Weak Credit Bill from Equifax’s Home State Senator – or How NOT to Respond to the Equifax Hack

In the wake of the Equifax data breach, a number of strong, meaningful bills have been introduced to provide for free credit freezes (e.g., Senators Warren/SchatzSenator WydenRepresentative Lujan) or to more broadly reform the credit reporting industry (Congresswoman Waters and Senator Schatz). However, one bill sticks out for the wrong reasons. Senator David Perdue, who hails from Equifax’s home state of Georgia, has introduced S.1982, a weak bill to provide for a “national standard” for credit freezes. S. 1982, the PROTECT Act of 2017, would permit the credit bureaus to charge $5 for each freeze and thaw, or $15 for all three credit bureaus. The exceptions would be minors, consumers over 65 years old, and active duty servicemembers. Notably, there is no right to a free credit freeze for data breach victims, including those victimized by a credit bureau’s own negligence.

All 50 states already have laws that give consumers a right to a security freeze (interactive map of state free laws). Four states provide initial freezes for free, three states and the District of Columbia provide for free “thaws” (i.e., free temporary lifting of the freeze), and four states provide both the initial freezes and subsequent thaws for free. And freezes and/or thaws are cheaper in four other states including, ironically, Georgia! Thus, Senator Perdue’s bill, S.1982, would not add to the rights of the vast majority of adult Americans, including many of the 145.5 million consumers impacted by the Equifax hack, and the bill would be weaker than existing laws in 15 states and the District of Columbia.

Another problem is the potential preemption of these stronger state laws. S.1982 would amend 1681c of the FCRA, which is a provision that could be argued to preempt equivalent state laws.* While such an argument could be challenged, it seems unconscionable to expose state laws that provide for free freezes to the risk of being preempted.

Also troubling: S.1982 bans the credit bureaus from using Social Security Numbers as identifiers or for any other purpose. While the United States absolutely needs to stop relying on SSNs as a verifier of identity (i.e. using it to confirm that Consumer X is actually the real Consumer X and not a fraudster), it cannot stop relying on the SSN as an unique identifier unless it is replaced at the same time. Without a unique number to distinguish consumers with similar names and addresses, there will be more of the worst type of credit reporting error – mixed file cases, where an innocent consumer’s credit report is mixed up with someone else who has a bad credit record. There are already too many mixed files because the credit bureaus match data based on only 7 out of 9 digits of the SSN. Without SSNs, consumers with common names – like former Equifax CEO “Richard Smith” – are at much greater risk of this devastating type of credit reporting error.

American consumers deserve real, meaningful responses to the Equifax breach. Mouthing outrage at Equifax while introducing milquetoast bills or doing nothing is the kind of response that makes ordinary Americans angry and distrustful of our legislative process. Congress must do better; it must pass bills to provide free freezes and reform the credit reporting system.

*If you want the gory details: The FCRA, 15 U.S.C. § 1681t(b)(1)(E), provides that “No Requirement or prohibition may be imposed under the laws of any state—(1) with respect to any subject matter regulated under—-(E) Section 1681c of this title, relating to information contained in consumer reports…”

— Chi Chi Wu

Chi Chi Wu has been a staff attorney at NCLC for over a decade. She is co-author of the legal manuals Fair Credit Reporting Act and Collection Actions, and a contributing author to Consumer Credit Regulation and Truth in Lending.

Two different trials of payday lenders, same old story

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Payday lenders Scott Tucker and Charles Hallinan are each facing trials for doing what payday lenders do best: cheating consumers out of their hard earned paychecks.

Hallinan and Tucker have each been charged for veiling their businesses as other entities to enter the payday loan market in states where payday lending is illegal or restricted. In Hallinan’s case, he allegedly paid someone else to claim that they were the sole owner of his payday lending business. According to the Philadelphia Inquirer, “That alleged swindle, prosecutors now say, helped Hallinan escape legal exposure that could have cost him up to $10 million.” He is facing charges of racketeering, conspiracy, money laundering, and fraud–the typical charges associated with a mobster. And this is the man considered the payday industry’s pioneer.

Meanwhile, Dale Earnhardt Jr. wannabe Scott Tucker, is also accused of committing fraud by trapping customers into paying fees that were not advertised in order to illegally take more than $2 billion out of the pockets of over four million consumers. What did he do with that cash? He bought six ferraris and four porsches. Not a car or a pair of cars, but a fleet. Apparently, for Scott Tucker, “cool” cars are of more value than consumers, communities, or the law. Scott Tucker even has a hack brother who devised his own hack scam based on older brother Scott. In fact, just last week, a federal judge ruled that Joel Tucker has to pay $4 million in fines for his own misdeeds.

Looking beyond this sheer pulp fiction, these predatory practices are actual tragedies for their victims, and, unfortunately, they are not aberrations. Usury is a staple of the payday lending industry. Hallinan even admitted to what he thought was a colleague, “‘in this industry,’ he said, ‘to build a big book, you have to run afoul of the regulators.’” Plain and simple–these guys are loan sharks. Luckily, due to strong protections and federal oversight, prosecutors and regulators like the Consumer Financial Protection Bureau are working to stop these payday lending scams. But if Charles Hallinan, a pioneer in the payday loan industry, is facing racketeering charges, it just may show that the whole payday lending model is a racket.

