CFPB Remittance Rules Go Into Effect This Week

New protections are now in place for people wiring money overseas. Consumers need to know about these safeguards, so they can exercise their rights, get the information to shop for the best prices, and make sure their hard-earned money ends up where they mean for it to go.

The Dodd-Frank financial reform law of 2010 called for these new remittance rules, and the Consumer Financial Protection Bureau is implementing them. The rules apply to transfers of $15 or more handled by a bank, thrift, credit union, or remittance company. Payment processors will have to do three things that were not previously required:

  1. Provide prepayment disclosure of most fees, taxes and the exchange rate (or in some cases an estimate of the exchange rate), enabling customers to know how much the process costs, and how much the people on the other end of the transaction will actually receive – before they decide how to send the money.
  2. Allow most customers at least half an hour to cancel a payment without charge.
  3. Set up a complaint system with a timeline, and assume responsibility for abuses or mistakes committed by their agents. In short, if the money never reaches the specified destination, that simple fact will now be grounds for consumers to get a refund.

Why Is 1.5 Million Tons of Aluminum Sitting in Warehouses Owned by Goldman Sachs?

Americans have learned a lot in recent years about how our largest financial institutions make their money. But few would have imagined that a million and a half tons of aluminum – a quarter of the national supply at any given moment – typically sits in a network of 27 Detroit warehouses owned by Goldman Sachs. And hardly anyone would have thought that manufacturers seeking to purchase that aluminum might wait 18 months or more for delivery, while warehouse owners like Goldman Sachs collect additional rent, paid for by consumers of aluminum products ranging from beer cans to home siding.

In an important hearing yesterday before the Senate Banking Committee, Tim Weiner of MillerCoors described the operation and how it boosts prices for real-economy companies. The witnesses at yesterday’s hearing explained how the largest Wall Street banks have accumulated massive amounts of physical commodity infrastructure, ranging from warehouses to oil tankers to power generation plants.

Supply bottlenecks in bank-owned warehouses are only one part of the story. Banks are central players in the financialization of commodity markets, the treatment of physical commodities as purely financial assets to be manipulated for trading and investment purposes, rather than inputs for the real economy.

The original purpose of markets in commodities and commodity derivatives was to ensure steady prices and consistent availability for real-economy users of commodities. But the selling of commodities as an inflation hedge and a retirement asset (over $440 billion in investor money has poured into commodity investment funds since 2004, as opposed to just $25 billion into equity funds) has transformed these markets, increasing price levels and price volatility, and opening up many opportunities for manipulation.

Some of the richest opportunities for such manipulation lie in combining control of physical commodities with dominance of commodity derivatives and futures markets. The major banks are, of course, key dealers in these derivatives markets. Control of physical commodities allows them to both forecast and influence the spot commodity prices that can determine derivatives pricing. Indeed, some observers have pointed out that bank involvement in warehousing has allowed them to conceal information from the markets on the true supply of physical commodities, creating market squeezes and artificially fueling investor appetite for commodity futures.

Big financial players are constantly seeking new ways to take advantage of this nexus. For example, the Securities and Exchange Commission recently approved the applications of JP Morgan and BlackRock for exchange traded funds (ETFs) that will be backed by physical copper. These funds will store physical copper in bank-owned warehouses to back investor shares in the ETF – potentially creating an investor-funded squeeze in the physical copper markets that would raise commodity prices and make market manipulation easier.

The potential conflicts of interest and opportunities for manipulation created by the combination of a dominant position in derivatives markets and a dominant position in actual commodity infrastructure are one reason why the traditional division between banking and commerce makes sense. Banks have a central role in the economy, thanks to their key position in the financial markets, their enormous balance sheet resources supported by leverage levels available to no other industry and their privileged access to liquidity. Unless the scope of their activities is restricted, they have too many opportunities for abuse of market power. As law professor Saule Omarova testified yesterday, Americans have traditionally viewed “large aggregations of financial power in the hands of a few money trusts with great suspicion.” Such aggregation of power is the inevitable result of a failure to separate banking and commerce.

Regulators and legislators can and should take action to limit bank involvement in physical commodities:

  • With increased public scrutiny of the issue, the Federal Reserve announced last Friday that it will review and reconsider its 2003 decision on the scope of commodity activities that it defines as “complementary” to banking and therefore permissible for banks. Reconsideration should lead the Fed to place stricter limits on bank commodity activities.
  • Both regulators and Congress need to reexamine the interpretation and impact of the “grandfathering” provision in the 1999 Gramm-Leach-Bliley Act. Goldman Sachs and Morgan Stanley, who only converted to financial holding companies in 2008, will likely try to rely on this provision to argue that they should be allowed to continue commodity activities.

