Eight Senators Urge SEC to Finalize Rule on Conflicts of Interest

Finish Line

Image via jayneandd (CC BY 2.0)

Recently, a former SEC trial attorney has placed a bright spotlight on the failure of his old agency to charge more individuals at Goldman Sachs over securities fraud in the “Abacus” deal. Abacus was composed of mortgage securities that Goldman knew were toxic. But they packaged them up and sold to investors anyway, and then actively bet against those investors. It is a stark example of a serious conflict of interest.

Unfortunately, not only have the bankers responsible for the conflicted deals gone unpunished, but also the Dodd-Frank rule targeted at stopping material conflicts of interest remains unfinished. (For more on why the rule is important, see AFR’s 2012 letter).

Last week, Senators Feinstein, Merkley, Markey, Boxer, Franken, Durbin, Warren and Reed sent a letter to the SEC urging them to prioritize completion of this long-neglected rule. The letter highlights that the SEC is over 1,730 days late on completing this rule:

“The SEC was directed to issue rules no later than 270 days after the enactment of Dodd-Frank. It has now been over 2,000 days since the President signed Dodd-Frank into law. This is unacceptable. We urge you to work quickly to finalize strong rules implementing Section 621.”

The letter also highlights the problem with leaving Dodd-Frank’s conflict of interest rule unfinished:

“As you know, Section 621 prohibits material conflicts of interest for those involved in structuring asset-backed securities and serves as a critical component of financial reform based on the lessons we learned from the financial crisis. The U.S. Senate Permanent Subcommittee on Investigations’ April 2011 report on the financial crisis detailed some of the transactions that were designed to fail so that the entities constructing them could bet against them and profit. This is an appalling practice that the SEC can address by releasing a strong final rule on Section 621.

Financial institutions should not be able to sell securities to investors and then bet against those same securities, to purposefully design securities or structures with the intent that they will fail or with defective components, or to mislead investors by structuring products specifically intended to benefit an undisclosed entity. These types of structures are built on deception, and withholding material information is fundamentally contrary to the efficient operation of our financial markets and to the protection of investors.”

 

You can find the complete letter here, or the text below.

 
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Understanding the SAFE Act

Payday lenders may seem to be everywhere, but they were not always there. The first payday stores opened in the early 1990s – a byproduct of the same anything-goes deregulatory mania that led to a wave of booby-trapped mortgages and the financial and economic meltdown of 2008.

Almost as soon as they appeared on the scene, faith leaders and consumer and civil rights advocates called for rules to rein in the abuses of an industry whose business model is to advertise a form of “help” that consistently makes things worse, trapping people in long-term high-cost debt and imposing more economic distress on communities.

After a quarter of a century, these efforts are making progress. Fourteen states have meaningful regulations and the first nationwide rules are being developed by the Consumer Financial Protection Bureau (CFPB), the new agency established after the 2008 crisis to bring basic standards of fairness to the financial marketplace.

But the industry is also pressing ahead, employing new loan models and a battery of technological and legal ploys intended to skirt the rules, both existing and anticipated.

Senator Jeff Merkley D-Ore.), a longtime champion of consumer rights, has introduced legislation to address some of these evasive maneuvers. His Stopping Abuse and Fraud in Electronic Lending (SAFE) Act would make it easier to uphold the interest-rate caps and other measures taken by the states. Merkley’s bill would also bolster the effectiveness of the Consumer Bureau’s efforts to require payday-style consumer lenders to do what other lenders do: verify a borrower’s ability to repay before a loan can be issued.

One big problem, for the CFPB as well as the states, is the fact that more and more payday lenders now do business online. Some companies hide from view, using anonymous domain registrations and websites with no physical contact information. Others, while describing themselves as payday lenders, turn out to be “lead generators” who collect personal information and then auction it off to lenders and other marketers. It is very hard to take legal action against criminals who have encased themselves in online camouflage. It gets even harder when they claim to be doing business from overseas or from Native American reservations in order to assert tribal-sovereignty privileges.

Online or out on the street, the basic formula is the same. These lenders charge triple-digit interest rates (nearly 400% on average) and are prepared to issue a loan as long as they can gain access to someone’s bank account – regardless of whether the borrower can actually afford the loan. Their standard, in other words, is the ability to collect, not to repay. In fact, while the industry promotes its products as short-term loans, most of its profits come from people who remain on the hook for months at a stretch and often end up paying more in fees than they borrowed in the first place.

