Fact-checking Politifact on the Consumer Bureau

In the latest GOP Presidential debate, Carly Fiorina attacked the Consumer Financial Protection Bureau (CFPB), calling it an agency with “no congressional oversight.” That statement is not just “half true” as it was rated by Politifact, a fact-checking website run by the Tampa Bay Times. It’s untrue.

The CFPB, as Politifact said, does not get its funding through annual congressional appropriations. But the Bureau is a bank regulator, and not a single one of the other bank regulators – the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), or the Office of the Comptroller of the Currency (OCC) – is funded that way either. And for good reason: as far back as 1864, when the OCC was created, this country has sought to bolster the independence of bank regulators by insulating them from the politically-charged congressional appropriations process.

In reaching its judgment that “the bureau has an unusually low amount of congressional oversight,” Politifact appears to have relied on two known critics of the agency, Todd J. Zywicki of George Mason University and Brenden D. Soucy, a Miami lawyer.

By consulting a wider range of authorities, Politifact would have gotten a fuller picture. Arthur Wilmarth of George Washington University Law School, for example, has described the CFPB’s powers, governance and funding arrangements as “hardly unprecedented among federal financial regulators.” Like virtually all regulators, the Consumer Bureau is subject to the many requirements of the Administrative Procedures Act. In addition, as Adam Levitin of Georgetown University Law Center pointed out to a House committee in 2011, the Bureau’s budget, unlike that of the other financial oversight agencies, is capped at a specified percentage of the Federal Reserve’s operating budget, while its decisions are uniquely subject to review and rejection by a council of other regulators.

When all the facts are taken into account, it is clearly neither true nor even half-true to characterize the CFPB as “a vast bureaucracy with no congressional oversight that’s digging through hundreds of millions of your credit records to detect fraud.” Fiorina, in making that statement, is simply repeating a false narrative developed by banks and lenders against the first and only and financial oversight agency with a mandate to put the interests of consumers ahead of the power and profits of the financial industry. By giving Fiorina credit for being even partially correct, Politifact, too, is buying into that narrative.

Lending Discrimination No More Excusable Than Other Forms of Discrimination, Wade Henderson Says

The House of Representatives is preparing to vote on a bill – H.R. 1737, the Reforming CFPB Indirect Auto Financing Guidance Act – that would make it harder for the Consumer Financial Protection Bureau to crack down on auto lending practices that lead to consistently higher interest rates for Black as well as Hispanic and Asian-American car buyers. Wade Henderson, president and CEO of The Leadership Conference on Civil and Human Rights, issued this statement in response:

“Discrimination undermines the civil rights of all Americans, whether in in voting rights, access to quality schools, or racial profiling by law enforcement. Lending discrimination is no different. When lenders redlined Black residents out of homeownership or gouged them on mortgages, we passed laws like the Fair Housing Act. But the vestiges of lending discrimination remain alive and well in the auto industry. We cannot allow auto lenders to charge Black borrowers more than Whites simply because of their skin color. A vote in support of this bill is a vote to ignore lending discrimination.”



Will Congress Endorse Discrimination in Auto Lending?

If you’re a person of color taking out a car loan, odds are you’ll pay a significantly higher interest rate than you would if you were white. Since 2013, the Consumer Bureau has begun to tackle this long-neglected, well-documented problem, both through enforcement and by issuing a guidance on fair lending law compliance for lenders working with dealerships to finance auto purchases. Congress should be praising the Bureau for its work fighting auto-loan discrimination. Instead, some law makers may vote to roll back the CFPB’s efforts.

This week, the House will vote on H.R. 1737, a bill that would invalidate the CFPB’s guidance and impose burdensome and unnecessary new procedures on any future efforts by the Bureau to address this issue.

That’s why last week, ColorOfChange, Working Families, Center for Popular Democracy and Americans for Financial Reform (AFR) delivered over 50,000 petitions urging Congress to reject H.R. 1737. The petitions were delivered to the offices of House Majority Leader Paul Ryan, Minority Leader Nancy Pelosi, and Representative G.K. Butterfield, chair of the Congressional Black Caucus.

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Wall Street Riders Plague Congress’ Year-End Spending Bill

The financial industry has taken a close interest in the congressional struggle to refund the government. Where others find dysfunction, Wall Street sees opportunity.

