Category Archives: Uncategorized

Day of the Deregulators

Posted on by
Reply

(Originally published on USNews.com – 5/7/13)

Wall Street will be watching the House Financial Services Committee today – and counting on the rest of us to have our attention elsewhere.

The committee will consider a package of proposals to roll back important reforms adopted after the 2008 financial crisis. Most of these bills involve derivatives – the complex financial instruments that were the proximate cause of the meltdown. If approved, they would let the biggest banks go on enriching themselves, and endangering the country, with taxpayer–subsidized bets.

Take the Swap Jurisdiction Certainty Act. In the name of simplicity, the bill generally permits the foreign subsidiaries of American banks to follow the derivatives–trading rules of other nations. What the proposal’s supporters don’t say is that the rest of the world is way behind the U.S. in setting such rules and that a couple of clicks on a computer keyboard is pretty much all it takes for the typical megabank to route a transaction overseas, potentially escaping serious oversight.

This would be a huge loophole. “During a default, risk knows no geographic border,” Gary Gensler, chairman of the Commodity Futures Trading Commission, said in a recent speech.

A second bill, the Swaps Regulatory Improvement Act, would undermine Section 716 of the Dodd–Frank financial reform law, which tells banks to segregate their most exotic derivatives transactions from taxpayer–guaranteed deposits. The bill would restore banks’ right to conduct these complex and dangerous deals inside units that benefit from deposit insurance and access to Federal Reserve support.

The House bills threaten the authority of the Securities and Exchange Commission as well as the CFTC. Existing law requires the SEC to consider the economic impact of its rules; indeed, financial companies have won a number of lawsuits on cost–benefit grounds. But the SEC Regulatory Accountability Act would shift the odds even more in Wall Street’s direction by saddling the commission with new cost–benefit–analysis procedures that it would have to follow not only for the rule it adopts but for all “available alternatives.” The net effect would be to add a set of near–impossible obstacles to a process that is already tortuously slow.

These proposals – the ones enumerated here and others – present a textbook case of how a powerful industry pursues goals that run sharply against both the public interest and public opinion. Money and muscle loom large in the tale, needless to say. We got a glimpse of Wall Street’s inside game with the recent disclosure of a February skiing bash in Utah, where the new Financial Services Committee chairman, Jeb Hensarling, R-Texas, was joined at a weekend fundraiser by representatives of a number of financial companies and Wall Street groups. (Around the time of his ski trip, the direct and indirect contributors to Hensarling’s political action committee included Visa, MasterCard, JP Morgan, Capitol One, Credit Suisse, UBS, U.S. Bank, and the payday lenders Cash America and CheckSmart.)

Disguise is another key element of the strategy. Americans overwhelmingly support tough financial regulation, so the banks have broken their agenda into mini–bills with mind–numbing names like the Business Risk Mitigation and Price Stabilization Act and the Swap Data Repository and Clearinghouse Indemnification Correction Act.

Persistence is a piece of the puzzle, too. Three years after the legislative fact, the financial lobby is still battling to undo the progress of Dodd Frank. And making more headway than it should.

Many of the bills before the Financial Services Committee were approved by the House in 2012, and they could be headed for approval in 2013. But every vote cast will matter; the more nays there are in the committee and on the House floor, the easier it will be to prevent these bills from moving in the Senate, where reform forces will have to hold the line again this year as they did last year.

The challenge is to spread the word and hold legislators accountable, convincing Senators and House members alike that a favor for Wall Street will be noticed – and remembered – on Main Street.

 

Loud Message to Federal Regulators: End Bank Payday Lending

Posted on by
Reply

Last month, AFR and many of its member groups were among the nearly 250 signers of a letter urging federal bank regulators to “move quickly to ensure that payday lending by banks does not become more widespread” and to tell banks already making payday loans to “stop offering this inherently dangerous product.”