Regulators and Congress also need to establish clear responsibilities for preventing manipulation of physical commodity markets. Right now, it’s not clear who has this job. The prudential banking regulators do not see the integrity of commodity markets as part of their mandate, even though the institutions they regulate have enormous capacity to manipulate these markets. The Commodity Futures Trading Commission regulates commodity derivatives markets, but not the markets for physical commodities. The Federal Energy Regulatory Commission does regulate spot markets in energy, but not in other physical commodities. The Securities and Exchange Commission regulates securities markets but not commodity markets. And the Justice Department has generalized anti-trust authority to prevent abuse of market power, but lacks the depth of experience and resources to provide a consistent presence policing commodity markets. It’s crucial to get a cop on this beat.

— Marcus Stanley

Originally published on USNewscom.

Senator McConnell Says We Shouldn't Have a CFPB at All

By Ed Mierzwinski (U.S. PIRG)

Senator Mitch McConnell (KY) told Wall Street and other bankers yesterday that “If I had my way, we wouldn’t have the [CFPB] at all.”

McConnell has been leading a group of 43 Senators — under Senate rules, a minority of 41 or more Senators can block action — who are demanding gutting changes to the Consumer Financial Protection Bureau’s funding, authority, structure and independence as their price to confirm the CFPB’s well-qualified director, Rich Cordray, to a full term.

Of course, no one has forgotten the spectacular financial collapse caused by Wall Street shenanigans and a lack of regulation. It shouldn’t be that hard to recall; it happened just five years ago and the economy is still recovering. Even Senator McConnell and his Wall Street patrons haven’t forgotten; they simply don’t like Wall Street reform. They want a return to the old unregulated days when bankers could take risks without responsibility. The result? They destroyed the lives of millions of Americans who lost jobs or homes or retirement savings or all three.

That’s why the American Bankers Association (yesterday’s venue for McConnell), the Financial Services Roundtable, the U.S. Chamber of Commerce, the Securities Industry and Financial Markets Association and many, many other powerful special interests continue to attack and delay every new public protection enacted in the 2010 Wall Street Reform and Consumer Protection Act.

And while they are fighting the Volcker rule to limit risky betting by commercial banks using other peoples’ money, opposing full restitution to the homeowners that they wrongly foreclosed on (while bouncing some of the checks they actually do send them) and even challenging the extremely modest SEC rule that would require them to disclose the ratio between the pay of their CEO and their median (meaning half make more, half make less) employee , their strongest opposition is reserved for the very idea of the CFPB. What’s the CFPB? It’s our first and only federal financial agency with just one job, protecting consumers, no matter where they buy their financial products.

What are some of the protections we wouldn’t have at all, if Senator McConnell and Wall Street have their way and we didn’t have a CFPB at all?

Protections consumers wouldn’t have at all, if we didn’t have a CFPB at all: Nearly half a billion dollars in refunds from big credit card companies Capital One, Discover and American Express — all sued by the CFPB for unfair practices, including the marketing of supposedly-free useless credit card add-ons.

Protections veterans and servicemembers wouldn’t have at all, if we didn’t have a CFPB at all: A special team of advocates and investigators looking out for service members and veterans, and going after those who systematically target them with financial scams, illegally foreclose on them or hustle them into sleazy for-profit school contracts.

Protections consumers wouldn’t have at all, if we didn’t have a CFPB at all: The CFPB’s complaint system and public database of consumer complaints. The CFPB’s complaint system has been widely praised for delivering swift and serious results. In the early going, more than half of those using the system for credit-card complaints received monetary relief. The public database ensures a swift response to complaints (no company wants to be Number One on this list!) and enables academics and other researchers to probe the problems that plague financial markets and suggest priority solutions.

Protections senior citizens wouldn’t have at all, if we didn’t have a CFPB at all: An Office of Older Americans, helping them with investment choices and going after “clever scam artists or desperate family members targeting you because of your home equity or net worth.”

Protections consumers wouldn’t have at all, if we didn’t have a CFPB at all: A federal regulator with the authority to supervise (or examine) payday lenders, mortgage companies and private student lenders of any size, and, so far, also larger credit bureaus and debt collectors, with larger student loan servicing firms next on the CFPB’s radar. Being able to look inside the previously “black box” activities of these non-bank firms for possible future problems will help stop bad behavior and violations before they occur.

Protections students wouldn’t have at all, if we didn’t have a CFPB at all: First, all students wouldn’t have “Know Before You Owe” tools to help students understand and compare college costs and financial-aid offers. Second, students wouldn’t have a place to go with complaints about private education loans or for-profit school scams.