We must protect our communities by supporting protections issued by the Consumer Bureau and state governments against this corrupt industry. Without fair rules and strong enforcement, con artists like Tucker and Hallinan will continue to make billions off the backs of poor people.

— Owen Evans

Billionaires Demand More Tax Breaks!

Making an appearance at a Senate Finance Committee hearing on the massive tax cut legislation now being debated, individuals from partner organizations of the Take on Wall Street campaign put on their Sunday best — so they’d look at least a bit like Wall Street moguls — and pleaded for a handout.

Carrying signs with messages like “Tax Relief for Wall Street!” and “Spare a Loophole!,” the participants sought to highlight how the Republican tax plan amounts to a giveaway to Wall Street money managers and other members of the 1%. (See statement by Take on Wall Street Campaign.

The action was part of a broader coalition effort to oppose tax cuts for millionaires, billionaires, and wealthy corporations, and demand that tax legislation focus on closing loopholes and making Wall Street pay its fair share.

A Republican tax framework released today points to a reduction in the corporate income tax rate from 35 percent to 20 percent.

Big Banks like Wells Fargo and JPMorgan would be among the biggest beneficiaries of such a tax cut, according to a Bloomberg analysis based on an earlier but similar version of Trump’s tax plan. The six largest US banks (Bank of America, Citigroup, Goldman Sachs, JP Morgan Chase, Morgan Stanley, and Wells Fargo) — which are enjoying near record-high profits — could avoid paying billions a year in taxes and could see their annual profits soar. Wells Fargo — embroiled in a long list of outrageous abuses of consumers — would enjoy among the highest annual tax savings of all.

That’s on top of the billions that the most profitable US banks already avoid in taxes by using various loopholes. According to Institute on Taxation and Economic Policy data, nine of the largest and most profitable US banks paid an average federal tax rate of only 18.6% between 2008 and 2015, and collectively avoided paying about $80 billion in taxes in this time.

Trump’s tax plan also includes a proposal to lower the tax rate on so-called “pass-through” businesses – like hedge funds, which have their income taxed under the individual income tax — to 25%. This proposal was presented by the White House and Republican leadership in Congress as a tax cut for small businesses. However, 79 percent of the benefit would flow to filers with incomes above $1 million according to the Center on Budget and Policy Priorities.

“Instead of tax-rate cuts for these big corporations, the coming tax debate in Congress should focus on making wealthy individuals and big corporations pay their fair share,” wrote Sarah Anderson, Director of the Global Economy Project at the Institute for Policy Studies, in a New York Times editorial.

While Trump promised to rein in Wall Street on the presidential campaign trail, he is paying lip service to his populist promises, while giving Wall Street everything they want.

The Take on Wall Street campaign — a group of over 50 community groups, unions, consumer advocates and others, including Americans for Financial Reform, Communications Workers of America, Public Citizen, Institute for Policy Studies, the AFL-CIO and Americans for Tax Fairness — is calling out the charade, and urging Congress to adopt a set of tax reform measures that would raise more than $1 trillion in additional revenue and discourage dangerous Wall Street speculation.

Wells Fargo Scandal Tracker

In September 2016, Wells Fargo admitted to opening millions of unauthorized accounts and signed a settlement requiring payment of $185 million in penalties. That news, remarkable as it was, has turned out to be very far from the whole story of the bank’s misdeeds. One after another, Wells Fargo has been hit by a succession of scandals, all growing out of its aggressive efforts to extract as much revenue as possible from every customer, by fair means or foul.

Here, in brief, are the major forms of systematic wrongdoing in which Wells Fargo has been implicated:

BOGUS ACCOUNTS

When the scandal broke: September 2016
What we know: Wells Fargo’s frontline workers faced continual pressure to meet overly ambitious or impossible sales quotas, and some responded by signing people up without their knowledge for credit cards, online bill pay, overdraft protection, and other fee-generating services. The company now puts the total number of fake accounts at 3.5 million — fully 2 million more than its original September 2016 estimate of 1.5 million — and the cost to its customers at $6 million, which Wells has said it will refund.  In addition to the dollar damages, these practices injured people’s credit scores and their ability to secure loans, rent apartments, or land jobs.

Workers who resisted or tried to report such problems were ignored, punished, or fired. After leaving the company, some found it hard to get hired by other banks because Wells Fargo had characterized them as unreliable or failed to provide favorable references.

At least as far back as 2013, customers were trying to bring lawsuits over the fake accounts. Because of fine-print clauses buried in the contracts governing their legitimate accounts, however, Wells Fargo was able to force such complaints into a secret, one-on-one arbitration process, which allowed the company’s practices to continue and go undetected for years. Even now, Wells Fargo insists that defrauded customers should be barred from having their day in court.

