What we know about the online payday lending lawsuit Mick Mulvaney ordered the CFPB to drop

In April 2017, the Consumer Financial Protection Bureau sued four companies, Golden Valley Lending, Silver Cloud Financial, Mountain Summit Financial, and Majestic Lake Financial, for using sham tribal-sovereignty claims to collect debts on loans that violated an array of state laws as well as the federal Truth in Lending Act.

On January 18, 2018, the bureau moved to dismiss its lawsuit. After an initial statement attributing the decision to “professional career staff,” Mick Mulvaney backtracked, acknowledging his own involvement. The case took years to build, and the idea of dropping it was opposed by the “entire career enforcement staff,” National Public Radio has reported.

Here is what we know about the companies, their operations, and the allegations against them.

Golden Valley payment schedule on an $800 loan

The four companies used their websites and online ads to make tens of millions of dollars of loans at 440% – 950% annual interest. Between August and December 2013, Silver Cloud and Golden Valley originated roughly $27 million in loans and collected $44 million from consumers. A typical $800 loan called for payments totaling approximately $3,320 over ten months — the equivalent of 875.5% annual interest. Interest rates on all the loans examined by the CFPB ranged from 440% to 950%.

The Consumer Bureau sued them for engaging in unfair, deceptive, and abusive business practices by attempting to collect payments on loans that were void in whole or part under the usury and/or licensing laws of 17 states. Their loans were illegal, according to the complaint, in Arizona, Arkansas, Colorado, Connecticut, Illinois, Indiana, Kentucky, Massachusetts, Minnesota, Montana, New Hampshire, New Jersey, New Mexico, New York, North Carolina, South Dakota, and Ohio. Golden Valley and the other companies carried on with their lending and collection activities even after the Attorneys General of several states sent cease-and-desist letters.

The defendants explained their fees in confusing ways, according to the complaint, and violated the federal Truth in Lending Act by failing to disclose annual interest-rate information on their websites or in their advertising. “Each of Defendants’ websites advertises the cost of installment loans and includes a rate of finance charge but does not disclose the annual percentage rates (APR). The ‘FAQ’ section of each of the websites answers the question ‘How much does the consumer loan cost?’ by stating: ‘Our service fee is $30 per $100 loaned. This fee is charged every two weeks on your due dates, based upon the principal amount outstanding.’”

The companies were charged with violating a Truth in Lending Act requirement that all advertising for closed-end credit state finance charges in annual percentage rate terms. In addition, according to the complaint, customer service representatives consistently failed to include that information in answers to questions raised over the phone by applicants or customers.

The four companies claimed to be protected by tribal sovereign immunity. Based on ties to a small Native American tribe in Northern California, they asserted that their loans would be “governed by applicable tribal law” regardless of where the consumer “may be situated or access this site.” The companies made this claim despite a United States Supreme Court ruling in 2014 that tribes “‘going beyond reservation boundaries’ are subject to any applicable state law.’” Numerous courts have held that when a loan is made online, the transaction is considered to have taken place wherever the consumer is located at the time.

Despite recent legal victories, states can have a hard time, without federal help, going after online lenders that break state laws. Through the use of shell companies, “lead generators,” and various legal ploys, online lenders — including the companies named in this lawsuit — have been able to keep state authorities at bay for years. Whether tribal ties really give payday loan companies a right to assert sovereign immunity remains a murky legal issue: the courts have allowed some state lawsuits to proceed while blocking others. But tribal businesses cannot invoke sovereign immunity against the United States. That’s one reason why the federal government’s ability to act is so important.

Revenues from at least one of the four lenders, and from an affiliated call center, went to RM Partners, a corporation founded by the son of Richard Moseley, Sr., who was recently convicted of federal racketeering charges. Moseley Sr., a Kansas City businessman, was found guilty in November 2017 of wire fraud, aggravated identity theft, and violations of the Truth in Lending Act as well as racketeering in connection with a payday lending scheme that charged illegally high interest rates and issued loans to people who had not authorized them. Over an eight-year period, according to the Justice Department, Moseley’s operation took advantage of more than 600,000 customers and generated an estimated $161 million in revenues. Moseley and his son spent some of that money on “luxuries including a vacation home in Colorado and Playa Del Carmen, Mexico, high-end automobiles, and country club membership dues.”