Those who borrow online face special perils. They are often required to provide personal and financial information in loan applications – data that may be bought and sold by unregulated lead generators, loan brokers, lenders, and others. In some cases, this information is used to defraud people two or three times over.

Senator Merkley’s bill seeks to address these problems in three ways – by helping consumers regain control of their own bank accounts; by establishing standards of transparency for online lenders; and by cracking down on lead generators and other third-party predators. More specifically, the SAFE Act would require banks and other lenders to abide by the rules of the states where they do business; prevent third parties from using remotely created checks (RCCs) to withdraw money without an account-holder’s express pre-authorization; prohibit overdraft fees on prepaid cards issued by payday lenders in order to gain access to consumers’ funds and pile on extra charges; and ban lead generators and anonymous lending.

The great majority of Americans, regardless of political party, favor strong action to end the scourge of abusive payday, car-title, and other high-cost, debt-trap consumer loans. By supporting the SAFE Act and standing up for the complementary efforts of the states and the CFPB, members of Congress can heed this loud, bipartisan call from their constituents.

— Gynnie Robnett

Robnett is Payday Campaign Director at Americans for Financial Reform. This piece was originally published on The Hill’s Congress Blog.

An Easy Case: Why a Federal Appeals Court Should Reject a Constitutional Challenge to the CFPB

The Dodd-Frank Act created the Consumer Financial Protection Bureau (CFPB) to invigorate consumer financial protection by consolidating responsibility for those laws’ interpretation and enforcement in a single agency. Even before the CFPB opened its doors, industry forces set out to weaken it through bills that would change its single-director structure, among other means.

They lost that fight in Congress – repeatedly. But now the CFPB’s opponents have been given a glimmer of hope by the three-judge panel deciding a mortgage firm’s appeal of a CFPB enforcement order. If those judges follow Supreme Court precedent, however, that hope will be short-lived and the challenge to the CFPB’s structure will fail, just as it has intwo prior federal district court cases.

The latest case involves a company, PHH, which has been ordered to pay $109 million in restitution for illegal kickbacks to mortgage insurers that caused PHH’s customers to pay extra. After a full hearing before an Administrative Law Judge and then the CFPB’s Director, PHH appealed the CFPB’s decision to the U.S. Court of Appeals for the D.C. Circuit. Among a slew of arguments raised by the company, the court expressed particular interest in one. The three-judge panel, which will hear oral arguments on April 12, hasasked the parties to focus on the constitutionality of statutory limits on the president’s authority to remove the sole head of an agency like the CFPB.

By statute, the president may remove the CFPB Director only for “inefficiency, neglect of duty, or malfeasance in office.” 12 U.S.C. § 549(c)(3). PHH argues that the Constitution requires an agency headed by a single officer to be removable by the president without cause. Fortunately, Supreme Court precedents defining the scope of the removal power foreclose that argument.

The central flaw of PHH’s argument is that the Constitution is silent about whether an agency should be headed by a committee or a single officer. In fact, prior litigants have argued that multi-member heads of agencies are constitutionally suspect. The Supreme Court rejected that argument in Free Enterprise Fund v. Public Company Accounting Oversight Board (2010), embracing the view that agencies with a single head or a multi-member commission are constitutionally equivalent.

The Supreme Court decided in Humphrey’s Executor v. United States (1935) that statutory restrictions on the removal of Federal Trade Commission (FTC) commissioners, and by extension the heads of other administrative agencies, were constitutional. To support the flimsy claim that there is a constitutional difference between single-director and multi-commissioner agencies, PHH relies on stray language in Humphrey’s Executorreferring to the FTC’s character as a multi-member body and suggesting those passages add up to a constitutional limitation. But Humphrey’s Executor itself says that whether the Constitution requires the president to enjoy unfettered authority to remove the head of an agency “depend[s] upon the character of the office.”

