Rep. Mulvaney is the Wrong Choice for OMB–Two Constituents Say Why

Rep. Mick Mulvaney, Donald Trump’s choice to oversee the federal budget, said he hears only complaints about the Consumer Financial Protection Bureau (CFPB). That could be because he is listening to the financial services lobby, not the ordinary Americans the agency has helped.

The South Carolina Republican, whom Trump has nominated to head the Office of Management and Budget, went on a tirade during his confirmation hearing this week, calling the CFPB “the very worst kind of government entity.”

That was a surprise to South Carolinians who actually like the idea that there’s an agency in Washington fighting to make financial companies follow the law and treat people fairly.

The CFPB recently sued Navient, the nation’s largest student loan servicer, alleging that the company handled borrowers so unfairly that they ended up paying far more than was necessary. Having an ally against a big company, it turns out, is comforting to some South Carolinians.

Amanda Green of Rock Hill, South Carolina, said Mulvaney’s comment proves he’s “disconnected” from what worries people like her, a client of Navient.

“I am currently repaying my student loans to Navient, and having learned of the CFPB’s action against them, am comforted in knowing this happened.”

Standrick Jamarr Rhodes of Lancaster, South Carolina, has struggled to repay student loans as an elementary school teacher. He’d never heard of the CFPB until they sued Navient.

“To learn that I may have been cheated in that process and that there is an agency looking out for me is a relief,” he said. “Our representatives are not only wrong with comments attacking the consumer agency, but are the prime reason why I often feel government doesn’t work for people. This agency clearly does.”

The CFPB works. Rep. Mulvaney is wrong. #DefendCFPB and reject the #SwampCabinet

Treasury Nominee Is a Foreclosure King, a System Rigger, and a Disaster Profiteer

Steven Mnuchin is an emblematic beneficiary of a rigged system, who has made an extraordinary amount of money by virtue of insider advantage and willingness  to use it to take advantage of vulnerable people.

Mnuchin’s early years were spent following a path paved by his father, from Yale to Goldman Sachs.

At Goldman Sachs, he helped build the market for risky mortgage products from the ruins of the S&L crisis of the 80’s.

  • He spent his years at Goldman earning how to “profit from the savings and loan crisis of the 1980s by buying the assets of capsized banks on the cheap,”[1] trading the very products that would cause the massive foreclosure crisis from which he would later profit.
  • He was “front and center for the advent of instruments like collateralized debt obligations (CDOs) and credit default swaps (CDSs).”[2], which he described as ‘an extremely positive development.’
  • Mnuchin left Goldman with $46mm to try as a hedge fund manager to capitalize on the new financial markets he’d spent his career building.

After leaving Goldman, he leveraged relationships with wealthy friends to float through some cushy jobs.

Mnuchin’s time at his own hedge fund – Dune Capital Management – had all the hallmarks of the boom years:

  • Becoming entangled with Bernie Madoff’s notoriousponzi scheme – and getting out with millions in allegedly ill-gotten profits shortly before its collapse.
  • Flirting with some of the most unsavory crisis-era financial products such as the macabre Life Settlement contracts, which made bets on the life insurance policies of the elderly.

Mnuchin’s hedge fund, and Mnuchin himself, became best-known as a Hollywood producer and financier.

Dune and Mnuchin were embroiled in scandal through their web of relationships with the bankrupt and currently-under-investigation entertainment company Relativity Media.

  • Dune invested millions in the Hollywood media firm Relativity Media, and Mnuchin served as co-chairmain of its board. During Mnuchin’s tenure, Relativity also borrowed heavily from Mnuchin’sOneWest Bank. Relativity ran into serious financial trouble, ultimately filing for Bankruptcy protection in 2015. Just months earlier,  Mnuchin abruptly resigned from the board, and shortly afterward OneWest swept millions from Relativity’s bank accounts. Relativity was accused by creditors, who lost millions, of essentially being a Ponzi scheme, and is currently the subject of an FBI Investigation.

When the financial crisis hit in 2008, Mnuchin was sought to capitalize on the unfolding disaster.