Protections consumers at risk of lending discrimination wouldn’t have at all, if we didn’t have a CFPB at all: An Office of Fair Lending to “ensure that all Americans have fair, equitable, and nondiscriminatory access to credit…[CFPB]  will use every tool at our disposal to protect American consumers.”

The list goes on and on. It continues from here with major new protections for homeowners against unfair mortgage practices and even includes protections for consumers sending funds to families overseas. Find more about the protections that the CFPB provides to make markets work for both consumers and fair-dealing firms here at the Americans for Financial Reform page Ten Reasons We Need The CFPB.

I encourage readers to take a look at the CFPB’s latest Semi-Annual Report to Congress for more discussion of its accomplishments and ongoing investigations and projects. Director Cordray will present the report at an oversight hearing of the Senate Banking Committee next Tuesday, 23 April at 10am. You should be able to watch the hearing live here.

After you read the report or watch the hearing, I think you will agree that what Senator McConnell and Wall Street want — no CFPB at all — doesn’t serve the public interest, only special interests. It doesn’t serve consumers at all.

(Cross-posted from U.S. PIRG)

99-0 to End TBTF Subsidies

In the flurry of amendments to last week’s budget bill, the Senate voted by the remarkable tally of 99-0 for a “Too Big to Fail” proposal sponsored by the bipartisan trio of Sherrod Brown (D-Ohio), Bob Corker (R-Tenn.), and David Vitter (R-La.).  Their amendment calls for steps to analyze and end the huge public subsidy that benefits the six largest banks – those with $500 billion or more in assets. Although the amendment is nonbinding, its overwhelming approval suggests growing support for action to end the era of taxpayer-subsidized megabanks.

Recent studies have put the ongoing funding subsidy to TBTF banks at $80-$100 billion a year. According to a Bloomberg analysis, JPMorgan, Bank of America, Citi, Wells Fargo, and Goldman Sachs account for $64 billion of total subsidy – “an amount roughly equal to their annual profits,” as Bloomberg points out. See AFR statement of support for Vitter-Brown-Corker.

“We’ve seen how too-big-to-fail is also too big to manage, too big to regulate, and too big to jail,” Senator Brown said in a statement issued before last week’s vote.

“This is a really impressive sign that we mean business on ending too-big-to-fail,” Senator Vitter declared afterward.

Vitter and Brown are working on the next step: legislation to require the megabanks to downsize, or face significantly higher capital and other requirements.

How the Megabanks Played the SEC and Shut Out Their Shareholders

By Micah Hauptman. (This piece originally appeared on Huffington Post.)

Shareholders of the global megabanks JPMorgan Chase, Bank of America, Citigroup and Morgan Stanley have just been silenced. Previously, the shareholders attempted to exert their longstanding ability to present proposals to be voted on at the banks’ annual shareholder meetings, in accordance with Section 14(a) of the Securities Exchange Act of 1934. But late last night, the Securities and Exchange Commission (SEC) updated its website, revealing that the agency had capitulated to those four megabanks’ demands to block the shareholders’ proposals from being voted on.

The shareholder proposals, submitted in late 2012 by the AFL-CIO Reserve Fund, AFSCME Employee Pension Plan, Trillium Asset Management and the Change to Win Investment Group, asked each bank’s board of directors to appoint an independent committee to explore extraordinary transactions that could enhance stockholder value. One potential transaction that each of the shareholder proposals asked the banks to consider was separating the banks’ businesses — in other words, breaking up the banks.

Several commentators, including former FDIC Chair Sheila Bair and banking analyst Mike Mayo, have suggested that our nation’s largest banks do not deliver the kind of value for their shareholders that they would if they were converted into multiple smaller institutions. As Mayo wrote earlier this year, “The largest banks have underperformed not only on returns but also on efficiency, revenue, risk, transparency, reputation and stock price … When we ask, a large majority of investors indicate that breakups — divestitures, downsizings and de-mergers — would be good for stock prices.”

But the banks made a concerted effort to prevent their shareholders from having a spirited debate on the merits of that exact issue. The banks’ “no-action requests” sought assurances from the SEC that it would not recommend enforcement actions against them if they excluded the proposals from their proxy materials. The banks’ requests plainly show that they were willing to make every conceivable argument — and some inconceivable ones — as to why the proposals should not be given up or down votes.

For example, the megabanks argued that the proposals should be excluded because they deal with matters related to each company’s ordinary business operations. That’s right, the banks argued that matters concerning the radical restructuring of their operations would be an “ordinary business decision” and therefore outside shareholders’ purview. JP Morgan Chase made that argument despite the fact that such a restructuring plan would be clearly subject to shareholder approval under the controlling law in Delaware.