AUTO INSURANCE RIPOFF – PART 1

When the scandal broke: July 2017
What we know: Between 2006 and mid-2016, hundreds of thousands of people who took out auto loans from Wells Fargo were charged for unnecessary or needlessly expensive collision damage insurance, often without their knowledge. Some of the victims were active-duty service members.

The insurance was more expensive than policies borrowers could have found independently; and because the charges were typically folded into loan payments made through automatic debiting, many people ended up paying twice over – for insurance they secured on their own and for the coverage imposed on them by Wells Fargo. These extra charges led to higher rates of delinquency, default, and repossession.

The bank has agreed to return some $80 million to an estimated 570,000 affected customers, including 20,000 whose vehicles were repossessed. But some victims are far from satisfied.  An Indiana man, Paul Hancock, says he was charged $598 for insurance and hit with a late fee for a missed payment – even after repeatedly telling the bank he already had his own coverage. Hancock is the lead plaintiff in a class-action lawsuit seeking damages far beyond what Wells has offered. “Refunds,” his lawyer says, “don’t address the fraud or inflated premiums, the delinquency charges, and the late fees.”

AUTO INSURANCE RIPOFF – PART 2

When the scandal broke: August 2017
What we know: This problem involves another form of insurance, Guaranteed Auto Protection or GAP, which protects lenders and borrowers in cases of theft or when the value of the car is no longer sufficient to cover the remaining loan balance. Wells Fargo and its dealer-partners aggressively marketed GAP insurance to borrowers, but often failed to provide mandated refunds to those who paid off their loans early.

Wells Fargo says it is still trying to assess the number of people affected. The total, according to the New York Times, is likely to be in the “tens of thousands.”

ILLEGAL REPOSSESSION OF SERVICE MEMBERS’ CARS

When the scandal broke: September 2016
What we know: Wells Fargo has agreed to pay $24.1 million in refunds and penalties for seizing hundreds of cars from active-duty servicemembers without the court order required by federal law. In one case (which triggered a Justice Department investigation), Wells repossessed a National Guardsman’s used car while he was preparing to deploy to Afghanistan. The company then tried to make the guardsman pay more than $10,000 to cover the difference between his loan balance and the price his car had been resold for.

MAKING SMALL BUSINESSES PAY HIDDEN CREDIT-CARD FEES

When the scandal broke: August 2017
What we know: A Wells Fargo joint venture has been accused of overcharging small businesses for processing their credit and debit card transactions. A class-action lawsuit claims that after signing three-year contracts with a $500 early-termination penalty, merchants got sandbagged with fees that were not properly disclosed. Some of those fees, they say, were falsely labeled as “interchange charges,” making it sound as if they had been imposed by credit card companies when, in fact, a chunk of the money went to the Wells Fargo partnership. Hundreds of thousands of businesses across the country may have been affected, according to the lawsuit.

The bank has denied these claims, asserting that its “negotiated pricing terms are fair and were administered appropriately.” But a former employee told CNN that he and his sales team were directed to target the most unsophisticated and vulnerable retailers. They were told “to go out and club the baby seals – mom-pop-shops that had no legal support,” as he put it.

DECEPTIVE MORTGAGE MODIFICATIONS

When the scandal broke: June 2017
What we know: Wells Fargo made unauthorized changes in the terms of mortgages held by homeowners who had filed for bankruptcy. Taking advantage of a government program meant to help troubled borrowers, Wells shifted people into modified mortgages that featured lower monthly payments, but, as explained in the fine print of paperwork that people were unlikely to read, kept them on the hook for additional years or decades, significantly increasing their interest obligations and the bank’s potential profits. Along the way, Wells pocketed incentive payments, at taxpayer expense, of up to $1,600 per loan.

Lawsuits charge the company with failing to inform bankruptcy courts of these changes as required by law. Although the company disputes the point, Wells has been sharply criticized by judges in North Carolina and Pennsylvania. One judge described the bank’s methods as “beyond the pale.”

In separate cases involving tens of thousands of additional homeowners in bankruptcy, Wells Fargo has been accused of improperly changing the amounts of mortgage payments to cover adjustments in real estate taxes or insurance costs. In November 2015, the bank entered into a settlement with the Justice Department, agreeing to deliver $81.6 million in financial relief to some 68,000 affected borrowers.

STEERING MINORITY HOMEOWNERS INTO HIGHER-COST MORTGAGES

When the scandal broke: May 2017
What we know: During the subprime-mortgage boom years, many banks and brokers were guilty of steering minority homeowners into needlessly expensive and dangerous loans. Wells Fargo now stands accused of continuing to do so even after agreeing to a $175 million settlement of similar charges at the federal level in 2012. According to a lawsuit brought by the City of Philadelphia, 23 percent of Wells’ loans to minority residents of Philadelphia between 2004 and 2016 were high-cost, high-risk, while just 7.6 percent of its loans to white homeowners fell into that category. Even the most credit-worthy African-American borrowers were 2.5 times as likely as comparable white borrowers to receive such a loan, and Latino borrowers 2.1 times as likely, the city says.