Armed with a cadre of billionaire friends and an intricate knowledge of exotic financial instruments, Mnuchin struck a deal that would quickly make him the Foreclosure King.

IndyMac, the large west-coast mortgage lender that specialized in the the most toxic kinds of loans, had failed and was taken over by the FDIC, which was desperately seeking a buyer to take on the hundreds of thousands of mortgage loans in its portfolio.Mnuchin swooped in and in 2009, his group purchased most of IndyMac’s $23.5 billion of assets and re-named it OneWest Bank in a deal that kept the FDIC on the hook for billions in losses.

As the foreclosure crisis deepened across the country, OneWest got to work trying to maximize the profit from IndyMac’s books, which included the thousands of residential mortgages. It dedicated most of its resources to- and derived most of its profit from – pushing IndyMac’s base of troubled homeowners into foreclosure,  exacerbating the foreclosure crisis in the process.

Although the loss-sharing deal crafted with the FDIC was meant to encourage loan modifications and payment plans that could keep homeowners in their homes, OneWest found it more profitable to foreclose on more than 50,000 homeowners, often aggressively and even illegally.

Mnuchin foreclosed on thousands, becoming known as the Foreclosure King

While foreclosing on tens of thousands of homeowners, OneWest earned a reputation for widespread malfeasance:

  • OneWest was at the center of the Robosigning scandal, which revealed how OneWest rushed homes through the foreclosure process by using fraudulent documents and doctored paperwork
  • The California department of Justice found evidence of widespread misconduct, including fraud, tax evasion, and violation of other state laws

Mnuchin’s foreclosure practices also targeted vulnerable communities:

  • The Elderly – OneWest preyed on the elderly through their Reverse Mortgage unit, which foreclosed on over 16,000 elderly homeowners in California alone, accounting for 40% of all CA reverse mortgage foreclosures.
  • Communities of Color Targeted communities of color, with ⅔ of their foreclosures occurring in these neighborhoods in addition to evidence of redlining throughout their districts.
  • Servicemembers Nearly a quarter of the $8.5 million federal authorities ordered OneWest to pay in compensation for thousands of cases of foreclosure misconduct went to Servicemembers, who has been illegally foreclosed on in violation of specific laws protecting them from abuse.
  • Hurricane Sandy VictimsOneWest blocked the release of millions in aid due to the victims of Hurricane Sandy, and was found to be one of the worst offenders in an investigation by New York State authorities

Foreclosure was the first choice not the last resort for OneWest bank:

Despite federal programs to incentivize loan modifications and keep struggling families in their homes, OneWest only completed modifications for 23,000 – they evicted more than twice as many people as they completed modifications for.

There is, however, one example of a loan Mnuchin was willing to modify in the face of  borrower financial distress: Donald Trump, who sued Dune in 2008 to modify a loan he’d received for Trump Tower in Chicago.

Mnuchin Cashed out of OneWest, and sets sights on loftier goals.

In 2015 – after paying themselves $1.5bn in dividends – Mnuchin and the investors sold OneWest to CIT Group for $3.4bn.Mnuchin personally made hundreds of millions on the deal. The sale faced strenuous opposition from community groups, and scores of OneWest foreclosure victims shared stories of the terrible impact of the  bank’s abuse and misconduct.

[1] https://www.bloomberg.com/politics/articles/2016-08-31/steven-mnuchin-businessweek

[2] https://www.bloomberg.com/news/articles/2012-03-22/from-indymac-to-onewest-steven-mnuchins-big-score

A big reminder of why we need stronger rules for debt collectors — and the CFPB to write and enforce them

A lawsuit filed by the CFPB earlier this month underscores the importance of its efforts to take on the abuses of the debt-collection industry, both by enforcing the law, and through a rulemaking process that is already underway.

