SunTrust-BB&T Merger: Deregulation is Encouraging the Creation of Regional Megabanks

The merger between SunTrust and BB&T announced last week is a big deal, literally and figuratively. The deal merges two of the twenty largest banks in the U.S. to form the eighth largest bank in the country. The new entity, with over $430 billion in total assets, will enter the group of supersize regional banks that aren’t quite global Wall Street banks, but have national scale and the ability to dominate conventional commercial banking in their markets.

SunTrust photo by Don Boyd, Sunbird Photos. BB&T photo by David Rolfe, the Winston-Salem Journal.

It’s by far the biggest bank merger since the financial crisis, and signals a potential return to the go-go years of bank expansion and super-concentration that occurred between the major bank deregulation bills in the 1990s (the 1994 Riegle-Neal Act and the 1999 Graham-Leach-Bliley Act) and the 2008 financial crisis. Even in that period — the era that put “too big to fail” at the center of the financial system — this merger would have been huge, one of the largest bank mergers ever by asset size.

But this isn’t a surprise to those who have been paying attention to the legislative and regulatory signals coming out of Washington. Last year, Congress passed S. 2155, a law that directed the Federal Reserve to ease up on regulatory requirements for large regional banks with up to $250 billion in assets and giving them an opening to relax regulations on even bigger banks. Supporters of S. 2155 repeatedly and misleadingly claimed that the bill was only about helping small and community banks thrive. However, as we, and others, pointed out last year, a likely effect of the bill will be reducing the number of community banks by encouraging consolidation and making it easier for big banks to swallow up smaller ones.

More recently, when the Federal Reserve proposed rules implementing the S. 2155 law, they did Congress one better. Their new proposal indicated that they would allow banks to grow up to $700 billion in size without triggering any heightened regulatory requirements. The Fed’s proposed rules also signaled a move from bank size as a focus for regulation to other, more abstract and likely more easily manipulated metrics of risk. As we said in our comment on the proposal, that’s a mistake. Bank size is the single best and clearest indicator of the power and importance of a financial institution. Every dollar of assets owned by a bank is a dollar of credit extended to the economy, which real people and businesses depend on.

AFR and many others have warned that current legislative and regulatory actions would lead to further consolidation in what is already an oligopolistic industry. Now it’s happening. Unfortunately, until and unless Congress and the regulators stop weakening the rules that govern the banking industry, we can expect to see more of the same.

A Hard-Won Victory on CEO Pay

Runaway CEO pay at Wall Street banks was one of the driving forces behind the financial crisis of 2008-09. Pay packages “too often rewarded the quick deal [and] the short-term gain—without proper consideration of long-term consequences,” a federal panel of inquiry concluded.

That same plot line — crazed compensation leading to recklessness and fraud — was at work in the Enron-WorldCom cycle of corporate scandals a decade earlier. And even when excessive pay at the top doesn’t lead to out-and-out disaster, a large body of research tells us that it’s generally bad for employee productivity, morale, teamwork, and loyalty. With this mind, it is still important that staff are correctly compensated when they are involved in an accident in the workplace. Not all staff will take compensation for granted, and if an accident does occur, they might need the money to help them whilst they are away from work. Employee’s who believe they aren’t compensated enough for the severity of their accident, should look into contacting a workers’ comp lawyer to help them fight the legal battle against the employer. This can be a really big help for people who find themselves in a similar situation. You might find that getting a lawyer involved to help you with your legal case, can really help make the whole situation go along a lot more smoothly. Hiring a workers compensation attorney might be the best decision you ever did if you ever find yourself involved in a work-related accident.

The Dodd Frank financial reforms of 2010 included two pay-related provisions. One was specifically directed at banks, barring compensation arrangements that would encourage excessive gambling and put the public at risk. The other applied to large public corporations in general: every year, as part of their filings with the Securities and Exchange Commission, companies would have to disclose just how their CEOs’ pay compared to a typical employee’s pay. Finding this information would be facilitated through the use of Payroll Software.