Wells Fargo describes the Philadelphia charges as “unsubstantiated,” but Oakland, Calif., has brought a similar action and the company has settled cases with the cities of Baltimore and Miami.

OVERDRAFT OVERCHARGES

When the scandal broke: August 2010
What we know: Wells Fargo is one of a number of banks that routinely made customers pay extra overdraft fees by tinkering with the order of debit charges. Instead of processing a day’s transactions as they came in, the bank would make the biggest payments first, maximizing its own revenues by maximizing the cost to its customers.

Wells announced that it was abandoning this practice in 2014. But while other banks, including Bank of America, JPMorgan Chase, and Capital One, have agreed to compensate customers for damages, Wells Fargo has so far refused to do that. Even after losing a case in California and being ordered to pay $203 million in relief, the company continues to defend its past practices and to assert the right to use forced-arbitration clauses to block consumers from taking the company to court over the issue. A federal appellate court in Atlanta is currently weighing Wells Fargo’s appeal of a lower court’s ruling against its efforts to force these claims into arbitration.

VETERANS’ MORTGAGE SCAM

When the scandal broke: October 2011
What we know: A whistleblower lawsuit filed by two Georgia mortgage brokers accused Wells Fargo of defrauding veterans and taxpayers out of hundreds of millions of dollars. The problem involved government-guaranteed home refinancing loans. Wells violated federal rules by making veterans pay lawyers’ fees and closing costs, and disguised those forbidden charges in order to evade detection by the Department of Veterans Affairs. In 2011, Wells reached a $10 million settlement of a related class-action lawsuit on behalf of more than 60,000 veterans. In August 2017, the company agreed to pay an additional $108 million to the federal government.

CHARGING MORTGAGE APPLICANTS FOR THE BANK’S DELAYS

When the scandal broke: January 2017
What we know: This one involves fees for borrowers who are late submitting paperwork on locked-rate mortgages. According to at least half a dozen ex-employees, Wells Fargo branches in the Los Angeles area blamed borrowers for delays caused by the bank’s own errors or understaffing. That practice has also been the subject of a borrower class-action lawsuit and an investigation by the Consumer Financial Protection Bureau. “We are talking about millions of dollars, in just the Los Angeles area alone, which were wrongly paid by borrowers/customers instead of Wells Fargo,” a former worker charged in a letter to the Senate banking committee.

FRAUDULENT FEES ON STUDENT LOANS

When the scandal broke: August 2016
What we know: Wells Fargo agreed to a $4.1 million settlement of a Consumer Bureau lawsuit accusing the company of charging illegal fees and failing to update inaccurate credit report information in connection with loan payments made between 2010 and 2013. Under the law, Wells was supposed to help students avoid unnecessary fees; but when payments fell short of the full amount due on multiple loans, the bank apportioned them in a way that maximized fees, according to the lawsuit. By not disclosing that fact, Wells left borrowers “unable to effectively manage their student loan accounts and minimize costs and fees,” the Bureau said. Wells was also charged with illegally adding late fees to the accounts of students whose initial payments arrived on the final day of a six-month grace period.

LYING TO CONGRESS

When the scandal broke: August 2017
What we know: Wells Fargo executives, including former CEO John Stumpf, appear to have withheld information related to auto-insurance fraud during congressional hearings held in September 2016. According to the bank’s own timeline, its internal review unearthed the auto-insurance errors in July 2016; the bank then retained the consulting firm Oliver Wyman to assess the problem, and it decided to change its practices at around the time Stump was answering Congress’s questions about the fake-accounts scandal.

But the bank kept its auto-insurance woes secret until July 2017, when the New York Times obtained a copy of the Oliver Wyman report and published a story about it. Meanwhile, as a witness before the House and Senate banking committees, Stumpf made no mention of any problems related to auto insurance, even when he was asked directly about fraudulent activity in other areas. The bank once again failed to disclose these problems in written responses to questions from members of Congress.

Thirty-three groups, including Americans for Financial Reform and Public Citizen, have asked Congress to hold further hearings on this issue as well as newly revealed consumer abuses. To knowingly withhold relevant information from a congressional inquiry is a criminal offense, punishable by up to five years in prison.

 

What happened to the Trump campaign promise to close a big tax loophole for Wall Street billionaires?

During the presidential campaign, Donald Trump railed against Wall Street elites and vowed to close the carried interest loophole which allows private equity and hedge fund billionaires to pay lower effective tax rates than middle-income American families.

“I’m not going to let Wall Street get away with murder. Wall Street has caused tremendous problems for us. We’re going to tax Wall Street.” — Donald Trump, Jan. 9, 2016 in Ottumwa, Iowa.

Appearing in Louisville, KY this week at a forum with Senate Majority Leader Mitch McConnell and a group of business leaders, Treasury Secretary Steven Mnuchin vaporized that promise. Yes, he said, the Administration wants to close the carried interest loophole for hedge fund managers, but not for “other types of funds that create jobs” like private equity and real estate fund managers. The problem with that:  private equity – which might more accurately be described as destroying jobs than creating them – is in fact the primary beneficiary of the loophole.

