officials had not ignored predatory lending practices.

California accounts for a quarter of all foreclosures in the country and seven of the state’s cities are consistently in the list of top ten foreclosure rates in the nation. Earlier this year, seven bills were introduced in the California legislature to address the mortgage foreclosure crisis. Despite strong support from community groups, the legislature only passed one meaningful bill.

To view the documentary and learn more click here.

Asset building groups have advanced over 80 positive policy changes in the last year and half, according to CFED’s Assets & Opportunity Scorecard Progress Report. These policies are bringing an additional $325 million towards asset building and asset preservation programs throughout the United States. Key policy victories include enacting state Earned Income Tax Credits, reforming asset tests for public assistance, and curbing predatory lending.

For example:

Washington became the first state without an income tax to enact a State Earned Income Tax Credit (EITC). 3 other states passed legislation also enacting a State EITC.

New Hampshire passed a bill capping interest rates for payday and title loans at 36%

California along with 7 other states significantly raised asset limits or exempted categories of assets to help more families qualify for public assistance.

9 states took up substantive mortgage lending reform bills though only 6 states successfully enacted legislation. California introduced a comprehensive package of predatory lending, foreclosure reform bills but only one (SB 1137) passed.

California asset building advocates and policy makers introduced ambitious bills earlier this year to address the foreclosures crisis, retirement savings, and financial literacy, but due to the widening $16 billion state budget deficit, all but a few bills stalled in the legislature.

Almost half of all LA residents live in asset poverty, according to the Local Asset Poverty Index (LAPI), a tool developed by the Asset Policy Initiative of California (APIC) to help local leaders understand asset poverty in their communities.

To be exact, 46% of households in Los Angeles are asset poor. This means they do not have enough savings to live at the federal poverty line for 3 months, if there is an interruption in income. If there is a job loss or a medical emergency a household is just a few months away from becoming dependent on public assistance, losing housing, or worse.

Asset poverty is even more magnified for minorities. Latinos and African Americans have the highest asset poverty rates in the city. Approximately 62% of Latinos, 57% African Americans, and 30% of whites are asset poor.

Asset Poverty vs. Income Poverty

LA City Councilmember Alarcon, Greuel, and Wesson commissioned an Ad Hoc Committee to End Poverty in Los Angeles. This committee is creating a living document that will outline recommendations, a timeline, and priorities for addressing poverty in LA. View asset poverty data presented at the July 8th hearing.

If you have ever played the board game Monopoly, you’ll surely remember how much “rent” you had to pay when you landed on a property with a house or hotel – and how fast that can wipe out your bank account! There’s a real-life financial lesson in this game, and it’s that collecting rent is better than paying it.

For those that pay rent, there is a new opportunity that can help you start collecting it sooner. If you are among the 50 million Americans who have little credit history, or no score at all, but you pay either rent or a seller-financed mortgage, and/or other bills on-time, like your cell phone, electric, insurance, etc. there is a new and legitimate way to add this missing information to your credit score, just as homeowners do with their mortgage payments. To learn more click here.

Pay Rent, Build Credit (PRBC) is helping individuals and families take important first steps towards asset-based wealth because the higher your score, the more money you can save on auto loans, mortgages, and other big-ticket items. This monthly cash savings enables hard working families to save and build wealth through insured-savings, investment, education, and the purchase of traditionally appreciating assets such as real estate - homeownership and income-producing property. To learn more, read about PRBC on BusinessWeek Magazine.

Michael Nathans is the founder and chairman of Pay Rent, Build Credit, Inc., a national FCRA compliant credit bureau.

The California Homeownership Preservation Initiative has announced that over the next two years, mortgage counseling agencies will receive $5 million to conduct outreach, hire, and train mortgage counselors throughout the state.

It is predicted that half a million California mortgage borrowers will struggle to make payments on their home loans in the next two years. To address this growing need, grants have been awarded to 39 mortgage counseling agencies enabling them to serve over 40,000 troubled home loan borrowers residing predominantly in low-moderate income neighborhoods, communities most impacted by predatory subprime loans.

California Reinvestment Coalition partnered with Merryl Lynch, HSBC-North America, Wachovia Bank, Comercia Bank, Wells Fargo Bank, Countrywide Financial, Citi, Bank of America, Washington Mutual, JP Morgan Chase, San Francisco Foundation, and California Community Foundation to create this $5 million initiative.