The lawsuit – against two debt-collection magnates operating out of Buffalo, N.Y. – involves a nationwide operation that is said to have engaged in outrageous practices, causing massive harm to millions of people. In its filing, the Consumer Bureau describes the two men, Douglas MacKinnon and Mark Gray, as the “ringleaders” of a network of companies that “harassed, threatened, and deceived” consumers, making tens of millions of dollars a year in the process. Since 2009, the action charges, McKinnon, Gray and their companies have been buying up payday loans and other defaulted debt for pennies on the dollar, routinely adding $200 to each acquired debt (regardless of whether the law allows that), and using a variety of illegal practices to collect. Some consumers have reportedly been pressured to pay as much as six times more money than they really owed.

Employees of MacKinnon’s and Gray’s companies, the lawsuit charges, impersonated law-enforcement officials (sometimes using “call-spoofing” programs to create the impression that they were phoning from government offices) and threatened legal action they had neither the power nor the intent to actually take – arresting a consumer for “check fraud,” for example.

According to the suit, MacKinnon and Gray manage three Buffalo-based debt collection companies – Northern resolution Group, LLC (NRG), Enhanced Acquisitions, LLC (Enhanced), and Delray Capital, LLC (Delray), and have set up a network of at least 60 firms “to collect on the debt portfolios that NRG, Enhanced, and Delray purchased.” The defendants directed and encouraged these illegal acts, and profited significantly from them, the lawsuit holds, adding that “tens of millions of dollars annually” were “funneled back to MacKinnon, his relatives, and Gray through payments to various sham companies controlled by them.

The lawsuit charges MacKinnon and Gray with violating the Fair Debt Collection Practices Act and the Dodd-Frank Wall Street Reform and Consumer Protection Acts, which prohibit unfair and deceptive acts or practices in the consumer financial marketplace. The Bureau is seeking to shut down their operation and secure compensation for victims as well as a civil penalty against the companies and its partners. “[T]his suit sends the message that debt collectors that employ abusive tactics will be held accountable,” New York Attorney General Schneiderman said in a joint announcement of the action.   — Veronica Meffe

 

Wall Street Sets Political Outlay Record

Wall Street will set still another record for political spending this election cycle.

So far in 2015 and 2016, banks and financial interests have put more than $1.4 billion into efforts to elect and influence holders of national political office, according to Wall Street Money in Washington, a new report released this week by Americans for Financial Reform based on data compiled by the Center for Responsive Politics.

That spending total works out to more than $2.3 million a day!

Financial sector companies, employees, and trade associations have reported making nearly $800 million in campaign contributions since the start of 2015, more than twice the spending level of any other specific business sector in the Center for Responsive Politics database.

Some of the financial industry’s biggest donors have been hedge funds, with James Simons’ Renaissance Technologies and Paul Singer’s Elliot Management leading the way at $37.5 million and $20.2 million respectively. Of the campaign contributions that can be clearly linked to one political party or the other, 61 percent have gone to Republicans and 39 percent to Democrats.

The financial industry’s expenditures – about $667 million through the second quarter of 2016 – place the sector in third place, behind a category of “Miscellaneous Business” companies and trade associations at $780 million and health-related companies at $775 million.

These figures do not count much of the so-called “dark money” contributed to nonprofits that engage in political advocacy or the money spent on lobbying-related research and support activities. Nor do they include spending by “Miscellaneous Business” entities like the U.S. Chamber of Commerce, a national business group that lobbies extensively on financial issues.

afrgraph

Wall Street political spending has increased sharply since 2009 and 2010, when industry forces were trying to blunt or defeat the reform legislation that came to be known as Dodd-Frank. The legislation was eventually enacted over industry objections in 2010, but that just marked the end of one chapter and the beginning of another.

Since Dodd-Frank’s passage, big banks and other financial interests have been working nonstop to block, delay, and weaken important elements of that law – as well as the agencies responsible for carrying it out. At the same time, they’ve also been working to stymy efforts in Congress to move forward on the next steps needed to make sure Wall Street serves Main Street, instead of continuing to put us all at risk.

Another new AFR report, Where They Stand on Financial Reform: Votes Cast in the 114th Congress, details many of the financial industry’s latest efforts to avoid needed reform. Wall Street has enjoyed some real success in this lower-visibility phase of the battle, using a “must pass” 2014 budget bill, for example, to repeal an important provision of Dodd-Frank and let big banks go back to using insured deposits and other taxpayer subsidies to gamble on the riskiest of financial derivatives.