On Tuesday April 9th,  petitions bearing the same emphatic message – and the signatures of more than 157,000 Americans (gathered by CREDO and Color of Change along with AFR, NPA, and CRL) – were hand-delivered to the Federal Reserve, the Consumer Financial Protection Bureau, the Office of Comptroller of the Currency, and the Federal Deposit Insurance Corporation. Meanwhile, Illinois Senator Richard Durbin reinforced the pressure against payday lending with the introduction of his Protecting Consumers from Unreasonable Credit Rates Act.

While a growing number of states have moved to outlaw payday lending over the past decade, the problem has become harder to combat, with major banks – Wells Fargo. U.S. Bank, and others – beginning to offer their own payday-style triple-digit-interest loans dressed up with polite names like “Direct Deposit Advance.” At the same time, the Internet has empowered a new generation of payday lenders to target just about anybody from anywhere. (Some of these online hustlers have incorporated offshore or on tribal lands, as well as in states without usury caps.)

Bank payday loans pose a special threat because, as Liz Ryan Murray of National People’s Action pointed out this week on The Hill’s Congress Blog, people who would be sensible enough to “avoid sketchy storefronts with ‘get cash now’ signs” often “don’t realize their personal bank’s short-term loans could be so toxic.” Taking advantage of that bond of trust, bank payday loan products “are decimating the bank accounts of some of America’s most vulnerable residents,” Murray writes, noting that “a full 25 percent of bank payday loans are to recipients of Social Security.”

Senator Durbin’s measure would end payday lending regardless of its auspices, by establishing a nationwide interest-rate cap of 36 percent for all forms of consumer credit. Another bill – the SAFE Lending Act, introduced by Senator Jeff Merkley (D-Ore.) – zeroes in on the online and offshore predators.

But because these proposals face daunting odds in Congress, the problem remains, for now, in the hands of the prudential bank regulators – the Fed, the OCC, the FDIC, and the CFPB. Fortunately, they have the authority to call an immediate end to payday lending by the banks they supervise. It is time for them to use that authority, once and for all.

 

For more information, see these two recent reports from our allies, along with letters of support for the anti-payday-lending bills.

Banks Go A-Titter About Brown-Vitter

Posted on by
Reply

A leaked draft of the TBTF proposal being put together by Senators Sherrod Brown (D-Ohio) and David Vitter (R-La.) was evidently the cause of much mirth in big-bank circles. The proposal’s capital requirements were described as “comically high” by Rob Nichols of the Financial Services Forum, as quoted in Ben White’s Morning Money column on Politico.

But Tuesday’s column brought forth replies from a number of unamused observers. “The largest financial organizations contributed to the financial crisis because they were so poorly capitalized,” FDIC Vice Chair Thomas M. Hoenig commented. “Ask the eight million people who lost their jobs during the crisis how comical they think higher capital requirements are.”

Camden Fine of the Independent Community Bankers Association offered a riff on “John Kerry’s famous line: ‘They voted against [the Dodd-Frank Act] before they voted for it,” adding, “And that is really ‘comical’.”

AFR had this to say: “It’s not surprising that the Financial Services Roundtable would try to belittle the Brown/Vitter draft requiring additional capital, since it’s a lot more profitable for banks to get implicit backing from taxpayers than to raise their own capital from the private sector. But they shouldn’t be able to get away with the myth that additional capital would constrain bank lending.

“Capital requirements don’t place any restriction on the amount of lending banks can do. They simply require that this lending be funded by private sector risk capital so that taxpayers aren’t on the line if banks take losses. Especially since the Brown-Vitter proposal would give banks a full five years to raise the added capital, it makes no sense to argue that banks wouldn’t be able to lend. And the minimum capital levels in the draft are hardly ‘comical’ — they are in the ballpark of capital levels called for by experts like Sheila Bair, and below levels typically held by banks before the creation of the public safety net.”

“Wall Street’s bragging about having ‘record high’ equity ignores that it is still way too low to avoid another financial collapse or massive taxpayer bailouts,” said Dennis Kelleher of Better Markets.

Car Buyer’s Best Friend: Car Dealer?