The Administration’s double talk on closing the carried interest loophole is transparent hypocrisy. Americans are fed up with cynical, pretend measures; they want real action to get tough on Wall Street. Instead of squeezing ordinary families in the name of tax cuts for the wealthiest, real tax reform should include measures to make Wall Street pay its fair share.

The hypocrisy of Trump’s economic populism became apparent early on, as he filled top positions with former Goldman Sachs executives. Then came a series of attacks – in clear alignment with Wall Street’s interests – on regulations put in place after the financial crisis. And now, as Congress returns from recess, they are ready to continue with Wall Street giveaways.

Secretary Mnuchin’s comments came in the context of broader Administration tax proposals which promise to open up a whole new avenue of tax avoidance for wealthy Wall Street financiers. In April, the Trump Administration released a 1-page tax plan outlining the broad strokes of a proposal that would, among other things, lower the tax rate on “pass-through” businesses to 15%. This idea was portrayed by the White House and Republican leaders as a tax cut for small businesses, but more than three-quarters of the benefits would go to the top 1% according to the Tax Policy Center, while only 6.6% of all business owners would gain anything. Rather than help small businesses be competitive, Trump’s tax cut would be a gift to America’s wealthiest, including private equity and hedge fund managers, and real estate developers like Trump himself — who already enjoy a tax system rigged in their favor.

Leading the process on taxes is a group that has nicknamed itself the “Big Six.” They include Treasury Secretary Mnuchin, National Economic Council Director Gary Cohn, Senate Majority Leader Mitch McConnell, House Speaker Paul Ryan, Senate Finance Chair Orrin Hatch, and Ways & Means Committee Chair Kevin Brady. Backed by a multi-million dollar tax overhaul campaign launched by the Koch Brothers, the Big Six have been out on the road promoting their deceptive vision as a way to help American workers.

House Speaker Paul Ryan, who received $5,727,069 in contributions from the financial sector between 2015 and 2016, and helped win his chamber’s approval for a radical bill to roll back financial and consumer protections, was recently called out by a Catholic nun during a live CNN town hall for not siding with the poor and working class, “as evidenced by the recent debates around health care and the anticipated tax reform.” During the televised town hall, Ryan had to correct himself after promoting “tax cuts” instead of “tax reform.”

In spite of Republicans’ best efforts to polish their words and sell their plans as good for ordinary Americans, people see through the phony rhetoric; and what they see is a massive giveaway to Wall Street, big corporations and the wealthy. Real tax reform must include steps to make the financial services industry pay its fair share – that is the message of the Take On Wall Street campaign, a group of over 50 community groups, unions, consumer advocates and others, including Americans for Financial Reform, Communications Workers of America, Public Citizen, Institute for Policy Studies, the AFL-CIO and Americans for Tax Fairness. The coalition is calling on Congress to adopt a set of tax reform measures that would raise more than $1 trillion in additional revenue and discourage dangerous Wall Street speculation. It’s not too late for Republicans to remind themselves who it is they work for, and act in Main Street’s interests.

— Luísa Galvão

Payday Lenders Have a Pal at the White House

During a recent appearance on “Meet the Press,” unofficial Trump advisor Corey Lewandowski called forthe removal of Richard Cordray as director of the Consumer Financial Protection Bureau.

His statement seemed to come out of nowhere, prompting NBC’s Chuck Todd to seek an explanation: Did Lewandowski happen to have “a client that wants” Cordray fired?

“No, no,” he insisted, “I have no clients whatsoever.”

That emphatic denial stood unchallenged for two days – until the New York Times revealed Lewandowski’s ties to Community Choice Financial, an Ohio-based company that was a major client of his former consulting firm before offering his new firm a $20,000-a-month retainer for “strategic advice and counsel.”

Community Choice is one of the country’s biggest players in the world of triple-digit-interest payday and car-title loans. Majority-owned by Diamond Castle Holdings, a private equity firm with $9 billion in assets, the company has more than 500 storefronts and does business (factoring in its online as well as physical operations) in 29 states.

The company’s CEO has described the Consumer Bureau as “the great Darth Vader” of the federal government, and the source of that ill-feeling is plain to see.

The Consumer Bureau is getting ready to issue a set of consumer-lending rules that, if they resemble a proposal put forward last year, will require verification of a borrower’s ability to repay. That simple concept runs directly counter to the business model of the payday industry,  which is to keep its customers in debt indefinitely, making payments that put little or no dent in the principal. Many people end up spending more in loan charges than they borrowed in the first place.