The business practices of Moseley’s operation and the four defendant companies closely resembled those of another Kansas payday lender, the race-car driver Scott Tucker, also recently convicted of federal racketeering charges. Like Golden Valley et al, the lending companies run by Tucker and his lawyer-partner Timothy Muir did business through a call center located in Overland Park, Kansas, and relied on a claim of tribal sovereign immunity, based in their case on ties to an Oklahoma tribe. The Tucker-Muir companies, featured in the Netflix documentary series “Dirty Money,” used similar contractual language to obscure their practice of defaulting customers into a many-months-long series of payments that got applied entirely to loan fees, making no dent in the balance.

Tucker and Muir were convicted in January 2018 of racketeering, wire fraud, money laundering, and violations of the Truth-In-Lending Act. Payments collected by Tucker’s businesses went into accounts at U.S. Bank, whose parent company, U.S. Bancorp, has agreed to pay $613 million in civil and criminal penalties for what the Justice Department described as a “highly inadequate” anti-money-laundering system that failed to flag these and other suspicious transactions. The Tucker-and-Muir story is another illustration of the need for action at the federal level if online payday lenders are to be stopped from evading state laws and continuing to exploit consumers.

— Jim Lardner

Payday Lenders Try To Fight Borrower Protections With Fake Comments

Predatory payday lenders do not like to be told how they can and can’t abuse consumers, and they fight protections every step of the way.

Months before the Consumer Financial Protection Bureau proposed a new rule in 2016 that threatens the profits of avaricious payday lenders across America, the industry’s leaders gathered at a posh resort in the Atlantis in the Bahamas to prepare for battle. One of the strategies they came up with was to send hundreds of thousands of comments supporting the industry to the consumer bureau’s website. But most of their comments, unlike those from the industry’s critics, would be fake. Made up.

Payday lenders recruited ghostwriters

They hired a team of three full-time writers to craft their own comments opposing the regulation. The result was over 200,000 comments on the consumer bureau’s website with personal testimonials about payday lending that seemed unique and not identical, supporting the payday lending industry. But if you dig a little deeper, you would find that many of them are not real.

Late last year, the Wall Street Journal and Quid Inc., a San Francisco firm that specializes in analyzing large collections of text, dug deeply. They examined the consumer bureau comments and found the exact same sentences with about 100 characters appeared more than 200 times across 200,000 comments. “I sometimes wondered how I would be able to pay for my high power bill, especially in the hot summer and cold winters” was a sentence found embedded in 492 comments. There were more: “Payday loans have helped me on multiple occasions when I couldn’t make an insurance payment,” and “This is my only good option for borrowing money, so I hope these rules don’t happen,” appeared 74 times and 295 times, respectively.

At the same time, the Journal conducted 120 email surveys of posting comments to the CFPB site. Four out of ten supposed letter-writers claimed they never sent the comment associated with them to the consumer bureau website. One lender told the Journal, for example, that despite a comment clearly made out in her name discussing the need for a payday loan to fix a car tire, she actually doesn’t pay for car issues since her family owns an auto shop. Consumer advocates had previously suggested something fishy was going on, and were vindicated by the report.

Another WSJ investigation has identified and analyzed thousands of fraudulent posts on other government websites such as Federal Communications Commission, Securities and Exchange Commission, Federal Energy Regulatory Commission, about issues like net neutrality rules, sale of the Chicago Stock Exchange, etc.

Payday lenders also forced borrowers to participate in their campaign

They had previously used this tactic to organize a letter-writing campaign in an attempt to influence local lawmakers, with forced signatures. The campaign collected signatures from borrowers to support legislations that would legalize predatory loans with triple-digit interest rates in the states. According to State Representative of Arizona Debbie McCune Davis, borrowers were forced to sign the letter as part of their loan application. Some did not even recall they signed the letters.