Posted on by
Reply

Surprise, surprise: the nation’s auto dealers do not approve of the Consumer Financial Protection Bureau’s crackdown on a loan compensation system that rewards dealers for sticking car buyers with unnecessarily high interest and fees.

But the dealers assure us they are not looking out for themselves. A joint statement by the National Automobile Dealers Association (NADA) and the National Association of Minority Automobile Dealers (NAMAD) laments the potential loss of “a financing model” that “has been enormously successful in both increasing access to, and reducing the cost of, credit for millions of Americans.” The dealers go on at some length about the threat to convenience, competition, and consumer choice; by contrast, they have not a word to say about any possible impact on their own bottom line.

Here, then, are a few salient facts that, while nowhere to be found in this high-minded document, were rightly examined and considered by the CFPB before it decided to issue a guidance bulletin on potential violations of the Equal Credit Opportunity Act (ECOA):

  1. The practical effect of the indirect-financing system that the dealers defend is to create incentives for charging higher interest and/or fees than borrowers would otherwise qualify for.Typically, a third-party lender determines the least costly loan that it would be willing to give, and offers to pay the dealer extra for convincing the borrower to pay extra.
  2. It adds up to a lot of extra. Markups resulting from what a layperson might call dealer kickbacks (but which are politely known in the auto lending field as “reserves” or “dealer participation programs”) add an estimated $25.8 billion in hidden interest alone over the lives of the loans involved. Research also shows that the mere presence of a dealer interest rate markup increases the odds that borrowers will fall behind on their payments or have their cars repossessed.
  3. Repeating a well-documented pattern of the subprime mortgage era, the cost of these dealer markups falls disproportionately on Latinos, African-Americans, women, the elderly, and other historically disadvantaged population groups.
  4. Needlessly expensive auto loans, like needlessly expensive mortgage loans, aggravate the persistent divide in average wealth between white and Latino and African-American households. Nationally, the average auto loan stands at $26,691, and total auto loan debt has reached $783 billion, more than Americans collectively owe on credit cards and edging up toward what they owe on mortgages.

The CFPB has put the lenders on notice: if their commission arrangements lead to higher costs for car buyers of color and other protected groups, they could be found in violation of the fair-lending rules of the Equal Credit Opportunity Act.

The lenders say: don’t punish us for the sins of dealers. The dealers, for their part, protest that while they “strongly oppose any form of discrimination in auto lending,” they should not be punished on the basis of “a theory of discrimination that is based on a statistical analysis of past transactions – not intentional conduct…”

Another way of putting all this is that the lenders and dealers have, between them, constructed a loan-making apparatus expertly designed to cheat, and to cheat certain classes of people disproportionately, regardless of anyone’s provable intent. The CFPB is to be commended for finding a way to confront that outrage with the authority it does, in fact, possess.

Senator Warren’s Question: Why Is This Agency Different from Other Agencies?

Posted on by
Reply

At Tuesday’s confirmation hearing, Massachusetts Senator Elizabeth Warren had no questions for Richard Cordray, the nominee to lead the CFPB. “You’ve already testified 12 times [and] CFPB officials have testified more than 30 times,” she pointed out. “You’ve been an open book… and you’ve won widespread praise for both your balance and your judgment.”

Instead, Warren addressed her questions to the 43 Senators who have pledged to block a confirmation vote:


“What I want to know is why, since the 1800s, have there been agencies all over Washington with a single director including the OCC, but unlike the consumer agency, no one in the U.S. Senate has held up confirmation of their directors, demanding that the agency be redesigned.

“What I want to know is why every banking regulator since the Civil War has been funded outside the Appropriations process, but unlike the consumer agency, no one in the United States Senate has held up confirmation of their directors demanding that that agency or those agencies be redesigned.

“And what I want to know is why there are agencies all over Washington whose rules are final, subject to the ordinary reviews and oversight, while the CFPB is the only agency in government, subject to a veto by other agencies.  But unlike the CFPB, no one in the U.S. Senate holds up confirmation of their directors, demanding that those agencies be redesigned.