The big banks and their lobbyists are quietly but aggressively pushing a long wish list of spending bill “riders.” These backdoor measures would roll back the reforms enacted after the 2008 financial crisis and undermine the Consumer Financial Protection Bureau, the first and only financial oversight agency with a mandate to put the interests of consumers ahead of the power and profits of the banks.

This is an industry that has never made much of a secret of its disdain for rules of fair play. Now a disturbing number of legislators have embraced the same contemptuous attitude by lining up behind the use of “must pass” bills to advance Wall Street’s agenda. To counter their effort, financial reformers will need to work hard to expose and oppose the spending riders – and the lawmakers supporting them.

The threat is serious. The rider strategy has worked for Wall Street in the past, notably at the end of 2014, when a massive spending bill turned out to include an amendment repealing a key piece of the Dodd-Frank Act – a provision requiring the riskiest derivatives trades made by bank holding companies to be conducted outside the units that hold deposits and enjoy the benefits of deposit insurance.

This time around, Wall Street has even bigger aspirations. One of the many riders it’s promoting is hundreds of pages long, with subsections that would (among other things) make it easier to issue toxic mortgages like those that helped bring on the financial crisis; force financial regulators to go through a series of new and redundant procedures before issuing rules or taking enforcement actions; and, under the guise of relief for “community banks,” deregulate a wide swath of institutions up to and including the likes of Wells Fargo.

That particular package of proposals was originally a bill authored by Senate banking committee Chairman Richard Shelby, R-Ala. Unable to convince the Senate to consider his legislation through normal channels, Shelby has now publicly stated that the appropriations process (with the implied threat of a government shutdown) offers the “best shot” of getting it enacted.

In another priority attack, the major Wall Street brokerage houses and the big insurance companies hope to derail the Department of Labor’s efforts to safeguard Americans against conflicted retirement investment advice – “advice” that costs us an estimated $17 billion a year. Yet another spending rider would block the Department of Education from cutting off the flow of federal loan money to for-profit career colleges like Corinthian and ITT Tech, which have saddled countless students with crippling debt for worthless degrees. Still other riders would make it harder for nonprofit groups to challenge discriminatory housing and mortgage-lending practices.

A number of these proposals are squarely aimed at the Consumer Bureau. The bureau has earned the ire of Wall Street by delivering more than $11.2 billion in relief to more than 25.5 million Americans defrauded by financial companies. In response, the financial industry is working with its friends in Congress on spending riders that would bring the bureau under the congressional appropriations process and end its guaranteed funding through the Federal Reserve, while, at the same time, placing it under the thumb of a five-member commission chosen by party leaders – a proven recipe for regulatory gridlock – instead of a single director, as Dodd-Frank stipulated.

Other possible dangers are riders that would block or impede the bureau’s specific ability to act against discriminatory auto lending, triple-digit-interest payday-style loans and the financial industry’s use of take-it-or-leave-it agreements to bar consumers from joining forces over a common complaint.

The industry’s agenda is far-reaching. But the riders all share a common purpose: They would make it easier for banks and financial companies to exploit us, whether by cheating consumers, engaging in reckless bets or using taxpayer subsidies to generate windfall profits for a handful of giant institutions and a narrow financial elite.

One more thing these measures have in common: Financial interests are trying to push them into the budget because they would not look good as stand-alone measures that had to be debated in the light of day. In a joint letter to Congress last week, 166 consumer, labor, civil rights, community and faith-based organizations pointed out that a large majority Americans, regardless of political party, want financial regulation to be tougher not weaker; that finding, borne out by repeated polls, was most recently confirmed by a Washington Post/ABC News survey on the presidential contest, in which 67 percent of the respondents (58 percent of Republicans, 68 percent of independents and 72 percent of Democrats) said they would back a candidate calling for stricter financial regulation, while only 24 percent said they would back a candidate opposing stricter regulation.

Congress must reject the use of budget amendments and other undemocratic tactics to advance a special-interest agenda. To make sure it does, the rest of us must convince our lawmakers that we, too, are watching.

— Jim Lardner

Originally published on USNews.com

The Real Wolves of Wall Street

It’s hard to make a serious argument against an agency that’s returned over $11 billion to more than 25 million Americans scammed by their financial companies. Especially when that agency, the Consumer Financial Protection Bureau, enjoys broad public support across party lines for its efforts to crack down on debt-trap loans, credit card overcharges, illegal debt collection practices and discriminatory auto lending.