Fast forward back to the consumer bureau’s proposed payday lending rule, and some trade association websites were used to spread comments praising the industry with borrowers’ names who actually had nothing to do with it. Carla Morrison of Rhodes, Iowa, said she got a $323 payday loan and ended up owning more than $8,000 through a payday lender. “I most definitely think they should be regulated,” Morrison said, after she knew payday lenders used her name to fraudulently praise the industry. The truth is, Morrison’s comment originated from a trade association website, IssueHound and TelltheCFPB.com, which the payday-lending trade group, Community Financial Services Association of America, used to forwarded comments on payday-lending rule, with no clue these comments were fake. “I’m very disappointed, and it is not at all the outcome we expected,” said Dennis Shaul, the trade group’s CEO.

Payday lenders even tricked their own employees

In Clovis, Calif Payday lender California Check Cashing Stores asked its employees to fill out an online survey after too few customers did. In the survey, Ashley Marie Mireles, one of the employees said she received a payday loan for “car bills” to pay for patching a tire. The truth was she never paid the bill because her family owns an auto shop where she doesn’t have to pay.

Fake names, ghostwriters, and forced signatures. Payday-lenders financed a process of driving fraudulent material to stop regulation curbing the industry’s abuses. It wasn’t enough that they’re running an industry based on the immoral notion of trapping borrowers into a cycle of debt where they cannot escape, targeting the most financially vulnerable communities. Apparently, these voracious payday lenders will do anything to fight protections for consumers.

The consumer bureau has since issued a final rule this past October, with protections for borrowers going into effect in 2019.

The Constitutionality of an Independent CFPB – What the Second Circuit Said

On January 31, a federal appellate court upheld the constitutionality of the Consumer Financial Protection Bureau (CFPB) as an independent regulatory agency with a director who can be dismissed only for “inefficiency, neglect of duty, or malfeasance in office.” That structure — spelled out in the Dodd-Frank financial reform law of 2010 — had been challenged by a New Jersey mortgage lender in a lawsuit contesting a CFPB enforcement action over kickbacks and inflated fees. The D.C. Court of Appeals rejected PHH’s argument.

“Congress’s decision to provide the CFPB Director a degree of insulation reflects its permissible judgment that civil regulation of consumer financial protection should be kept one step removed from political winds and presidential will,” the court ruled. “We have no warrant here to invalidate such a time-tested course. No relevant consideration gives us reason to doubt the constitutionality of the independent CFPB’s single-member structure.”

Here are some key points made in the majority opinion by Judge Cornelia Pillard:

Congress had sound reasons for deciding on a single director rather than a commission, and for shielding the CFPB director against dismissal without cause.

Congress designed an agency with a single Director, rather than a multi-member body, to imbue the agency with the requisite initiative and decisiveness to do the job of monitoring and restraining abusive or excessively risky practices in the fast-changing world of consumer finance… A single Director would also help the new agency become operational promptly, as it might have taken many years to confirm a full quorum of a multi-member body.”

“By providing the Director with a fixed term and for-cause protection, Congress sought to promote stability and confidence in the country’s financial system.”

There are many legal precedents for this kind of protection.

The [Supreme] Court has held, time and again, that while the Constitution broadly vests executive power in the President, U.S. Const. art. II, § 1, cl. 1, that does not require that the President have at-will authority to fire every officer.”

The “removal restriction” established for the CFPB “is wholly ordinary.” The language of the statute is identical to that of a law “approved by the Supreme Court back in 1935 in Humphrey’s Executor and reaffirmed ever since.”

There is nothing in the Constitution or case law to suggest that an independent agency needs a “multi-headed structure” for the sake of accountability.

That argument “finds no footing in precedent, historical practice, constitutional principle, or the logic of presidential removal power.”

The CFPB is not uniquely powerful or free of restraint.

“Today’s independent agencies are diverse in structure and function…. [T]he CFPB’s power and influence are not out of the ordinary for a financial regulator or, indeed, any type of independent administrative agency.”

A single director is in some respects easier to hold accountable.

“Decisional responsibility is clear now that there is one, publicly identifiable face of the CFPB who stands to account—to the President, the Congress, and the people— for all its consumer protection actions. The fact that the Director stands alone atop the agency means he cannot avoid scrutiny through finger-pointing, buck-passing, or sheer anonymity. “

Effective mechanisms exist for holding the CFPB accountable. Its actions are subject to veto by the Financial Stability Oversight Council and to review by the courts.