Since 2010, Wall Street-backed deregulation proposals have continuously clogged the legislative pipeline. In the current Congress alone, lawmakers friendly to Wall Street have introduced 10 separate legislative proposals to limit the authority or political independence of the new Consumer Financial Protection Bureau.

Meanwhile, despite polls that show lopsided majorities of Republicans as well as Democrats and Independents favoring tougher Wall Street regulation, Congress has yet to vote on a single bill that would move things in that direction.

The $2.3 million a day Wall Street executives are spending on politics certainly rates as a lot of money. But measured against the many special privileges that the financial industry and its execs continue to enjoy, that expenditure amounts to a smart investment – for Wall Street.

Originally posted at inequality.org

The Fed Begins to Crack Down on Bank Ownership of Commodities

On Friday, the Federal Reserve finally responded to years of calls to re-examine the role of big banks in commodity markets. Numerous observers, ranging from Senate investigators to regulators, have found evidence that banks have manipulated these crucial markets.  Sherrod Brown, the Ranking Member of the Senate Banking Committee, has been a leader in the effort to control bank commodity activities, holding multiple hearings on the issue and urging the Federal Reserve to implement rules limiting bank commodities activities. Americans for Financial Reform has also called on the Fed to take strong action to establish firewalls between banking and commodity markets.

The Federal Reserve has now advanced a real proposal to limit commodities involvement by banks. The proposal substantially increases capital charges for commodities holdings by banks, meaning that banks will have a significant economic incentive to exit these markets. It also improves disclosures and bans banks from a number of specific commodity markets activities that permit control of commodity supplies, including directing the specific activities of storage and transportation facilities, and being involved in energy management and tolling. All of these activities have been linked to commodity market manipulation.

Along with the Federal Reserve’s recent report on the activities and investments of supervised banks, which recommended that Congress place additional limits on bank activities in commercial markets, this proposal indicates that the Fed is finally taking more seriously the need to restructure banks to better comply with the separation between banking and commerce that is laid out in the Bank Holding Company Act and a long tradition of American banking law. While these measures are still too limited to reverse the enormous expansion of universal banks that has taken place over the last few decades, they are a good step.

Why can’t we get a vote on the one thing the parties agree on?

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Some of the rousers of rabble with Take on Wall Street delivering petitions outside of Representative Jeb Hensarling’s office.

When the two parties adopted their platforms this summer, observers noted that the Democratic platform was possibly the most progressive platform in the recent history, while the Republican platform lurched even further to the right on a number of issues.

But on one topic (you’ll be surprised which), they actually agreed: Breaking up too big to fail banks. Both parties’ platforms include calls to re-instate the Glass Steagall firewall between boring banking (you know, lending money to people and businesses) and risky casino-style investment banking (think “credit default swaps”).

Election day is fast approaching and Congress’s approval rating has barely improved from a few years back when it lagged behind root canals.  So  you’d think agreement on a major policy — particularly one with broad and deep public support — might be occasion for swift enactment of a bi-partisan bill. Indeed, the 21st Century Glass-Steagall Act is championed by  both Elizabeth Warren and John McCain, popular leaders in their respective parties. Instead, with Congress set to adjourn this week until after election day, Congressional leaders have yet to take a single step to live up to the words of their platforms.

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What should be done to stop banks like Wells Fargo from scamming us?

Image via Peg Hunter (CC BY-NC 2.0) / Cropped from original

Wells Fargo’s CEO John Stumpf deserves every bit of the anger that the Senate Banking Committee directed at him for leading Wells Fargo while it created more than 2 million fake deposit and credit-card accounts, and then charged unknowing customers for them.

Stumpf has tried to lay the blame at the feet of workers. But this was not the behavior of a few out-of-control workers. The problem was systematic, and it followed from Wells Fargo’s use of high-stakes sales quotas for its employees. As the Los Angeles City Attorney’s office explained in its lawsuit, these quotas were often impossible to fulfill, and yet employees who fell short were often fired.