As the Supreme Court explained in Wiener v. United States(1958), “the most reliable factor for drawing an inference regarding the president’s power of removal . . . is the nature of the function that Congress vested” in the agency. The CFPB is characteristic of the administrative agencies for which the Supreme Court has upheld for-cause removal. InHumphrey’s Executor, the Court explained that “[i]n administering the [prohibition] of ‘unfair methods of competition’ — that is to say in filling in and administering the details embodied by that general standard — the [FTC] acts in part quasi-legislatively and in part quasi-judicially.” The CFPB has the same quasi-legislative and quasi-judicial responsibilities to define and enforce the prohibition of “unfair, deceptive, or abusive act[s] or practice[s]” in consumer finance, 12 U.S.C. § 5531, as well as to make rules and enforce enumerated consumer finance statutes, 12 U.S.C. § 5481(12).

Ultimately, the concern animating the removal cases is whether, as the Court said in Morrison v. Olson (1988), “the Executive Branch [retains] sufficient control . . . to ensure that the President is able to perform his constitutionally assigned duties.” It’s certainly plausible that the president could find that a single officer was guilty of “inefficiency, neglect of duty, or malfeasance in office.” In Bowsher v. Synar (1986), the Supreme Court said those “terms are very broad and . . . could sustain removal . . . for any number of actual or perceived transgressions . . . .” But it is quite difficult to envision a scenario in which the president could plausibly claim that a majority of an agency’s commissioners met the criteria for removal. Moreover, responsibility for the failures of an agency headed by a multi-member commission are inherently more diffuse than for an agency with a single-director, giving the president less ability to identify the source of “inefficiency” and “neglect” in a multi-member commission than a single director. So PHH’s proposed rule – that the president’s removal power can only be limited for multi-member agencies – has it backwards. If anything, limitations on the removal power for a multi-member agency would be more suspect than those limitations on single-director agencies, so it’s not surprising that PHH cannot cite a single case adopting their proposed rule.

A decision striking down the CFPB’s structure would not only break new constitutional ground, it would have wide-reaching practical consequences as well. Such a holding would mean that the structures of at least three other agencies are also unconstitutional because they are headed by a single official removable only for cause:

  • the Federal Housing Finance Administration, 12 U.S.C. § 4512(b)(2) (removal “for cause”);
  • the Office of Special Counsel, 5 U.S.C. § 1211(b) (removal “only for inefficiency, neglect of duty, or malfeasance in office”); and
  • the Social Security Administration, 42 U.S.C. § 902(a)(3) (removal “only pursuant to a finding by the President of neglect of duty or malfeasance in office”).

For the president to remove the head of a fifth agency, the Office of the Comptroller of the Currency, “reasons” for the removal must be “communicated by [the President] to the Senate,” 12 U.S.C. § 2, suggesting that the president does not have the power to do so without cause. So if the attack on the CFPB’s structure succeeds, it will not hit the CFPB alone.

Unfortunately, PHH could hardly be more fortunate in thepanel drawn to decide this issue. All three judges were appointed by Republican presidents. One judge on the panel has suggested in a prior case that he believes the Constitution would be best interpreted to require that all agency heads be removable by the president without cause and that the Supreme Court was mistaken when it decided otherwise 80 years ago. But even if the three-judge panel rules that the CFPB’s structure is unconstitutional, it will hardly have the last word: The CFPB can seek further review by the full D.C. Circuit and the Supreme Court.

— Brian Simmonds Marshall

Cross-posted from American Constitution Society blog.

Advocates and Lawmakers Press for Relief to Groups of Students Victimized by Predatory Practices

For well over a year, lawmakers, law enforcement, advocates and scammed students alike have been pressuring the Department of Education to relieve the staggering debt of students who attended for-profit colleges like Corinthian which broke the law. In response, the Department convened a negotiated rulemaking session to clarify what the process would be going forward for students who were victims of illegal acts by their school, and wanted to assert their legal right to a “defense to repayment,” or debt cancellation.

But as outlined in a letter delivered this week and signed by 34 organizations, the Department’s draft of the proposed regulations has moved in the wrong direction. Among the worst items of their proposal is a requirement that defrauded borrowers seek debt cancellation within two years — or lose eligibility. This is particularly troubling because there is no limit on the number of years the government can collect on the student debt.