Like other payday lenders, Community Choice Financial has been a magnet for complaints and investigations. A California class-action lawsuit filed last year accuses the company, along with its subsidiary Buckeye CheckSmart, of violating a federal telephone-harassment law. That is also the theme of dozens of stories submitted to the Consumer Bureau’s complaint database. “This company,” says one borrower, “called my elderly parents issuing threats against me to ‘subpoena’ me to court…”

Another complainant describes a series of phone calls and “threats of criminal prosecution… on a loan I know nothing about, did not apply for or receive, and have never received any bills for.” Community Choice and its subsidiaries – companies with names like Easy Money, Cash & Go, and Quick Cash – figure in more than 650 Consumer Bureau complaints, over unexpected fees, uncredited payments, bank overdraft charges triggered by oddly-timed electronic debits, and collection efforts that continue even after a debt has been fully repaid, among other recurring issues.

Community Choice has also been a pioneer in in the subspecialty of evading state interest-rate caps. In Ohio and Texas, among other states that have tried to ban payday loans, Community Choice’s payday shops have camouflaged their predatory loans by using bank-issued prepaid cards with credit lines and overdraft charges; calling themselves mortgage lenders instead of consumer lenders; and registering as credit repair companies in order to charge separately for their supposed assistance in resolving people’s financial troubles.

The success of these legal workarounds tells us that it will be very hard for the states to address the scourge of payday lending without help. That’s why payday lenders are pushing Congress to strip the Consumer Bureau of its authority over them. And, that’s why Community Choice brands CheckSmart and Cash Express have been generous contributors to sympathetic members of Congress, and why – with the help of Lewandowski and other mouthpieces – the industry is trying to get the Trump administration to remove the Bureau’s director (even if there is no legal basis for doing so) and replace him with someone who can be depended on to leave payday lenders alone.

Lewandowski may be too embarrassed for the moment to continue raising his voice on the industry’s behalf. We can hope that’s true, at any rate. With or without his assistance, however, the industry’s campaign will continue, and the Lewandowski episode has made the stakes very clear: Will the Consumer Bureau be allowed to go on doing the job it was created to do, standing up to the financial industry’s power and insisting on basic standards of transparency and fair play? Or will some of the financial world’s fastest and loosest operators find a way to undermine this agency and keep it from cracking down on their abuses at great long last?

— Jim Lardner

The CFPB Turns Six (and Ten)

The Consumer Financial Protection Bureau is marking a double birthday. As an institution, it turns six this week. As an idea, it goes back ten years – to the summer of 2007 and an article by a little-known expert on bankruptcy and household debt named Elizabeth Warren.

Writing in the wonky pages of Democracy magazine, then-Professor, now-Senator Warren pointed out that you couldn’t buy a toaster with “a one-in-five chance of bursting into flames and burning down your house.” And yet it was entirely possible “to refinance an existing home with a mortgage that has the same one-in-five chance of putting the family out on the street.”

One big reason for that difference, Warren wrote, was the Consumer Product Safety Commission, which had been watching over the world of toasters, power saws, baby cribs and the like since 1972. By contrast, the task of guarding consumers against defective financial products was scattered across half a dozen federal agencies; and their main concern, as she noted, was “to protect the financial stability of banks and other financial institutions, not to protect consumers.” Indeed, one of those agencies, the Office of Comptroller of the Currency, had repeatedly encouraged banks to thumb their noses at the handful of state regulators who were trying to crack down on predatory lending in the years leading up to the 2008 financial crisis.

As a remedy, Warren urged Congress to establish a watchdog agency with the full-time job of guarding consumers against deceptive and unfair practices in the financial marketplace, removing dangerous products before they could be peddled to the public.

Five years later, Warren was free to run for the U.S. Senate because the financial industry and its allies had blocked her appointment as director of the agency that Congress had gone ahead and created as part of the Dodd-Frank financial reform law. (Another birthday there: Dodd Frank was signed into law in July 2010 – seven years ago.)

Fortunately, President Barack Obama found a highly capable candidate in former Ohio Attorney General Richard Cordray. Under his leadership, the Consumer Bureau has racked up an impressive record of accomplishment. All told, CFPB enforcement actions have delivered more than $17 billion in financial relief to roughly 29 million consumers cheated in various ways by financial companies large and small.

Through its rulemaking and supervision as well as enforcement work, the Bureau has challenged a number of the financial industry’s cherished tricks and traps, like mortgages with teaser rates that adjust sharply upward after a year or two, and auto loan incentives that cause borrowers of color to be charged more than white borrowers of the same credit-worthiness. The CFPB has gone after abusive practices on the part of debt collectors, check cashers, private student lenders, and bogus “credit repair” services, as well as large-scale fraud committed by some of the country’s biggest banks, including JP Morgan Chase, Bank of America, and Wells Fargo.

In short, this is an agency that has been doing its job, standing up for ordinary consumers and resisting the power of the financial industry. But that power remains very great.

Since last fall’s elections, Wall Street lobbyists and their allies in Congress and the Trump administration have waged an all-out campaign to undermine the Bureau’s funding and authority as well as a number of its specific actions. Just this week, they launched an effort, with wide backing in both the House and Senate, to undo a CFPB rule reining in the industry’s use of fine-print forced arbitration clauses with class-action bans.