“From the way I see how other agencies are treated, I see nothing here but a filibuster threat against Director Cordray as an attempt to weaken the consumer agency.  I think the delay in getting him confirmed is bad for consumers.  It’s bad for small banks.  It’s bad for credit unions.  It’s bad for anyone trying to offer an honest product in an honest market.

“The American people deserve a Congress that worries less about helping big banks and more about helping regular people who’ve been cheated on mortgages, on credit cards, on student loans, on credit reports.  I hope you get confirmed.  You have earned it, Director Cordray.”

Visit NBCNews.com for breaking news, world news, and news about the economy

Big Banks Scare Us, Holder Says

Posted on by
Reply

In a moment of striking candor last week, Attorney General Eric Holder came close to agreeing that major banks have become “too big to jail.”

“I am concerned,” Holder told the Senate Judiciary Committee in answer to a question about the failure to bring criminal charges against HSBC and other banks, “that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them…” Awareness of the potential “negative impact on the national economy, perhaps even the world economy” can have an “inhibiting impact on our ability to bring resolutions that I think would be more appropriate,” he explained.

In other words, the awesome size and power of the biggest banks threatens not only the economy, but also the rule of law. While that is obviously an unacceptable attitude for top officials of the Justice Department – and an attitude they had better rethink – it reinforces the case for downsizing these institutions.

It also reminds us that financial regulation cannot be effectively reformed until we address the question of bank scale and complexity. If the government balks at the idea of punishing a bank implicated, as HSBC was, in money-laundering for drug lords and terrorists, it seems certain that banks will not be held accountable for violating technical rules on risk management. In short, no regulations will work as long as the biggest banks can count on more of this soft-gloves treatment.

If the Justice Department is stymied by fear of the economic repercussions, “That’s a very scary, very ugly way to run the country,” Halah Touryalai wrote on Forbes.com. adding: “It’s no wonder then that big banks hate the idea of breaking up.”

RELATED ITEMS:

You Tube Video of Holder Testimony

You Tube Video of Senator Elizabeth Warren Questioning Financial Regulators (Senate Banking Committee Hearing, 2/27/13)

Holder Confesses That Banks Are Too Big To Prosecute (Mike Lux, Crooks and Liars, 3/9/13)

Tell Obama to End Too Big to Jail (Campaign for a Fair Settlement Petition)

Does Our Justice System Reinforce “Too-Big-to-Jail”? (Linda Rittenhouse, CFA Institute)

Do Big Banks Have a “Get Out of Jail Free” Card? (Paula Dwyer, Bloomberg, 3/7/13)

Attorney general says big banks’ size may inhibit prosecution (Danielle Douglas, Washington Post, 3/7/13)

Credit Reports Riddled With Errors, FTC Confirms

Posted on by
Reply
For decades, consumer groups have been saying that credit reports are riddled with errors. A new Federal Trade Commission survey confirms that assessment and underscores the need for a strong Consumer Financial Protection Bureau to help reform the credit reporting industry.The study, featured on the Feb. 10 edition of 60 Minutes and formally released on Feb, 11, found that 21% of consumers had verified errors in their credit reports, 13% had errors that affected their credit scores, and 5% had errors serious enough to cause them to be denied or pay extra for credit. FTC Chairman Jon Leibowitz told 60 Minutes that the study provided “pretty troubling information.””The FTC’s findings are no surprise,” said Ed Mierzwinski, Consumer Program Director of the U.S. Public Interest Research Group (U.S. PIRG). “We’ve criticized the credit reporting industry for decades over unacceptable levels of seriously damaging mistakes, many of which are entirely preventable.”  The FTC study, as Mierzwinski noted, found that the percentage of serious errors was about 10 times the figure reported by a May 2011 industry-funded study, which had claimed that only 0.51% of credit reports contained mistakes serious enough to have an adverse effect on consumers.

“It’s unconscionable that 40 million American have errors in their credit reports, and that 10 million have errors grave enough to cause them to be denied or charged more for credit or insurance or even be denied a job,” noted Chi Chi Wu, staff attorney at the National Consumer Law Center (NCLC). “There needs to be serious and wholesale reform of the credit reporting industry.”