The Second Circuit has itself affirmed a lower court’s decision to overturn a $109 million penalty imposed on PHH, agreeing that the CFPB misinterpreted the law. “The now-reinstated panel holding that invalidated the disgorgement penalties levied against PHH… illustrates how courts appropriately guard the liberty of regulated parties when agencies overstep.”

The budgetary autonomy given to the CFPB is also not unique.

Congress has provided similar independence to other financial regulators, like the Federal Reserve, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the National Credit Union Administration, and the Federal Housing Finance Agency, which all have complete, uncapped budgetary autonomy.”

There is a long tradition of taking extra measures to ensure the independence of financial oversight agencies.

“[T]he CFPB Director’s autonomy is consistent with a longstanding tradition of independence for financial regulators, and squarely supported by established precedent. The CFPB’s budgetary independence, too, is traditional among financial regulators, including in combination with typical removal constraints. PHH’s constitutional challenge flies in the face of the Supreme Court’s removal-power cases, and calls into question the structure of a host of independent agencies that make up the fabric of the administrative state.”

“That independence shields the nation’s economy from manipulation or self-dealing by political incumbents and enables [independent] agencies to pursue the general public interest in the nation’s longer-term economic stability and success, even where doing so might require action that is politically unpopular in the short term.”

The CFPB’s structure poses no threat to normal presidential authority over “core executive” functions. But if the courts accepted PHH’s arguments against the CFPB, the whole idea of independent regulatory agencies would be threatened.

“The threat PHH’s challenge poses to the established validity of other independent agencies, meanwhile, is very real. PHH seeks no mere course correction; its theory, uncabined by any principled distinction between this case and Supreme Court precedent sustaining independent agencies, leads much further afield. Ultimately, PHH makes no secret of its wholesale attack on independent agencies—whether collectively or individually led—that, if accepted, would broadly transform modern government.”

“The President’s plenary authority over his cabinet and most executive agencies is
obvious and remains untouched by our decision. It is PHH’s unmoored theory of liberty that threatens to lead down a dangerously slippery slope.”

The CFPB has become the “Corporate Financial Protection Bureau”

U.S. Senator Jeff Merkley yesterday warned that Mick Mulvaney’s actions as the unlawful acting head  of the Consumer Financial Protection Bureau is destroying the bureau’s ability to stop predatory lending – the infamous “debt trap.”

“The CFPB has become the ‘Corporate Financial Protection Bureau’ under Mick Mulvaney as it abandons efforts to stop the debt trap,” Merkley said in a call with reporters.

Merkley spoke on a call organized by the Center for Responsible Lending and Americans for Financial Reform. Merkley was joined by Rev. Willie Gable Jr., head pastor at the Progressive Baptist Church in New Orleans, Yana Miles, senior legislative counsel at the Center for Responsible Lending, and Jose Alcoff, from the Stop The Debt Trap campaign.

Payday lending involves small-dollar loans at exorbitant interest rates, averaging 391 percent APR nationally, with rates regularly reaching or exceeding 500 percent and even 1,000 percent APR. These loans trap borrowers into a cycle of debt where they cannot escape, targeting the most financially vulnerable communities.

This predatory business model is designed to target the poor, and keep them in the cycle of debt,” Gable said.

Contrary to consumer bureau’s mission, Mulvaney has dropped cases against lenders that either charge illegal annual interest rates of up to 950 percent in 17 states, and have a long track record of abusing consumers. One of these lenders, the World Acceptance Corp,  had donated $4,500 to Mulvaney’s past election campaigns .

Long before Mulvaney joined the White House as the director of the Office of Management and Budget, he was a shill for payday loan sharks, an industry that has fought the consumer bureau tooth and nail since the agency started, and is now trying to cash in on the Trump administration. Mulvaney took $63,000 from them over the course of his election campaigns.

Hacking away the consumer bureau’s efforts to stop payday lending is only one of the ways Mulvaney has harmed consumers during the 75 days since President Trump installed him as the bureau’s acting head. “His continued effort to undermine the integrity of the consumer bureau will have lasting and damaging effects on working families across the country,” Miles said.