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Uncapturing the Regulators

There’s been a lot of talk in Washington lately about regulatory “reform.” Some of that talk is beginning to focus on what Senator Elizabeth Warren (D-Mass.) has identified as the key problem: a playing field badly tilted in favor of big banks and other corporate players.

A number of advocacy groups have joined forces to mount a campaign called Presidential Appointments Matter. “Who a President nominates to senior financial policy and financial regulatory posts – Treasury Secretary, Attorney General, leaders of financial oversight agencies – makes all the difference in what policies we end up with, and whether our economy works for most people,” says Lisa Donner, executive director of Americans for Financial Reform. “Our next President should make demonstrated willingness to stand up to Wall Street power in order to protect the public interest a bottom line criteria for these positions.”

Efforts are also underway to address the conflicts of interest that can make government agencies reluctant to challenge deceptive or unethical industry practices. Senators Tammy Baldwin (D-Wis.) and Rep. Elijah Cummings (D-Md.) have introduced the Financial Services Conflict of Interest Act, which would ban so-called “golden parachute” payments to bank alumni who accept government jobs, in addition to taking other steps to slow the revolving door between Wall Street and Washington. The Federal Reserve Independence Act, backed by Senators Bernie Sanders (I-Vt.) Barbara Boxer (D-Calif.) and Mark Begich (D-Alaska), would prohibit bank executives from serving as directors of the 12 Federal Reserve banks.

Such measures are needed to counter Wall Street’s ability to spend massive amounts of money on litigation, lobbying, and the forging of political connections. The financial industry uses those connections both to shape individual rules and, over time, to sap the will of regulators to act forcefully. “I talk with agency heads who are like beaten dogs — just trying to keep their heads down,” Senator Warren said in her speech to a Capitol Hill symposium on the phenomenon of regulatory capture. As a result, she added, “the rulemaking process often becomes the place where strong, clear laws go to die.”

While some lawmakers are looking for ways to bolster the independence and effectiveness of financial regulators, others – a worrisome number – are pushing a very different brand of regulatory reform: one intended to make it easier for large financial companies to bend the rules to their liking.

In January, AFR and People’s Action organized an online petition urging Senators to reject a bill to curb the political independence of the Consumer Financial Protection Bureau and other oversight agencies. In a joint letter earlier this week, AFR and eight partner organizations voiced their opposition to the so-called TAILOR (Taking Account of Institutions with Low Operation Risk) Act, the latest in a succession of proposals to hamstring regulators by requiring them to perform burdensome and redundant “cost benefit” studies of the impact of (in this case) past as well as future rules.

Regulators need to listen to all sides, but, as Senator Warren went on to say, “bludgeoning agencies into submission undercuts the public interest. The goal should be to have a system where influence over new rules is measured not by the size of the bankroll, but by the strength of the argument.”

The complete text of her speech, in which she laid out four key principles of reform, can be found here.

— Jim Lardner

Special Protections for Wall Street, No Day in Court for the Rest of Us

scales of justice

Image Credit: Michael Coghlan (CC BY-SA 2.0)

Last week, some members of the House Financial Services Committee lavished praise on a piece of legislation they said would “restore due process rights to all Americans.”

“All the bill says is that if somebody wants their day in court, they should have their day in court,” the bill’s sponsor, Rep. Scott Garrett (R-N.J.), explained, adding that “preserving the rights of Americans to defend themselves in a fair and impartial trial…is one of the most fundamental rights, and it is enshrined in our Constitution.”

Representative Jeb Hensarling (R-Texas), Chair of the committee, championed the measure as well. “Every American deserves to be treated with due process,” Rep. Hensarling declared. “They ought to have the opportunity to have a trial by jury. They ought to be able to engage in full discovery. They ought to be subject to the rules of evidence.”

A listener might have thought these legislators were standing up against forced arbitration – “rip-off clauses” that big companies bury in the fine print of contracts to prevent people from suing them, even if they have broken the law.

Astoundingly and unfortunately, the legislators were actually moving in the opposite direction. They were extolling HR 3798, the so-called “Due Process Restoration Act,” which would extend special legal protections to Wall Street banks and other financial firms charged with violating federal securities law by the Securities and Exchange Commission (SEC).

This piece of legislation does nothing to restore due process to ripped-off consumers and investors. Instead, the “Due Process Restoration Act” makes it harder for the SEC to hold corporate wrongdoers accountable when they break the law.