But Wells Fargo’s failure points to a broader problem. After all, this is hardly the first time Wells has faced scrutiny for illegal acts. As Senator Sherrod Brown (D-OH) pointed out, this is only one of 39 enforcement actions that Wells has faced in the last ten years.

Wells Fargo has racked up over $10 billion in fines for offenses from racial discrimination in mortgage lending, tomortgage fraud, to violations of the Americans with Disabilities Act.

So what should be done to stop banks from scamming us? Americans for Financial Reform has five specific proposals.

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Wells Fargo execs should not profit from the company’s misdeeds

Last week, we learned from an important joint enforcement action by the CFPB, OCC and Los Angeles City Attorney that Wells Fargo had opened accounts for 2 million customers without their consent. Bank employees had been pressured to do so by aggressive sales quotas that could not be met through actual sales. This week, we are appalled by the further news that the executive who oversaw the unit responsible for this fraud was not fired, and in fact is retiring with nearly $125 million in compensation.

Regulators have a tool in front of them to make it harder for bank executives to get away with giant pay packages in cases of lawbreaking and abuse. Section 956 of Dodd-Frank and Section 39 of the Federal Deposit Insurance Act give the watchdogs a mandate to stop banks from rewarding executives for practices designed to produce short-term gains with long-term risks. The regulatory agencies should exercise their existing authority to compel banks to use pay-clawback mechanisms, and they should make sure the final rule implementing Section 956 requires banks to take back pay from executives who oversee lawbreaking. In addition, the CFPB and OCC should refer their findings to the Department of Justice for a full investigation.

In the meantime, it is important that the penalties resulting from the illegal activity at Wells fall on the executives responsible for putting an abusive system in place and allowing it to continue. Wells Fargo and its CEO John Stumpf should claw back the $125 million going to the company’s head of consumer banking, Carrie Tolstedt, who supervised the employees directly engaged in these illegal acts. The company should also recover the bonuses received by Stumpf himself during the time period covered by the abuses. This money should be used to pay the penalties and refunds.cfp

Dangerous House Bill to Deregulate Private Equity Could Enable New Fraud

At a time when private equity funds are in the news and under scrutiny by the regulators, the House is set to consider a bill that rolls back the clock to a time when private fund advisers operated in the shadows, without meaningful oversight.

The Investment Advisors Modernization Act of 2016 (H.R. 5424) would allow private funds to evade SEC examinations, and to distribute misleading and even fraudulent advertising materials. The bill also allows private funds to evade SEC examinations, and to distribute misleading and even fraudulent advertising materials. In addition, it eliminates key systemic risk information for regulators by dramatically reducing the number of funds who must report complete information on their leverage and holdings on a confidential form (Form PF) used to track risks to the financial system. Finally, the bill exempts private equity firms and hedge funds from having to provide independent confirmation that they own the securities they claim to own – a change that could open the door to the next Madoff-style Ponzi schemes.

This dangerous deregulation would put at risk the retirement savings of teachers, firefighters, police officers, and other public servants who rely on the one-quarter of funding from private equity funds in public pensions. We expect this bill will be considered by the full House of Representatives this Friday, September 9th.

The SEC has found serious investor protection issues at over half of the private equity funds they have examined. And private equity funds have come under additional scrutiny by the agency in recent weeks for disclosure violations and possible illegal fee practices. Yet the H.R. 5424 seeks to take away the very tools the SEC uses to oversee these funds.

Two of the country’s largest pension funds, CalPERS and CalSTRS, oppose the bill, as does the Council of Institutional Investors, an association of corporate, public and union employee benefit funds and endowments. Americans for Financial Reform has also publicly opposed the bill, as has the AFL-CIO and UNITE HERE.

We have compiled below letters of opposition to this dangerous bill, along with recent press stories highlighting investigations into and abuses by the private equity industry.