Merkley said that Mulvaney is “blatantly trying to dismantle the bureau from the inside,” and called on supporters of the bureau to fight back.

“If this isn’t a crystal-clear example of the Trump administration governing of, by, and for the powerful rather than of, by, and for the people, then I don’t know what is,” Merkley said. “This is exactly the opposite of what Trump promised during his election campaign. He is standing up for predatory Wall Street practices, instead of standing up for our working Americans. We need to change that.”

A majority of Americans, including coalition of congregations, civil rights groups, unions, consumer advocates, and others, would like to see consumer bureau’s work continue, according to a poll released by AFR and CRL. Mulvaney needs to let the consumer bureau do the excellent job it did under the previous director. “Trump needs to nominate a director with a track record of protecting consumers, one who can earn bipartisan support in the Senate,” Alcoff said.

Bipartisan Group of Senators Rushes to Act on Measures Sought by Bank Lobby

After the U.S. government bailed out the banks in 2008, they bounced back quickly even as ordinary Americans lost their homes and jobs.

In the last year, banks have seen record profits; we have learned about a series of outrageous and widespread customer abuses by Wells Fargo; and millions of Americans had their personal data exposed to hackers because of a security breach at credit bureau Equifax.

Now, Congress may hand banks billions of dollars of tax breaks at everyone else’s expense.

Does that sound like a moment when senators need to rush to action on measures sought by the bank lobby that will harm consumers and endanger financial stability? Unfortunately, a bipartisan group of senators — nine Republicans and 10 Democrats — seems to think so.

They’re marking up a bill that, under the fig leaf of some token gestures toward consumer protection, would deliver early holiday gifts to banks large and small.

The Economic Growth, Regulatory Relief, and Consumer Protection Act (S.2155) would sharply cut back the post-crisis mandate that regulators provide enhanced oversight to a set of very large banks. In fact, the bill removes that mandate for 25 of the 38 largest banks.

Together, these banks account for over $3.5 trillion in banking assets, more than one-sixth of the U.S. total. They got about $47 billion in bailout funds during the crisis. Yet, this legislation would give the green light to Trump regulators to ease off on regulation, inviting a return to the pre-financial crisis world where regulators dropped the ball on bank oversight.

That’s not the only way this legislation weakens post-crisis reforms. It would strip away multiple mortgage-lending protections, especially for buyers of manufactured homes (aka mobile homes), who are likely to face higher costs.

It would limit consumer protections for customers of banks with less than $10 billion in assets, including loan disclosures, anti-foreclosure safeguards and other protections against shady lending.

It would create a new loophole in the Volcker Rule that would open the door for small and medium-sized banks to engage in reckless, speculative trading with customer deposits.

Against all these sugar plums for industry, S.2155 includes only minor benefits for consumers, such as one free freezing and unfreezing of their credit per year. The small number of very limited consumer measures don’t even begin to counterbalance the impacts of bank deregulation. How about a focus on the pressing economic needs of individuals and communities instead?

Supporters of S.2155 argue that it’s acceptable because it doesn’t include some of the biggest items on Wall Street’s wish list. We are glad that increased public attention to the impact of banking rules on all of our financial security is creating some constraints on giveaways. But whether or not Wall Street gets everything it wants in this bill is not the right standard.

Banks are not suffering — quite the contrary. There is no evidence that financial regulation is harming the workings of the economy for most people. The latest data from the Federal Deposit Insurance Corporation — for the third quarter of this year — showed a 5-percent increase in profits over the same period last year.

Community banks recorded a 9-percent increase. Those increases are after banks showed record-setting revenues last year. Over 95 percent of community banks turned a profit in 2016, up from 78 percent in 2010, the year the Dodd-Frank Act was passed.

Ordinary American families saw no such increase in their earnings this year. But they’re taking one on the chin at the other end of Pennsylvania Ave. as the Trump administration attempts to hamstring the Consumer Financial Protection Bureau by trying to install someone as director who has said it should not exist.

The work they are trying to disrupt? This agency, only 6 years old, has won $12 billion in relief for over 29 million American consumers.