Big banks and others charged in SEC hearings already possess several crucial legal protections that their investors and consumers lack in forced arbitration: robust opportunity for discovery, a public hearing, a trained adjudicator bound to make a ruling based in law, and – crucially – the right to two full appeal processes, including a review in federal court. Yet HR 3798 would make it harder for the SEC to prove its case and allow the accused party to unilaterally terminate the proceedings, forcing the SEC to either drop the charges or refile in federal court.

According to Professor Joseph Carcello of the University of Tennessee, giving companies this right to “choose the venue is unlikely to be in the best interest of society, and will almost certainly make it more difficult for the SEC to deter and punish securities law violations, including fraud.”  Professor Carcello further emphasized that if fairness is a concern for members of the committee, then it is more unfair for citizens to be forced into arbitration in their contracts with financial institutions.

An amendment offered by Reps. Keith Ellison (D-Minn.) and Stephen Lynch (D-Mass.) threw the gap between the words and actions of HR 3798’s supporters into particularly stark relief. The amendment would have ensured that firms using forced arbitration against consumers and investors could not benefit from the bill’s special protections. Yet, in a display of staggering hypocrisy, this commonsense amendment was defeated on party lines.

Despite grandiose claims of due process, HR 3798 would only further tilt the playing field in favor of special corporate interests when it comes to battling financial fraud and corporate rip-offs.  If lawmakers truly wish to “restore due process rights to all Americans,” they should pass legislation to ban forced arbitration and support the upcoming Consumer Financial Protection Bureau rulemaking on this abusive practice.

Wall Street firms and brokers accused of breaking federal law do not need special legal protections, but the right of ordinary Americans to have their day in court very much does need defending. Lawmakers should legislate accordingly.

— Amanda Werner

Deregulation: Bad for Cheeseburgers, Bad for Financial Markets

Cheeseburger

Image Credit: Valerie Everett (CC BY-SA 2.0)

Yesterday in the House Financial Services Committee, a new bill was considered that would weaken a key piece of financial reform. Speaking in support of the bill, Rep. Steve Stivers (R-OH) argued that this new piece of regulation was important because of “delicious cheeseburgers.”

H.R. 4166, the “Expanding Proven Financing for American Employers Act,” would create new exemptions from the rules in Dodd-Frank that require the financiers packing up new securities to retain a stake in their new products – rules put there to ensure that they have skin in the game.

The bill would allow financial firms that package up a product known as a “collateralized loan obligation,” or CLO for short, to escape the requirement that they hold onto a piece of the CLOs risk – a requirement to hold 5% of the total risk of the CLO, to be exact.

The Ranking Member of the Committee, Rep. Maxine Waters (D-CA), made a number of points against H.R. 4166:

“I’m baffled by legislation such as this… the 2008 crisis was caused – in large part – by mortgage companies that originated loans to borrowers that had no ability to repay…To address this problematic “originate to distribute” model, Dodd-Frank included an important component known as risk retention, or “skin-in-the-game.”  In essence, Congress told loan originators and securitizers to “eat their own cooking” before selling off their investments to others… H.R. 4166, takes us in the wrong direction, essentially exempting most securitizations of corporate loans from risk retention.

 

…CLOs are often used to finance private equity takeovers of companies through “leveraged buyouts.” The industry advocated for the exemption contemplated in this bill when they wrote letters to the regulators during the comment period.

Regulators heard their arguments, and rejected their proposal.  In fact, regulators pointed out that the leveraged loan market may be getting overheated, and that “characteristics of the leveraged loan market pose potential systemic risks similar to those observed in the residential mortgage market.”  …Mr. Chairman, when our banking regulators tell us there may be a bubble, I think we ought to listen.”

In response to the Ranking Member, Rep. Stivers tried out an argument…about cheeseburgers:

“Wendy’s International, a delicious food company based in my district…they have $246 million of collateralized loan obligations. Without that, they would not be able to make the delicious cheeseburgers you rely on every day.”