The megabanks also argued that the proposals were “so vague and indefinite that shareholders in voting on it would not be able to determine with any reasonable certainty what actions are required.” Perhaps the banks presume their shareholders are fools and won’t understand what the proposals seek to do. More likely, the banks fear that their shareholders would fully understand what the proposals seek to do — and support their passage.

It is alarming that, despite the banks’ imaginative but flimsy arguments, the SEC, without much explanation, sided with the banks, advising each institution in identical language that, “There appears to be some basis for your view that [insert megabank here] may exclude the proposal … as vague and indefinite.” The agency then punted on all of the other arguments that the banks offered, finding it unnecessary to address alternative bases for excluding the proposals from their proxy materials.

Shareholders’ role in reforming corporations — especially megabanks — has garnered increased attention recently. For example, Bair offered this little bit of advice to shareholders last year: “So, shareholders, get ye to the boards that represent you and ask them loudly about whether your company would be worth more in easier-to-understand pieces. The public-policy benefits of smaller, simpler banks are clear. It may be in the enlightened self-interest of shareholders as well.”

The megabanks should welcome the opportunity to explain to their investors why they benefit from their megabank size and structure. And the SEC should permit investors an opportunity to let their voices be heard.

Senators Hold CFPB Director Hostage to Specious Arguments and Unreasonable Demands

By Ed Mierzwinski

On Friday, 43 Senate Republicans — as they did in the last Congress — again sent the President a letter saying they would not confirm Richard Cordray to a full term as Consumer Financial Protection Bureau (CFPB) director unless the agency’s powers and independence were first gutted. Their intransigence means more market uncertainty that further delays recovery from the Wall Street-induced worldwide economic collapse of 2008. It also ignores the views of a growing number of responsible financial industry leaders who know at least three things the Senators either don’t know or don’t care about.

First, the financial industry now knows that the CFPB’s actions in Director Cordray’s first year as a recess appointee have been fair and balanced. He and the bureau have been accessible, careful and transparent.

Second, the banks and other firms know that delaying his confirmation — especially under the specter that a recent “radical” appellate decision concerning the National Labor Relations Board may eventually lead to voiding his recess appointment entirely — adds uncertainty to the marketplace that hinders their ability to make loans and offer new products that can build the economy. Senate approval of Cordray makes that uncertainty go away.

Third, the banks know that they lose and predatory payday lenders and other non-banks win if the director’s appointment is voided by the courts. Big banks are fully regulated by the CFPB regardless of whether it has a confirmed director. On the other hand, the bureau’s full powers over non-banks — including payday lenders, credit bureaus,  mortgage companies and others — may only be exercised with a director in place. That situation would create an unlevel playing field that harms consumers, markets and good actors, since the CFPB was intended to protect you no matter where you purchase your financial products (at a bank or a non-bank). (Note that at least one leading CFPB expert at the National Consumer Law Center believes the CFPB has all its authority regardless of whether it has a director.)

But those 43 Senators opposed to consumer protection don’t recognize any of these points. Instead, they are presuming that the court decision adds impetus to continue their reign of uncertainty. But as Public Campaign suggests, the $143 million in Wall Street campaign cash those opponents have received probably doesn’t hurt, either.

In 2008, Congress used taxpayer dollars to bail out the big banks. While the bailout saved Wall Street, it didn’t save the economy. In 2010, Congress finally enacted sweeping reforms intended to prevent another collapse with passage of the Wall Street Reform and Consumer Protection Act (more in U.S. PIRG’s Wall Street Reform Guide).

A centerpiece of that reform was establishment of the CFPB as the first federal financial regulator with only one job — protecting consumers. Since 2010, House and Senate opponents of consumer protection (although the Senate letter brazenly claims to be from consumer protectors) have attempted to turn back the clock and re-litigate the creation of the CFPB.

As Mike Konczal of the Roosevelt Institute explains in his blog, and Professor Arthur Wilmarth details in a law review article, arguments that the CFPB is unaccountable are specious. First, the new agency was given the same independent funding as the other bank regulators (actually, CFPB is already less independent, since only the CFPB’s funding has a hard cap ceiling, while the other regulators can raise additional funds without Congressional authority). Second, its single director structure is not unique; the most important of the other bank regulators, the Office of the Comptroller of the Currency (OCC), also has a single director. Further, only the CFPB’s decisions are subject to a unique veto power by other regulators. And, only the CFPB is subject to additional small business regulatory requirements before it can take action.