These attacks are all the more reason for Congress to be focused on the public interest and consumer protection.

With the Trump administration appointing industry-friendly regulators, supporting this bill sends the message that members of Congress want to join the push in that direction and that even though banks are doing fine, policymakers should put their demands ahead of the stability of the financial system and the welfare of the public.

There is still time to stop this bill. There has been no hearing on the legislation, and as issues are brought to light in the markup, Senators should remove themselves as co-sponsors. Senators should not allow it to be jammed though as an attachment to must-pass legislation.

At a bare minimum, the public deserves an open debate on the Senate floor.

The job of the U.S. Senate is to legislate on behalf of the American people as a whole. Senators should be choosing to fight for tougher rules to hold big banks accountable, for better protections of consumer data and for relief for student-loan borrowers, instead of prioritizing the interests of finance over those of ordinary Americans.

Lisa Donner is the executive director of Americans for Financial Reform, a progressive organization that advocates for financial reform in the United States, including stricter regulation of Wall Street.

This piece first appeared in the Dec 5th edition of The Hill

What’s at Risk at CFPB: Ability to Deliver Relief to Victims of Financial Flimflams

When a financial flim-flammer scatters to the wind or goes bankrupt, its victims are typically out of luck. But when the Consumer Financial Protection Bureau is on the case, the story can have a better ending.

Just in the past three months, the CFPB has sent over $100 million to an estimated 60,000 victims of a sham debt-relief company, Morgan Drexen, that went bust after collecting up-front fees for services it mostly never delivered.

The CFPB’s ability to bring a measure of justice to Morgan Drexen’s defrauded customers rested on authority granted by Congress. It works like this: When a solvent company is caught breaking the law, the bureau orders that company — Wells Fargo, let’s say — to make restitution to its victims. But that is only part of the remedy. The Dodd Frank Act, which set up the CFPB, gives it the additional power to levy a civil penalty — both to discourage further wrongdoing by the company involved, and as a warning to others. That money goes into a fund that the CFPB can use to deliver relief to those ripped off by malefactors who are no longer in a position to pony up.

By this means, the CFPB has delivered nearly $500 million in relief to hundreds of thousands of people, including the victims of scammers who, among other things:

Will the bureau be able to go on providing that sort of help? OMB Director Mick Mulvaney arrived at the bureau on Monday claiming to be its interim director. One of the first things he did was to announce that payments from the victim compensation fund would be suspended for at least 30 days.

No big surprise, perhaps, from an anti-consumer ideologue who has called the CFPB a “sick, sad joke,” and, as a congressman, voted again and again for measures to curb its authority, funding, and political independence.

The victims of the Morgan Drexen scam were particularly lucky to have the CFPB on their side. Down to their last dollars in many cases, they had turned to the firm to reduce their debt burden, only to get swindled. Restitution came as a happy surprise to most of them. One grateful Florida man received a check for $1550. A real helping hand for real people. — Jim Lardner

What Will Become of the CFPB’s Case Against Santander?

More eyes than ever will be on the Consumer Financial Protection Bureau, now that a federal judge has refused to immediately block the Trump Administration’s effort to install OMB director Mick Mulvaney as acting director. One thing to watch will be the fate of a planned lawsuit against the U.S. arm of the Spanish megabank Santander.

The agency was reportedly on the brink of filing such an action last week. Its lawsuit, according to Reuters, would accuse Santander of overcharging customers on auto loans through the aggressive marketing of an often unneeded add-on product known as “Guaranteed Auto Protection” or GAP insurance.

Santander has a long rap sheet. Over the past few years, the bank has been investigated for a variety of offenses by a variety of agencies, with corroborating testimony from its own employees in a few cases.

In 2015 the CFPB hit Santander with a $10 million fine for deceptively marketing so-called overdraft “protection” and signing up customers without their consent. (Santander blamed the problems on a contract telemarketer.) Also that year, the company agreed to pay more than $9 million to settle a Justice Department lawsuit over the illegal repossession of cars belonging to members of the military. In another troubling story, Santander call-center workers complained about being pressured into predatory lending and debt-collection practices and not being given the time or support to treat customers fairly.

