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.