What Rep. Stivers doesn’t mention is that the reason Wendy’s needs so much borrowing, and is apparently pushing for weaker rules –  and the reason they are already so leveraged that they wouldn’t qualify for the exemption for responsibly underwritten loans that regulators have already granted –  is that they are doing a massive stock buyback which cashes out their shareholders. Although the buyback benefits current shareholders, it comes at the expense of leveraging up the company massively and threatening the future of franchisees. In other words, this borrowing isn’t for hamburgers, it’s to make billionaire shareholder Nelson Peltz richer to the tune of hundreds of millions of dollars.

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Senator Warren Presses For Debt Cancellation NOW for Defrauded Students

In the Senate HELP Committee’s confirmation hearing for Acting Education Secretary John B. King Jr, Senator Elizabeth Warren asked why the defrauded students of the now-bankrupt Corinthian Colleges have not received the debt relief they’ve been promised, despite the fact that the Department of Education has both the authority and the legal obligation to grant it.

Corinthian Colleges, Inc. was a for-profit school that received billions and billions in federal student loan money before its bankruptcy. But instead of the opportunities students were seeking Corinthian further impoverished them, cheating them of the education they were promised while burdening them with millions in outstanding debt.

Prior to its collapse, Corinthian faced an investigation from the Securities and Exchange Commission, a lawsuit from the Consumer Financial Protection Bureau for predatory lending, which the Bureau subsequently won, and legal actions and investigations by twenty-three state Attorneys General. Corinthian has since faced two enforcement actions by the Department itself.

But to date, the Department has only granted relief to less than one percent of the affected students** — and only those who attended a single school, Heald College.

Senator Warren pressed Acting Secretary King on what’s taking so long, noting, “I don’t get why it doesn’t move faster. We know they’ve been defrauded!”

A transcript of her remarks in the Committee follow:

Senator Elizabeth Warren: I want to raise one more issue. The students who were cheated by Corinthian College. Now, before Corinthian College collapsed, this for-profit college sucked down billions and billions of dollars in federal student loan aid by roping in students with false and misleading information and then saddling them with debt that is going to be impossible to repay. It was outright fraud, and in response the Department made a lot of promises to Corinthian’s victims. Last April, the Department promised to give Corinthian students “the relief they are entitled to under federal law.” Two months later, the Department announced they would “find ways to fast track relief based on legal findings for large groups of students” and there would be “no need for students to make individual showing that they were affected by the school’s fraud.” The Department also estimated last summer that about 40,000 former Corinthian students would be eligible for this so called fast track relief. Now, that’s out of hundreds of thousands of total Corinthian student that the Department acknowledged could be eligible for relief. It is now eight months later, and just 1,300 of those 40,000 fast track students have received relief. And I want to know what the plan is here to actually deliver on the promises that the Department has made. It seems to me, Dr. King, that the Department is moving painfully slowly while students who got cheated are struggling under debts that they were conned into taking on. Time is running out for these students, so I want to know, how do you plan to live up to the Department’s promises and actually ensure that each and every student who was defrauded receives debt relief now? Not years from now, but now?

Acting Secretary John King: I appreciate the question. So a few things to know. The special Master Joe Smith is working diligently with a team and we are adding capacity to that team to add to existing claims…

Sen. Warren: Can I just stop you right there, Dr. King, because this is part of what’s bothering me. I don’t understand why this takes so long. This isn’t hard, what we’re trying to do here. Students are waiting, their credit is getting worse and worse, the interest is accumulating on these loans, the process needs to move faster. And I don’t get why it doesn’t move faster. We know they’ve been defrauded!

Sec. King: We’re trying to make it move faster. I can say a promising note is that $115 million has gone to students either through borrower defense or through close school discharge. We are trying to group claims so that we can respond to them as quickly as possible. We are in the process of negotiating rulemaking on new borrower defense rules going forward that will make it easier for the department to efficiently group claims.

Sen. Warren: That’s going to be 2017.

Sec. King: So the challenge has been that the legal requirement, as you know, is for a demonstration that there was a clear violation of state law. We have students in a variety of states so we are working through those. On campuses where we have a clear finding, and these is true in the Heald and Everest cases, where we have a clear finding at the state level we have been able to group claims or we are in the process of grouping claims. But you are right, we need to make the process move faster and we intend to.