What will happen with the auto-loan case? Here are a few grounds for concern.

Mulvaney, in his congressional days, belonged to a bloc of lawmakers known for taking the financial industry’s campaign money (more than a quarter of a million dollars over four successful House campaigns) and parroting its talking points. He has described the Consumer Bureau as a sick joke and backed legislation to abolish it. A longtime Mulvaney aide, Natalee Binkholder, recently went to work for Santander as a lobbyist. In that capacity, she was deeply involved in Wall Street’s successful effort to get Congress to oveturn a CFPB rule guaranteeing the right of consumers to band together and take banks to court over accusations of systematic illegality.

By the time Mulvaney made his first appearance at the bureau Monday morning, an acting director, Leandra English, was already in place. The White House, in announcing Mulvaney’s appointment, cited a quickie legal ruling from the Justice Department in favor of the President’s right to name someone — despite language to the contrary in the Dodd-Frank Act, which set up the agency. (The DOJ opinion, we now learn, was written by an assistant attorney general who just a year ago represented an offshore payday lender facing a CFPB lawsuit.)

The CFPB was the first federal financial regulator with a mandate to put the interests of consumers ahead of the power and profitability of banks. In its short life, the agency has delivered $12 billion in financial relief to more than 29 million wronged consumers. It has stood up for the victims of for-profit colleges, defended veterans and servicemembers against financial scams, gone to bat for the victims of fraudulent for-profit colleges, and made Wells Fargo pay $100 million in penalties for opening millions of bogus accounts.

The immediate question is about the Bureau’s leadership. The bigger question is whether this vitally important agency will be allowed to go on doing its job.

— Jim Lardner

Vigil to #DefendCFPB

Joined by Rep. Jamie Raskin, consumer advocates gathered outside the headquarters of the Consumer Financial Protection Bureau today to defend the mission of an agency that’s delivered $12 billion in relief to over 29 million Americans in its short life.

“Standing up to Wall Street Banksters and Fraudsters since 2011,” read one of the signs that greeted CFPB employees heading into their offices for their first day under a new, but not yet decisively identified, leader.

The “Vigil to #DefendCFPB” came hours after Acting Director Leandra English filed a lawsuit to prevent President Trump from installing Mick Mulvaney, the director of the Office of Management and Budget, to run the consumer bureau. Mulvaney also arrived at the CFPB today, with a load of donuts for the staff.

But it will take more than donuts to legitimize Mulvaney’s role. It will take a court ruling, or Senate confirmation of a permanent replacement for Richard Cordray, who stepped down as Director of the CFPB last week.

“Acting Director English is rightly in that post until the Senate confirms a new director, and filing suit will allow the courts to resolve the matter,” said Lisa Donner, executive director of Americans for Financial Reform. “In the meantime, the CFPB still has work to do holding Wall Street to account on behalf of American consumers, and Ms. English and the CFPB staff can continue its successful run.”

Rep. Jamie Raskin of Maryland also addressed the gathering, which was broadcast via Facebook Live. “Not only does ordering President Trump’s OMB Director Mulvaney to moonlight as the CFPB director contradict the plain language of the CFPB statute but it also makes a mockery of the idea of an independent federal agency,” said Raskin, a former constitutional law professor.

The vigil became the backdrop for reports by CNN, CNBC, Fox News, and NPR on the Trump administration’s effort to hamstring the CFPB’s work. Donner also spoke to The Associated Press. The hashtag #DefendCFPB began trending on Twitter later in the day.

Raskin had harsh words for Trump’s appointees to regulatory bodies after campaigningas the champion of the little guy. Between the attempted designation of Mulvaney and the accomplished appointments of Education Secretary Betsy DeVos and EPA head Scott Pruitt, “President Trump has temporarily succeeded in putting the Joker, the Riddler and the Penguin in charge of Gotham City,” Raskin said.

Under the Dodd-Frank law that created the CFPB, the president nominates the head of the agency, who must be confirmed by the Senate. Cordray, the former director, won the votes of 66 senators in 2011.

“Now, the president should nominate someone with a track record of fighting for consumers who will enjoy bipartisan support in the Senate,” Donner said.

— Carter Dougherty

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