The pay-ratio rule was among the shortest and simplest of all Dodd Frank’s requirements, but furiously resisted nonetheless. For the next seven-plus years, corporate America tried to keep the new rule from taking effect, setting teams of lobbyists and researchers to work raising all manner of implausible arguments against it. The numbers would be meaningless, confusing, and “heavily biased against businesses that rely on seasonal and part-time workers,” one big retail trade association declared. The cost of collecting the information would be “egregious,” according to the U.S. Chamber of Commerce. Corporate forces spent a ton of money bemoaning the amount of money they would supposedly have to spend.

For years, the SEC put the pay-ratio rule at the tail end of a long To Do list, as industry opponents made repeated efforts to get their friends in Congress to repeal the requirement. As recently as early 2017, a Trump-appointed acting SEC chair made noises about scuttling the rule. All the while, AFR member organizations kept pressing the case. During the official comment period, well over a hundred thousand individuals and organizations voiced support for the pay-ratio rule — a level of response that tended to discredit opponents’ claims that the data was really of no interest to shareholders or the public.

Now the early results are in, and Minnesota Congressman Keith Ellison has issued a report examining the data from the first 225 companies to comply.

Ellison’s report begins with two thought experiments: first, it asks how many typical workers a company could hire for the price of a single CEO. The answer is generally in the hundreds and often in the thousands. The $21.6 million collected by McDonald’s CEO Steve Easterbrook in 2017, for example, would have been enough to cover 3,101 median workers.

The report also frames the question in terms of how long a typical employee would have to work in order to make a single year of CEO pay. Multiple lifetimes, in most cases. At The Gap, for example, it would take 64 careers of 45 years each for a median employee to accumulate the $15.6 million bestowed on CEO Jeff Kirwan last year.

These numbers may not tell the whole story. Many companies make heavy use of third-party contractors, whose employees aren’t included in the reckoning. U.S. corporations, as Ralph Nader and Steven Clifford pointed out in a USA Today op ed, are also not required to count stock-option profits as part of executive compensation, even though those gains often exceed a CEO’s base salary,

But the data is alarming even if incomplete. The U.S. has the world’s highest CEO pay both in absolute terms and as a multiple of a typical worker’s pay, according to Bloomberg, and the pay gap has grown exponentially — from about 20 to 1 for a typical large company half a century ago, to 339 to 1 today by the Ellison staff’s count. That trend is “a dramatic indicator” of a pattern of extreme and growing inequality, driven by soaring compensation levels for the top 1 percent of US households. About two-thirds of those households are headed by corporate executives, the report says.

There has been much talk about linking CEO pay to long-term performance. The data is not especially reassuring on that count. Take the toymaker Mattel, which spent $31.3 million on CEO compensation in 2017, and came away with the most extreme pay ratio of all — 4,897 to 1. After losing more than a billion dollars last year, the company recently announced the departure of CEO Margaret Georgiadis, who had failed to halt a steep slide in sales. The value of the company fell by nearly 50 percent during her CEO-ship.

“Academics and policymakers have come up with a number of ideas that could help
curtail skyrocketing CEO pay and make our nation more equal,” the report says. As examples, it points to Portland, Oregon, which has established a graduated tax penalty for publicly traded companies with pay gaps of 100:1 or more, and to a bill under consideration in Rhode Island, which would give preferential treatment in government contracts to companies with low CEO-to-worker pay ratios. That sort of thing could also be done at the federal level.

A more progressive income tax structure would make a big difference, of course. Throughout most of the post-World-War-Two era, top marginal tax rates in the U.S. were 70 percent or higher, “and, not surprisingly, executive compensation levels were substantially lower,” the report says. “CEOs had no incentive to demand sky-high pay, since much of it would be taxed away anyway.”

Corporate America raised an enormous ruckus about the pay-ratio provision of Dodd-Frank. Why did big companies put so much energy into fighting a mere disclosure requirement? Clearly, they feared that more public awareness would lead to more public pressure for action. Let’s prove them right. — 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 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

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

Neon 2

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

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

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

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

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

— Owen Evans

Billionaires Demand More Tax Breaks!

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

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

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

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

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

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

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

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

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

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