That’s why the big bank lobby and its allies in Congress had to contort themselves last week to justify their attempts to hamstring the bureau. Luckily for the rest of us, their farfetched talking points didn’t sway the bureau’s defenders in Congress, and their attack fell flat.

The House Financial Services Committee was considering legislation to change the way the CFPB is led, putting it under a five-member commission – a recipe for partisan gridlock and increased industry influence – instead of a single director. The White House, along with more than 75 consumer groups, spoke out against the move. The major architects of financial reform, including Sen. Chris Dodd, D-Conn., and Rep. Barney Frank, D-Mass., as well as Sen. Elizabeth Warren, also a Massachusetts Democrat, and former Rep. Brad Miller, D-N.C., made it clear that they too opposed it.

While the bill ended up passing, as expected, it did so essentially along party lines. Only two Democrats, Reps. David Scott of Georgia and Kyrsten Sinema of Arizona, voted in favor with all the committee’s Republicans – despite a major effort by Wall Street lobbyists. For weeks, they’d been telling reporters about a supposed wave of mounting support for their “bipartisan” measure, getting congressional allies like Rep. Tom Emmer, R-Minn., to spread the word in the press.

The very obvious intent of their proposal is to impede the consumer bureau’s ability to fight against abusive financial practices. To distract attention from this inconvenient truth, the bill’s defenders resorted to scaremongering. House Financial Services Committee Chairman Jeb Hensarling of Texas equated single-director leadership with North Korea, while Rep. Sean Duffy, R-Wis., called it “the Stalin model.” Both failed to mention that it was Republicans who called for a single director to head the Federal Housing Finance Agency, created in 2008, or that another bank regulator, the Office of Comptroller of the Currency, has functioned with a single director since 1863 with no calls from Congress to change it.

In the effort to gain support beyond the ranks of the usual Wall Street-friendly suspects, a few of the bill’s proponents even professed to be looking out for consumers’ interests to protect them from a hypothetical weak consumer bureau director appointed by a hypothetical future president. No actual consumer advocates have ever expressed such a concern, however: They know that an effective director some of the time is far better than a milquetoast commission all of the time.

The real impetus for this legislation comes, very obviously, from the financial industry lobby, which wants the change because it will make it easier for banks, payday lenders and debt collectors to engage in unfair, deceptive and abusive practices. And the industry is willing to spend huge amounts of campaign and lobbying money to get its way.

In 2010, Wall Street expended over $1 million a day seeking to block reforms, including the creation of the consumer bureau. That extraordinary rate of spending has continued, according to an Americans for Financial Reform report that covered the 2014 election cycle. A more recent report from the consumer advocacy organization Allied Progress shows that eight members of the House Financial Services Committee received donations from the payday lending industry within weeks of endorsing a previous attempt to subject the consumer bureau to rule by commission.

Last week, six major banking industry lobbyists did us all a favor by signing their names to a joint op-edopenly advocating for the commission bill. They claimed that they, too, were worried about what might happen, under continued single-director leadership, to “the [consumer bureau]’s work over the past four years.” Hearing that absurd argument from the leaders of trade associations that have opposed the bureau on issue after issue over the past four years made it clearer than ever that the push for a commission is just another piece of the industry’s strategy to roll back reform and revert to the unregulated havoc that brought us the financial crisis.

Warren put it best, telling The Huffington Post, “Give me a break – this is the wolves saying all they care about is Grandma.”

Of course, they won’t give us a break. The wolves of Wall Street will keep on trying to obstruct the consumer bureau’s important work in any way they think they can. But now more people will understand what’s at stake, and we can expect more people in and out of Congress to speak out and fight hard when this bill moves to the House floor and if and when it advances any further.

— Jim Lardner

Originally published on USNews.com

New Project Helps Bank Workers Blow the Whistle on Corruption and Abuse

New Whistleblow Wall Street Project

October marks the seven year anniversary of the passage of the Troubled Asset Relief Program (TARP), which bailed out the financial sector during the 2008 economic meltdown. Given that the nation’s biggest banks have only gotten larger since the financial crisis, accountability in the financial sector is more important than ever, and Wall Street’s employees can be a crucial part of making that happen. That’s why it is good news that an alliance of workers, advocates, and lawyers have come together to launch Whistleblow Wall Street, a new website that will make it easier to expose wrongdoing in the banking industry.