Regardless, the Senate opponents again want to condition Cordray’s confirmation on further limiting the CFPB’s authority to protect the public. First, they want the CFPB to be the only bank regulator subject to the highly-politicized Congressional appropriations funding process. That makes Wall Street lobbyists more powerful. Second, they want to convert its single director to a 5-member commission. That’s a debatable policy question, but it has already been asked and answered. Finally, they want to strengthen the existing one-of-a-kind authority of the other regulators to veto CFPB’s decisions. Again, we’ve been there and done that.

Holding Director Cordray’s nomination hostage to unreasonable policy demands can have only result: greater uncertainty that harms consumers, banks, the economy and the democratic process. In 2010, all these demands were considered and defeated. Yet, the minority of Senators persist in their unreasonable demands to tie the confirmation to policy changes, despite growing evidence that their views are those of an ever-diminishing minority.

It’s worth noting that most of those advocating or “predicting” a deal to weaken the CFPB are not bank employees or even staff of industry trade associations. Instead, they’re self-interested lawyers and lobbyists (who prefer and profit from endless political and legal uncertainty) and their friends on Capitol Hill. This situation arises for only one reason – because a minority of Senators, nearly all of whom who voted against financial reform and against the CFPB’s creation, are now trying to hold the President’s well-qualified nominee hostage to their efforts to nullify the law and eviscerate a duly created, badly needed, effective consumer protection agency.

Any Senators who oppose a simple up-or-down vote on this nomination – or who try to bargain for weakening changes in the CFPB – are playing politics with the pocketbooks of the American people and the safety of our economy. There should not be any negotiating with those who hold that dangerous and untenable position.

By the way, several Senators who signed the letter linking Cordray’s confirmation to their unreasonable political demands, including John McCain (AZ), Roy Blunt (MS), Susan Collins (ME) and Richard Burr (NC), have argued that they will oppose a filibuster on Chuck Hagel, the nominee for Secretary of Defense.  Blunt, who opposes Hagel, went so far as to say, according to the New York Times:

“For a cabinet office, I think 51 votes is generally considered the right standard for the Senate to set, and at that level, I think he makes it,” Senator Roy Blunt of Missouri, a member of the Republican leadership, said Friday on Fox News, even as he announced his opposition to Mr. Hagel.”

Why propose to use the 60-yeas-required filibuster rule to fight one nomination and not the other? Why Cordray but not Hagel? Their inconsistency has no justification except to continue the reign of uncertainty they have placed over the CFPB’s efforts to protect consumers and markets.

Kudos to President Obama and Senate Banking Chairman Tim Johnson, who’ve both pledged to fight for Cordray’s confirmation without accepting the demands in the opponents’ letter. The opponent-senators face a simple choice: they can change their views and allow an up/down vote on Richard Cordray’s nomination -– or they can continue to demand the unreasonable policy changes that were defeated in 2010. Their insistence on weakening the CFPB serves Wall Street, but not consumers who want protection no matter where they purchase their financial products. Their insistence on weakening the CFPB serves payday lenders, but not the banks that will be regulated no matter what.

Take a look at the CFPB’s website and at what it has done for consumers and markets in the year-and-a-half since it started work in July 2011 and the year since it has had a director. It is taking complaints from financial customers, fining banks that break the law and returning ill-gotten gains to their customers, cleaning up the mortgage marketplace, providing mortgage and student loan customers with “know before you owe” tips, protecting servicemembers and their families from rip-offs and even regulating the previously-mysterious credit scoring marketplace. It’s doing all this with a refreshing candor and transparency and outreach to the public and financial firms, while submitting to innumerable oversight hearings on Capitol Hill. The CFPB should be allowed to go forward, under current law and under the direction of Richard Cordray, who deserves immediate Senate approval for a full term.

Cross-posted from US PIRG

Capitol Hill Briefing on FTT

“It’s really profoundly immoral to talk about things like cutting Medicare when this policy measure sits in front of us,” AFL-CIO Director of Policy Damon Silvers told an audience of congressional staffers and others at a November 30 briefing on the financial transaction tax.

Lisa Donner, Executive Director of Americans for Financial Reform, moderated the event, which took place against a backdrop of intense debate over the so-called “fiscal cliff.” With federal tax rates at a half-century low and Washington hunting for revenue, a financial transaction tax needs to be “part of the conversation and on the table,” Donner said.




FTT Resources:

Raising Revenue and Restraining High-Speed Trading

A briefing sponsored by Senator Tom Harkin, Representative Peter DeFazio,
and The Populist Caucus

Capitol Visitor Center, Room SVC 203-02
Presented by: AFL-CIO, Americans for Financial Reform, Center for Economic and Policy Research, Communications Workers of America, and Public Citizen