Sen. Warren: I just really want to push on this we potentially have hundreds of thousands of students who have been cheated here. You promised fast track to 40,000 students…That was three-quarters of a year ago, nearly, two-thirds of a year ago, and we’ve only gotten about 1,300 people through it. You know, I just want to remind us that Congress gave the Secretary of Education broad authority to cancel the loans of students who attend colleges that broke the law. I hope if you are confirmed you will use that authority to ensure the students get every dime of relief that they deserve, without making them jump through a bunch of unnecessary hoops. They’ve already been hit hard enough. This is the time for the Department of Education to step up and be on their side.

Sec. King: Yes, I’m committed to protect the interests of borrowers and also to do what we can through the enforcement unit and the gainful employment regulations to make sure we do not have a repeat of Corinthian, to the extent we can avoid it.

Sen. Warren: And that’s powerfully important. Thanks for sitting through two rounds of questions on this stuff.

** In June 2014, the Department said “about 40,000 borrowers” were impacted by the Heald enforcement action. The Second Special Master Report noted that only 1,312 Heald students have received relief. In November, the Department announced that 85,000 former Everest students were affected by their joint enforcement action with the California Attorney General. Thus, this 1% of affected borrowers figure vastly underestimates the population, since it only includes Corinthian students covered by the two enforcement actions.

 

Senator Warren on Attempts to Further Rig Our Justice System (H.R. 766)

In a speech on the Senate floor on February 3rd, Senator Elizabeth Warren described America’s criminal justice system as “rigged” in favor of big corporations and the wealthy and powerful. The Senator also condemned attempts in the House to pass H.R. 766, a bill that makes it harder to the Department of Justice to investigate and prosecute financial crimes.

The House is set to vote on H.R. 766 on February 4. Americans for Financial Reform opposes the bill, and has written to Congress voicing that opposition. [UPDATE: H.R. 766 passed the House 250–169].

Here is the complete transcript of Senator Warren’s speech:

Mr. President, across the street at the Supreme Court, four simple words are engraved on the face of the building: Equal Justice Under Law. That’s supposed to be the basic premise of our legal system: that our laws are just, and that everyone – no matter how rich or how powerful or how well-connected – will be held equally accountable if they break those laws.

 

But that’s not the America we live in. It’s not equal justice when a kid gets thrown in jail for stealing a car, while a CEO gets a huge raise when his company steals billions. It’s not equal justice when someone hooked on opioids gets locked up for buying pills on the street, but bank executives get off scot-free for laundering nearly a billion dollars of drug cartel money.

 

We have one set of laws on the books, but there are really two legal systems. One legal system is for big corporations, for the wealthy and the powerful. In this legal system, government officials fret about unintended consequences if they’re too tough. In this legal system, instead of demanding actual punishment for breaking the law, the government regularly accepts token fines and phony promises to do better next time. In this legal system, even after huge companies plead guilty to felonies, law enforcement officials are so timid that they don’t even bring charges against individuals who work there. That’s one system.

 

The second legal system is for everyone else. In this second system, whoever breaks the law can be held accountable. Government enforcement isn’t timid here – it’s aggressive, consequences be damned. Just ask the families of Sandra Bland, Freddie Gray, and Michael Brown about how aggressive they are. In this legal system, the government locks up people up for decades, ruining lives over minor drug crimes, because that’s what the law demands.

Yes, there are two legal systems – one for the rich and powerful and one for everyone else. Continue reading

Lawmakers Oppose Forcing Wall Street Riders Onto Year-End Spending Bill

As the end of the year approaches, Wall Street lobbyists have been putting the “pedal to the metal,” trying to ensure that there are some holiday gifts for them wrapped up in the year-end spending bill. Just as they did last year, Wall Street is planning to jam dangerous and widely unpopular deregulation onto the “must-pass” spending bill. But many lawmakers have been pushing back, saying that it’s “cynical and corrupt.” From speaking out on Twitter to making speeches on the floor of the Senate, lawmakers have said NO to riders that roll back financial reform. Here is a compilation of some of their comments.

On December 8th, Senator Jeff Merkley (D-OR) organized several speeches with his colleagues on the Senate floor against Wall Street deregulation on the year-end spending bill with Senator Bill Nelson (D-FL), Senator Jack Reed (D-RI) and Senator Elizabeth Warren (D-MA). (TRANSCRIPT)

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