The website, which is a project of the economic justice non-profits The Other 98% and The Rules, aims to help bank employees learn about their rights as whistleblowers, find legal representation, and includes an encrypted secure drop to anonymously share information.

The 2010 Wall Street Reform and Consumer Protection Act created new protections for whistleblowers, including prohibitions on retaliation. But even with these new safeguards, it can be hard to figure out what to do with information about misconduct. So as a part of the launch, the Government Accountability Project, a not-for-profit legal organization specializing in whistleblowing cases, has volunteered to help anyone who is considering blowing the whistle, or who has already blown the whistle and needs help because of reprisal.

To draw attention to the campaign, a series of billboards are going up throughout the financial district in New York encouraging Wall Street employees to blow the whistle on abuse and corruption in their firms, with the message “See Something? Do Something!”. In addition, members of the Committee for Better Banks – a coalition of bank workers, advocacy and labor organizations working to improve conditions in the financial industry – will be handing out leaflets at financial centers in New York City, Washington D.C., St. Louis, and Orlando.

Former CitiBank executive Richard Bowen, who himself blew the whistle on subprime mortgage fraud, has urged fellow financial sector employees to not give in to “fear or a misplaced sense of company loyalty,” but instead to “Please, say something! Show personal integrity and report behavior that may be harming others.” The Whistleblow Wall Street platform aims to empower workers like Bowen to speak up when they see wrong-doing, so they can be part of making sure that abuses like those that that led to the last crisis are not allowed to flourish unchecked.

Reforming the Federal Reserve’s Bailout Authority

Senator Elizabeth Warren speaking at Cato/AFR event on reforming the Fed's bailout authority
On September 16th, Americans for Financial Reform (AFR) joined Senators Elizabeth Warren (D-MA) and David Vitter (R-LA) for an event at the Cato Institute about reforming the Federal Reserve’s bailout authority. The discussion focused on the Federal Reserve’s unprecedented use of its Section 13(3) emergency assistance authority to provide trillions of dollars in low-interest loans to Wall Street banks during the crisis, as well as the new limits put on that authority in the Dodd-Frank Act.

AFR's Policy Director Marcus Stanley speaks about reforming the Fed's emergency lending powers.

AFR’s Policy Director Marcus Stanley speaks about reforming the Fed’s emergency lending powers

The first panel, moderated by Ylan Mui of the Washington Post, featured AFR’s policy director Marcus Stanley, and Phillip Swagel of the University of Maryland.

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Ferguson Report Cites Payday Lending as a Key Economic Barrier

Better to go without electricity, says Cedric Jones, than take out a payday loan to keep the lights on. Jones is one of the Ferguson, Missouri, residents quoted in Forward through Ferguson, the just-released report of a commission appointed by Governor Jay Nixon to conduct a “thorough, wide-ranging and unflinching study of the social and economic conditions that impede progress, equality and safety in the St. Louis region.”

In a document largely concerned with law enforcement, the authors identify predatory lending as a significant barrier to racial justice. (See pages 1, 49, 50, 56, 130 and 134 of the report.) “Low-income households in Missouri with limited access to credit frequently seek high-cost ‘payday’ loans to handle increasFerguson Findingsed or unexpected emergency expenditures,” they write. “These lenders, who are often the only lending option in low-income neighborhoods, charge exorbitant interest rates on their loans.”

The average annual interest rate for payday loans in Missouri was well over 400 percent in 2012, according to data cited in the report. That’s a higher rate than in any of Missouri’s eight adjacent states. As Cedric Jones told the commission, “If you borrow $500 with an installment loan from a payday loan place, the loan is 18 months. If you take it the whole 18 months, you pay back $3,000… Six times the amount… And if you’re poor to begin with you can get stuck in those things and never, never get out of it.”

A family with a net income of $20,000 could pay as much as $1,200 a year in fees and interest associated with exploitative “alternative” lending products, the report observes, pointing to research done by Federal the Reserve in 2010. The report urges action at both the state and federal level to “end predatory lending by changing repayment terms, underwriting standards, [and] collection practices and by capping the maximum APR at the rate of 36 percent.”