Opposition letters and other documents discussing H.R. 5424:

Recent press coverage on investigations and abuses in the private eduqity and hedge fund industry:

Three-part NYTimes series on Private Equity:

Private Equity Tries to Chip Away at Dodd-Frank With House Bill | NYTimes | September 8, 2016

Apollo to pay SEC $52.7 million for disclosure violations | PoliticoPro | August 23, 2016

SEC Probes Silver Lake Over Fees | WSJ | August 19, 2016

Platinum [Partner]’s California Oil Fields Said to Be Subject of Probe | Bloomberg | August 11, 2016

This Is Your Life, Brought to You by Private Equity | NYTimes | August 1, 2016

Private Equity Funds Balk at Disclosure, and Public Risk Grows | NY Times (Gretchen Morgenson) | July 1, 2016

HR 5424, “Investment Advisers Modernization Act,” a “Get Out of Madoff and Other Frauds for Free” Bill, Passes Financial Services Committee | Naked Capitalism | June 17, 2016

Past AFR letters regarding abuses at private equity firms:

Hard-sell Banking

At a briefing organized by Communications Workers of America and the Committee for Better Banks in the Rayburn House Office Building, a panel of front-line bank workers and representatives from Americans for Financial Reform (AFR) and the National Employment Law Project (NELP) discussed the banking industry’s growing use of aggressive sales quotas and their dangerous consequences. The event marked the release of a NELP report, Banking on the Hard Sell: Low Wages and Aggressive Sales Metrics Put Bank Workers and Customers At Risk. The panel was convened by Representative Keith Ellison (D-MN) and drew a capacity crowd that included several members of the House Progressive Caucus.

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The bank worker panelists, representing varied regions of the country and a number of large financial institutions, told similar stories about the toxic work environment created by practices designed solely to provide maximum profit margins for the banks. Khalid Taha, an Iraqi immigrant to the United States, imagined his job with Wells Fargo as the fulfillment of the American dream; but it turned into a nightmare, he testified, when the cumulative pressure of persuading multiple customers to open new banking accounts every day led to his hospitalization for exhaustion.

The bank employees spoke of their commitment to quality customer service and their dismay at being compelled to engage in transactions they knew would result in great financial damage to consumers. Modern bank teller positions are entirely “sales oriented,” said Oscar Garza, who worked at JP Morgan from 2010 to 2012. Garza testified that he and other JP Morgan workers were instructed to open new accounts at “any cost” and even to falsify financial information to help customers qualify for loans. Similarly, the bank employees explained that quotas and incentives mandated by corporate offices tacitly encourage deceptive behavior. Cassaundra Plummer, formerly an assistant sales teller at a Maryland branch of TD Bank, remembered her manager’s instructions to “only focus on the positives” rather than fully explain the terms of the financial products she was supposed to be selling.

DSC_4669Banking on the Hard Sell includes many more personal accounts like these. Caitlin Connolly, the Coordinator of NELP’s campaign on sales quotas, emphasized the need for additional regulations to address the issue of aggressive bank sales tactics. The 2008 financial crisis stirred significant public discussion of the behavior and business practices of big banks, Connolly noted; but attention hasfaded since then, she said, with bad implications for bank employees and consumers alike.

A majority of the bank employees at the hearing said they had no knowledge of the consumer protections and other provisions of the Dodd-Frank Act – the landmark financial-reform measure enacted in the aftermath of the 2008 financial crisis.

The last panelist, Brian Simmonds Marshall, Policy Counsel for AFR, pointed out that federal regulators have taken significant steps under Dodd-Frank to prohibit compensation practices that could encourage risky or deceptive behavior on the part of high-level bank executives; the NELP report and the testimony of the bank employees, he said, underscore the need to apply the same kind of scrutiny to the compensation and
management of front-line bank workers. Financial oversight agencies, Marshall said, should not just be looking for violations of the rules, but for the root causes of those violations.

Following the briefing, bank employee panelists, along with AFR and NELP staff, held individual meetings with regulators at the Office of the Comptroller of the Currency and the Consumer Finance Protection Bureau to further discuss the issues raised at the event.