The financial industry’s quest for profits led to increased securitization of student loans and more aggressive lending practices that “resembled the subprime mortgage market” that collapsed ahead of the 2008 financial crisis, a government report released Friday says.

Total outstanding student loan debt surpassed $1 trillion in 2011, the report from the Consumer Financial Protection Bureau and Department of Education found. $150 billion of that total is on private student loans, and defaults on private loans total more than $8 billion, according to the report.

The default total has risen over the last decade because of industry practices that are similar to those that led to the subprime housing collapse. A large portion of the student loan boom that took place from 2005 to 2008 was financed by Asset-Backed Securities (ABS), and because more money could be made off such loans, lenders became more aggressive in their lending practices. Increased profits gave lenders “an incentive to increase loan volumes” with “less incentive to assure the creditworthiness of those loans.” Lenders relaxed their lending requirements, lowering the minimum credit score required to secure a loan.

The lenders also created new ways to reach students by bypassing school financial aid offices and going straight to customers through direct marketing, which “could
simultaneously increase the number of borrowers and the amount each one borrowed,” the report found.

As the report notes, the practices resemble lending practices that overheated the housing market before the financial crisis, when banks and lenders relaxed standards to push more and more Americans into homes through subprime mortgages. Those mortgages were then securitized — divided, packaged, and traded — leading to a complex market that collapsed when borrowers began defaulting en masse.

And much as minorities were more likely to be affected by the housing crisis, minority borrowers are more likely to attend schools with higher default rates than are white borrowers.

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Mitt Romney, who last night secured the Republican presidential nomination with his win in Texas’ primary, has already made clear his desire to repeal the Dodd-Frank financial reform law, enacted in response to the financial crisis of 2008. But according to Glenn Hubbard, one of Romney’s economic advisers, even if Romney can’t get rid of the law wholesale, he’d still like to dismantle important aspects of it:

For example, he said Mr. Romney would propose:

– replacing the new system for dismantling failing financial companies that was created as part of the 2010 Dodd-Frank financial overhaul law with a new system, which he declined to specify.

– a new system of consumer financial regulation that either moves the new Consumer Financial Protection Bureau outside of the Federal Reserve or breaks up the new agency and places the powers within existing financial regulators.

That Romney would break up and disperse the Consumer Financial Protection Bureau’s duties amongst existing financial regulators shows just how little he cares to address the causes of the 2008 financial crisis.

After all, it was the fact that consumer protection responsibilities were dispersed throughout the regulatory system — and were no regulator’s primary responsibility — that allowed banks to get away with so much pernicious behavior. The creation of the CFPB was meant to address this problem, giving consumers at least one regulator explicitly tasked with looking out for their interests.

Romney, of course, has been raking in money from Wall Street interests who fought the creation of the Bureau tooth and nail. Back in January, Romney called the Bureau the “most powerful and unaccountable bureaucracy in the history of our nation” and falsely claimed that it is “headed by a powerful and unaccountable bureaucrat with unprecedented authority over the economy.”

According to a new analysis by Citizens for Responsibility and Ethics in Washington (CREW), the payday lending industry has been going gangbusters with its spending in Washington over the last few years. In addition to spending nearly $5 million lobbying last year — up from less than $1 million in 2005 — payday lenders are on pace to make more in campaign donations to federal candidates than they ever have before:

CREW’s research shows the payday loan industry is on course to donate more than ever to federal candidates this election cycle. Payday lenders’ political action committees (PACs), trade associations, and employees have contributed at least $1.32 million so far, according to campaign contributions tracked by Political Moneyline. That is already almost equal to the $1.5 million payday lenders contributed over the course of the entire 2010 election cycle. So how, exactly, are payday lenders expecting to collect interest on this investment?

As we’ve noted several times, the payday lending industry makes billions by fleecing low-income Americans. About 120 million payday loans are made annually in the U.S., with an average interest rate of 455 percent. The Center for Responsible Lending has found 76 percent of payday loan volume ($3.5 billion in annual fees) is due to “churning,” which is repeat borrowing by customers who paid off their loan, but because of the interest, require another loan before their next paycheck.

Payday lenders, many of which are financed by the nation’s biggest banks, have upped their lobbying and campaign donations in response to the creation of the Consumer Financial Protection Bureau, which has made predatory payday lending one of the areas that it hopes to more rigorously regulate.