CFPB Stands up for Servicemembers by Stopping Financial Company Abuses

Over the last few months, the CFPB announced enforcement actions against two companies that repeatedly targeted servicemembers with abusive products. The first company, Fort Knox National, and its subsidiary, Military Assistance Company, charged servicemembers recurring hidden fees by abusing a payment system many servicemembers use send money home or pay creditors while deployed.  This process, known as the military allotment system, deducts payments directly from earnings. In this case, it also allowed the company to charge repeated, undisclosed fees to servicemembers’ accounts. The company also made it extraordinarily difficult to learn of these fees: online account information did not include fee charges, and monthly statements were not distributed.  As a result, tens of thousands of servicemember accounts were drained of millions of dollars in fees. The CFPB is now requiring the company to pay $3.1 million in relief to the people they harmed, as well as to stop its deceptive practices.

The CFPB also brought an enforcement action against Security National Automotive Acceptance Company, an auto lender, for illegally threatening current and former servicemembers in order to collect debts. The CFPB is charging the company exaggerated the potential disciplinary action that servicemembers could face after failing to pay their loans; contacted and threatened to contact commanding officers to encourage repayments, threatened to garnish wages, and threatened borrowers with legal action. The Bureau’s lawsuit charges that the company violated the Dodd-Frank Act prohibitions on unfair, deceptive and abusive practices and it is seeking financial penalties, an injunction from further abuses and compensation for victims.

Because servicemembers and their families receive steady paychecks and have unique financial challenges such as lengthy deployments and frequent moves, they are all too often the target of predatory lenders and other financial fraudsters that congregate outside military bases.

With these two actions, the CFPB has now brought six enforcement cases against companies that have violated servicemembers rights.  Those and other enforcement actions can be seen here. To date, more than 100,000 servicemembers have been helped by the Bureau’s work to protect servicemembers from financial abuse and the companies responsible have been hit with fines and restitution charges of over $100 million total.

For more on the CFPB’s work to help servicemembers, see this fact sheet.

— Rebecca Thiess

CFPB Takes on Payment Processors for Facilitating Fraud

The CFPB recently brought legal action against a number of companies, including Universal Debt & Payment Solutions, for defrauding consumers by using threats, deception, and harassment to collect “phantom debts” that the consumers did not owe to the collectors or, in most instances, to anyone else.   In this instance, consumers collectively paid millions of dollars to the debt collectors after being subject to illegal threats and false statements, including threats of arrest or wage garnishment.  In some cases, the phony collectors took money out of consumers’ accounts without any authorization at all.

In a noteworthy move, the  CFPB’s complaint named not only the debt collectors, but also the various companies alleged to have been “service providers” to the debt collectors—those serving as payment processors, without whom the scammers could not have collected the consumer’s debit and credit card payments. With this enforcement, the CFPB is insisting that payment processors—and not just the companies directly dealing with consumers—are also subject to its enforcement authority under the Consumer Financial Protection Act (CFPA).

The Bureau’s complaint charges that while the debt collectors in this case were guilty of threatening and intimidating consumers over debts that were falsely claimed to be owed, the payment processors were also in the wrong for their role in facilitating the debt collectors’ actions in this scheme—ignoring clear signs that the collectors were committing fraud.

In one example that the complaint highlights, two payment processors, Global Payments and Pathfinder, ignored extremely high chargeback rates.  (‘Chargebacks’ occur after a consumer successfully disputes a charge as unauthorized or otherwise improper and the payment is reversed.)  Chargebacks are rare in legitimate card transactions, and every chargeback requires an inquiry.  The major debt collection company in this suit as well as an affiliate had chargeback rates of close to 30% in some months, rates that should have prompted termination of the processing agreement.  Another payment processor, EMS, ignored complaints from consumers who reported unauthorized payments taken out of their accounts and fraud detection reports that flagged the collectors because there was “[n]othing found to confirm the existence of the business.”

The CFPB’s actions in this case are in some ways similar to steps the Department of Justice has taken though Operation Choke Point, where the DOJ is holding banks responsible for processing payments despite evidence of fraud or other illegal activity.  All three DOJ cases filed as part of Operation Choke Point are instances – like this one – in which the banks or payment processors in question knowingly facilitated illegal activity that did serious harm to consumers.  See this new fact sheet from NCLC outlining the three cases brought by the Department of Justice, against CommerceWest Bank, Plaza Bank, and Four Oaks Bank & Trust.  Banks and payment processors that comply with their responsibilities to know their customers and look out for signs of fraud, as most do, play important roles in safeguarding consumers.  Actions by the CFPB and DOJ against banks and payment processors who enable fraud are critical to cut off fraudsters from access to the payment system.

— Rebecca Thiess