The industry’s attachment to this practice is easy to understand. Arbitration can be a just and efficient mechanism for resolving disputes between relatively equal parties who voluntarily agree to it. But the process works very differently when one party is a huge corporation and the other is a lone consumer required by a take-it-or-leave-it contract to direct all complaints of illegality to a private arbitration firm – one that has typically been chosen and paid by the company. The damages suffered by any one victim, moreover, are almost never large enough to justify the cost of pursuing a grievance, regardless of the venue. Thus the great majority of wronged consumers, once they learn that individual arbitration is the only path open to them, decide to do nothing. That’s just what happened, for example, with many of the victims of Wells Fargo’s phony accounts, enabling the bank to keep its scam under wraps for years.

In the same way, payday lenders have used these clauses to go on making triple-digit interest loans in defiance of state laws. Arkansas, for example, has a 17-percent interest rate cap inscribed in its constitution; yet it took authorities many years to make headway against lenders who continued to operate there, relying on arbitration clauses to squelch resistance.

This fight is crucial because forced arbitration, in practice, functions as a Get Out of Jail Free card for banks and lenders, allowing them to chisel lots of money out of lots of people, a little at a time. Naturally, the lobbyists and their political allies claim to be defending the “right” of consumers to choose arbitration. In reality, consumers have no say in the matter. The point of the CFPB rule is precisely to give them a choice.

Unsurprisingly, the great majority of Americans support the CFPB on this question, just as they want the Consumer Bureau itself to survive as a strong and effective agency.

It will if lawmakers heed their constituents and stop regurgitating Wall Street’s nonsensical talking points.

— Jim Lardner

Appeals court majority is skeptical of PHH case against CFPB

Last Wednesday, a majority of judges expressed skepticism of PHH’s arguments that the CFPB’s structure is unconstitutional during oral arguments at the U.S. Court of Appeals for the D.C. Circuit in PHH Corporation vs. CFPB.

The consensus coming out of the argument is that the CFPB is the favorite to win:

Wall Street Journal: “Federal appeals court appears hesitant to rule CFPB’s structure is unconstitutional . . . . [S]ix of the 11 judges on Wednesday’s case were appointed by Democratic presidents. None of them showed signs that they were eager or willing to strike down the CFPB’s structure, and at least one of the Republican appointees, Judge Thomas Griffith, also expressed some reservations about upending the bureau. He and other judges cited past Supreme Court rulings they said were problematic for PHH’s challenge, including one from 1935 that said the president didn’t have a free hand to remove a member of the Federal Trade Commission.”

Reuters: “U.S. regulator may have edge in court arguments on its structure: A divided U.S. appeals court on Wednesday appeared to tilt slightly in favor of the Consumer Financial Protection Bureau’s arguments that its structure does not violate the Constitution . . . .”

Daily Caller: “The U.S. Court of Appeals for the D.C. Circuit seemed poised Wednesday to side with the Consumer Financial Protection Bureau (CFPB), a regulatory agency championed by Sen. Elizabeth Warren and former President Barack Obama, in a dispute over the constitutionality of the agency’s leadership structure.”

Here is what the appellate judges said …  

On the single-director structure being more accountable than a Commission:

  • Judge Millett: “Chief Justice Roberts said in Free Enterprise that the diffusion of power diffuses accountability, so having one person is more accountable than having three or five.” (Listen – 8:00)
  • Judge Griffith: “That seems to strengthen the President’s power–if you only need to get rid of one person, that seems to be strengthening the President’s power.” (Listen – 4:48)

On the importance of the CFPB’s independence:

  • Judge Pillard: “There is a pattern in the financial regulatory agencies of actually wanting to have some amount of separation, and, as I take it, it’s consistent with the Constitution and with the Executive’s authority to take care that the laws be faithfully executed–to have those people removable for inefficiency, for malfeasance in office, neglect of duty, but not have them removable because the President disagrees as a policy matter . . . [to] avoid financial cronyism in favor of faithful execution of the laws, and you’re saying that’s out of bounds?” (Listen – 22:25)

On Supreme Court precedent:

  • Judge Tatel: “But we’re an appeals court. We’re bound by Supreme Court precedent, including Morrison v. Olson…. I have not seen an argument in your brief, even if I agreed with you that there is a serious risk from the “for cause” removal provision for this director…, I don’t see how as a judge on an appeals court, bound by Morrison and Humphrey’s that I can go there… I don’t see where this court gets that flexibility… I have not heard an argument from you yet that we’re not bound by that.” (Listen – 13:23)

— Brian Simmonds Marshall

Sham Poll Tells Lobbyists What They Want to Hear

In its relatively short life, the Consumer Financial Protection Bureau has brought basic rules of fairness and transparency to credit markets, while holding predatory lenders and financial wrongdoers like Wells Fargo accountable. It has also delivered – so far – nearly $12 billion in relief to more than 29 million consumers cheated by financial companies of one kind or another.

Across party lines, poll after poll shows overwhelming support for the actual work the CFPB has been doing, and for more, not less, Wall Street regulation in general. Even most Trump voters, according to one recent survey, oppose efforts to weaken or eliminate the Consumer Bureau, and would rather see the Dodd Frank financial reforms (which created the CFPB) maintained or expanded than scaled back or repealed.