And it’s telling that the three lawmakers collecting the most donations are Rep. Jeb Hensarling (R-TX), vice chair of the House Financial Services Committee, Sen. Richard Shelby (R-AL), the ranking member of the Senate Banking Committee, and Rep. Spencer Bachus (R-AL), chair of the House Financial Services Committee, all of whom vociferously oppose the CFPB. Yesterday, the House Financial Services Committee voted to gut the budget of the CFPB, showing that these donations could be a fantastic investment.

House Republicans have already shown that they’re willing to sacrifice health care, food stamps, and education upon the altar of deficit reduction in their latest budget. Now financial regulation can be added to the list, courtesy of a proposal unveiled today by the House Financial Services Committee today.

House Republicans on that committee — which has become the second most lucrative committee for fundraising — today released their plan to come up with the cuts mandated by the budget authored by Budget Committee Chairman Paul Ryan (R-WI). Their proposed cuts include:

– ELIMINATING RESOLUTION AUTHORITY: This is a power included in the Dodd-Frank financial reform law of 2008 that allows the government to dissolve a failed financial firm without resorting to the ad hoc bailouts of 2008. Ryan explicitly called for its repeal in the budget, even though it would leave the government powerless to act should another big bank bring the economy to the brink of disaster, other than handing it a bailout.

– ELIMINATING FORECLOSURE PREVENTION PROGRAM: The Home Affordable Modification Program (HAMP) has undoubtedly fallen woefully short of its goals, reaching far fewer homeowners than it was supposed to. But House Republicans want to eliminate it entirely, even with 3.6 homeowners estimated to go into foreclosure in the next two years.

– CUTTING THE CONSUMER PROTECTION BUREAU’S BUDGET BY TWO-THIRDS: The Consumer Financial Protection Bureau has a budget of just shy of $600 million for fiscal year 2013. House Republicans propose , even as the agency begins reining in abuses in the student loan and home mortgage industries.

House Republicans have been trying to water down Dodd-Frank ever since it passed. This budget proposal from the Financial Services Committee is just the latest round in the effort to ensure that the committee follows its chairman’s order to “serve the banks.”

The United States established one of its first true consumer protection laws in 1872, when it protected consumers from fraud involving the use of U.S. mail. But the modern era of consumer protection didn’t begin for another 90 years, when President John F. Kennedy delivered remarks to Congress that established four basic consumer rights — rights to safety, to choice, to be informed, and to be heard — and laid the groundwork for the consumer protections Americans expect and depend upon today.

Kennedy’s remarks, delivered 50 years ago today, argued that protecting consumers was vital to the stability of the American economy and the country’s national interest:

If consumers are offered inferior products, if prices are exorbitant, if drugs are unsafe or worthless, if the consumer is unable to choose on an informed basis, then his dollar is wasted, his health and safety may be threatened, and the national interest suffers.

Kennedy’s four basic consumer rights led to the establishment of the Consumer Product Safety Commission and to the passing of anti-trust, patent, and price gouging laws, as well as the creation of non-governmental actors like the Better Business Bureau to protect consumer rights.

While Americans take many of these protections for granted, they are often under assault from business interests and lawmakers. Regulatory agencies from the Food and Drug Administration to the Securities and Exchange Commission have been subjected to drastic budget cuts, as well as repeated efforts to prevent them from passing new regulations or enforcing those that already exist.

Those same efforts are now focused on the newest consumer protection agency, the Consumer Financial Protection Bureau. President Obama appointed the CFPB’s first director in January, after more than a year of Republican promises that they would block his nominee. Despite those efforts, the CFPB is already helping consumers in numerous ways, primarily by taking steps to prevent and remedy the predatory, discriminatory, and potentially illegal financial practices that were prevalent during the housing crisis.

“The federal Government — by nature the highest spokesman for all the people — has a special obligation to be alert to the consumer’s needs and to advance the consumer’s interests,” Kennedy said. “Their voice is not always as loudly heard in Washington as the voices of smaller and better-organized groups–nor is their point of view always defined and presented. But under our economic as well as our political form of democracy, we share an obligation to protect the common interest in every decision we make.”

Richard Cordray will make his first appearance on Capitol Hill today since President Obama recess appointed him as the first director of the Consumer Financial Protection Bureau. Senate Republicans blocked Cordray’s nomination — and promised to block anyone nominated for the director’s position — but now that the fledgling agency has a director, it can finally begin fulfilling its mandate to protect consumers from the predatory lending practices that were rampant prior to the financial crisis and during the recession that followed.

That Cordray is now the director will likely not quell Republican attacks on the agency or skepticism of his agenda. When Harvard professor Elizabeth Warren, who conceived the idea of the CFPB and was once the favorite to be its first director, testified before Congress last year, she faced relentless attacks from House Republicans who oppose the Bureau.

But despite GOP opposition, the CFPB has begun taking important steps toward fulfilling its mission. Based on Cordray’s prepared remarks and other reports, ThinkProgress compiled a rundown of the programs the CFPB has already established to aid consumers and the steps it plans to take in the future:

Supervising financial institutions and enforcing the law: In 2011, the CFPB launched a large bank supervision program aimed at ensuring that the nation’s biggest banks comply with federal consumer financial laws. It will also add heightened supervision of nonbanks, like mortgage lenders, servicers, brokers, payday lenders, and consumer reporting agencies. Such supervision should prevent the predatory and discriminatory lending and foreclosure fraud that played a role in the financial crisis. The CFPB has already begun enforcement actions, cooperating with state investigations into lending and foreclosures and filing lawsuits of its own against lenders that broke the law.

Establishing programs to help consumers: The CFPB has already established multiple programs to aid consumers and is in the process of creating others. Know Before You Owe was launched to bring transparency to the financial industry, allowing consumers to better understand agreements made on mortgage, student loan, and credit card lending. The Office of Servicemember Affairs has been tasked with aiding and educating current and former members of the military — many of whom were among the biggest victims of the housing crisis and the deceptive practices that followed. The Office of Financial Protection for Older Americans, meanwhile, is doing the same for senior citizens, who are often targets of scams and fraud. The CFPB has also established a number of feedback programs that allow consumers to share their own stories — good or bad — about dealing with the financial industry.

Addressing discriminatory lending: African Americans, Latinos, and other minorities were twice as likely to be affected by the housing crisis as whites. Many lending institutions pushed minorities into subprime loans even though they qualified for regular prime loans. The CFPB’s Office of Fair Lending and Equal Opportunity was created to end such practices by providing oversight and enforcement of fair lending laws and by working with private industry leaders, civil rights groups, and consumer advocates to ensure fair lending compliance.

Improving and streamlining financial regulation: The CFPB has already begun efforts to streamline and improve the regulations that affect the financial industry and will use feedback from both industry and consumer advocates to do so. The agency will update, modify, or eliminate unnecessary or outdated regulations, while attempting to make complying with others easier. Though Republicans have targeted the agency as anti-industry, the CFPB is committed to maintaining outreach to industry leaders. “A well-grounded understanding of the nation’s largest financial companies is essential to fulfilling our mission to improve consumer financial markets,” Cordray will say today.

As a growing number of Americans slip out of the middle-class into economic insecurity, they are increasingly vulnerable to predatory lending schemes like the payday loan. Each year, about 12 million Americans incur long-term debt by taking out a short-term loan that’s intended to cover a borrowers’ expenses until they receive their next paycheck. Payday lending takes “unfair advantage of lower-income borrowers,” with most taking out nine repeat loans per year with an interest rate as high as 400 percent. Forty-four percent of borrowers ultimately default, even after paying back their loans several times over, and thus are pushed ever closer to poverty.

But, as a new National People’s Action report shows, one borrower’s poverty is a payday lender’s profit. The report finds that lenders “take at the very least $3.4 billion” from low-income communities every year in fees alone. Titled “Profiting Off Poverty,” the report describes how payday lending companies open in areas isolated from traditional banking options to ensure they are the only available line of credit. Faith and Public Life reports:

While payday lenders prey on the most vulnerable and drive the poor into never ending cycles of indebtedness, the lending institutions reap huge profits by borrowing from big banks like Wells Fargo, JPMorgan Chase, US Bank and Bank of America at extremely low interest rates, “which they in turn lend out as payday loans charging between 260% and 570% APR”.

As the “Profiting off Poverty” report details, these companies continue to make record-breaking profits by setting up in neighborhoods isolated from traditional banking options. With more payday lending locations than McDonald’s restaurants in the U.S., these companies gladly admit that they are often the only available line of credit for people in poverty.

Major banks like Bank of America, JPMorgan Chase, and Wells Fargo finance about 42 percent of the entire payday loan industry in the U.S. Those loans strip $3.1 billion in wealth from low-income, working poor who are literally trying to pay bills from paycheck to paycheck. This kind of scheme exemplifies the need for an agency like the Consumer Financial Protection Bureau, and indeed is the subject of the bureau’s first public hearing today in Alabama.

Newly-appointed bureau head Richard Cordray intends to research the industry and its enforcement actions that pose “immediate risk to consumers and are clearly illegal.” Endeavoring to answer whether regulation of the industry is necessary or whether the practice should be “explicitly restricted,” Cordray said that the goal will be “to develop a more vibrant, competitive market for small consumer loans.”