Misleading Industry-Funded Poll

So what should we make of a new industry-funded poll that supposedly demonstrates wide backing, in eight battleground states, for a move to turn the Consumer Bureau into a “bipartisan commission”?

“This poll is a quintessential example of a survey that has been designed to produce a specific result — one that is at odds with everything else we know about public opinion on consumer protection and Wall Street reform,” according to Celinda Lake and Daniel Gotoff of Lake Research Partners.

Here’s something it proves beyond any doubt: if you write a poll question artfully, you’ll get the answer you’re after. Put the label “bipartisan” on just about anything, for example, and people will say they’re for it.

Wall Street Wants Gridlock Not Bipartisanship

“This poll is built on leading language in support of what is framed as the ‘bipartisan’ option for the CFPB, and offers no alternative scenario,” Lake and Gotoff say. “In essence, it tells us that voters have a favorable disposition to the term ‘bipartisan,’ but reveals very little about how people feel about the CFPB.”

But the warm and fuzzy picture that word conjures up – of political independence, cooperation, and roll-up-your sleeves pragmatism – is a very far cry from the reality of the “bipartisan commission” sought by the lobbyists who commissioned this survey. Gridlock would be the far more likely outcome.

A truly telling survey would provide voters with information about the entities that the CFPB regulates, highlight the importance of independence — non-partisan action — in this position, according to Lake and Gotoff.

Public Backs Strong Enforcement Agencies

Polling and focus groups with transparent professional methodologies show that large majorities of voters from every demographic favor giving federal agencies the tools they need to enforce the law on the financial services industry.

Just consider the record of the various commissions charged with regulating the financial industry in the years leading up to the 2008 financial and economic meltdown. Two of them, the Federal Reserve and the Securities and Exchange Commission, could have done a lot to prevent that disaster. Neither did much of anything.

That’s the historical pattern, and that’s why the industry is so fond of this regulatory structure. The impetus for making the CFPB a commission isn’t coming from voters or consumers; it’s coming financial industry executives and lobbyists like the ones who paid for this poll – and from the far too many elected officials who seem to be prepared to do their bidding with little regard for the wishes or interests of their constituents.

— Jim Lardner

Oppose Wall Street’s CHOICE Act

“This terrible bill ignores the lessons of the financial crisis and includes a huge list of giveaways to Wall Street,” said Lisa Donner, executive director of Americans for Financial Reform. “Though it may work for Wall Street and assorted predatory lenders, it is dangerous policy that is bad for financial stability, bad for consumers, bad for investors, and bad for the real economy.”

Call it what it is: Wall Street’s CHOICE Act. A detailed analysis of the bill can be found here. In broad terms it would:

  • Create unprecedented barriers to regulatory action that would effectively give large financial institutions veto power to overturn or avoid government oversight.
  • Eviscerate the Consumer Financial Protection Bureau and make it impossible for it to act forcefully against unfair or abusive practices in consumer lending markets.
  • Eliminate critical elements of regulatory reforms passed since the financial crisis, including restrictions on subprime mortgage lending, the Volcker Rule ban on banks engaging in hedge-fund like speculation, and restrictions on excessive Wall Street bonuses.
  • Increase the ability of “too big to fail” financial institutions to hold up taxpayers for a bailout by threatening economic disaster if they failed.
  • Weaken investor protections and accountability in the capital markets, including the elimination of crucial new fiduciary protections for retirement savers.

“The level of venom directed at the Consumer Financial Protection Bureau, an agency that is successfully carrying out its mission of preventing tricks and traps that harm American families, is astounding,” Donner said. “The changes proposed by the legislation only make sense if you want to weaken consumer protections and make it easier for Wall Street, and predatory lenders, to profit by cheating people.”

Wall Street’s CHOICE Act would:

  • End the Consumer Bureau’s authority to supervise large banks, returning to the failed consumer regulatory model that brought us the financial crisis.
  • Take away the Consumer Bureau’s core authority to take on unfair, deceptive and abusive practices, a power that has enabled the Bureau to stop Wells Fargo from opening fake accounts in their customers’ names; prohibit lenders from making false threats in debt collection; and refund consumers tricked into paying for worthless credit card add-ons.
  • Limit supervision of non-bank financial companies.
  • Undermine the Consumer Bureau’s independence, making it subject to the whims of the White House and Wall Street lobbyists.
  • Eliminate all CFPB jurisdiction over payday and title loans, preventing it it from taking on the unaffordable lending at the heart of the payday debt trap, and also from acting against payday lenders that break the law.
  • Stop the Consumer Bureau’s rulemaking on forced arbitration, which is otherwise on track to restore consumers rights to hold financial institutions accountable in court if they break the law..
  • Create massive loopholes in the rules put in place to discourage the kind of unaffordable mortgages that were at the heart of the foreclosure crisis.
  • Hide the public consumer complaint system that has been so useful in making financial companies more responsive to their customers.