Although the FTC study was mandated by Congress in the Fair and Accurate Credit Transactions Act of 2003, the power to do something about the problem rests largely with the Consumer Financial Protection Bureau. For that reason, the study reinforces the importance of Senate action to confirm a full-time CFPB director, eliminating any uncertainty over the agency’s supervisory authority. “These findings of widespread and damaging errors in credit reports underscore once again how important the Consumer Bureau is, and how important it is for the Senate to confirm Richard Cordray as Director, so it can get on with the business of making credit markets fairer and safer,” AFR Executive Director Lisa Donner said.

The Dodd-Frank Act, which created the CFPB, recognized the need for heightened oversight of credit bureaus, and gave the CFPB rule-writing, supervisory, and enforcement authority well beyond any that the FTC had possessed in relation to credit reports. But the Senate’s failure to confirm CFPB director Richard Cordray (who was given a recess appointment last year) to a full-term creates a degree of uncertainty about its authority. Recently, 43 Republican Senators sent the President a letter saying that they would block Cordray’s (or anyone else’s) nomination unless and until the bureau is seriously weakened.

HR Policy Association Front Group Attacks SEC Commissioner for Speaking Out on Runaway CEO Pay

Posted on by
Reply

By Brandon Rees (Cross-posted from AFL-CIO Now)

This week, the HR Policy Association’s so-called “Center on Executive Compensation” criticized a member of the Securities and Exchange Commission (SEC) for suggesting companies should consider voluntarily disclosing CEO-to-worker pay ratios. The HR Policy Association represents human resource executives of more than 325 of the largest U.S. corporations, and would prefer to keep secret the pay disparity between their bosses—the CEOs—and their employees.

CEO-to-worker pay ratios must be disclosed under a provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. But, thanks in part to lobbying by corporate groups such as the HR Policy Association, this provision of the Dodd-Frank Act has not gone into effect yet. The SEC has not yet issued the pay ratio disclosure rule despite receiving more than 20,000 letters favoring the rule from investors and the public.

Corporate groups have claimed they don’t know how much their median employee makes, and that this information is not of interest to investors or the public. The AFL-CIO has rebutted these concerns, pointing out that CEO-to-worker pay ratios have a material impact on employee morale, productivity and turnover. Moreover, companies can use statistical sampling to determine how much their median employee earns.

On Feb. 20, SEC Commissioner Luis Aguilar suggested that companies voluntarily provide investors with this information. “Moreover, risks relating to compensation go beyond the immediate incentives of a particular compensation plan or policy. The relative pay of different classes of employees, such as the ratio between CEO compensation and median pay, can also create risks to an enterprise, including the risk of employee, customer and shareholder discontent,” he said.

This was too much for the defenders of CEO pay at the Center on Executive Compensation. In a Feb. 21 letter to Aguilar, the center asked him to retract his recent speech calling for companies to voluntarily disclose the ratio “due to the confusion it would likely generate.” The center’s letter says “the calculation of the median compensation of all employees…is unjustifiably complex.”

Given the center’s desperation to squash any disclosure of CEO-to-worker pay ratios, perhaps the HR Policy Association’s front group should change its name to the “Center for Executive Compensation.” To learn more about CEO-to-worker pay ratios and why the center is wrong, visit the AFL-CIO’s Executive Paywatch website.

RELATED ITEMS

 

Big Banks and Online Payday Lenders: A Marriage of Convenience

Posted on by
Reply

Jessica Silver-Greenberg (New York Times, 2/24) looks at the ties between the big banks and online payday lenders. Some of these institutions have entered the payday lending business in their own right. But, beyond that, the likes of JPMorgan Chase, Bank of America, and Wells Fargo have become, as Silver-Greenberg puts it, a “critical link… enabling the lenders to withdraw payments automatically from borrowers’ bank accounts, even in states where the loans are banned entirely” and sometimes allowing “lenders to tap checking accounts even after the customers have begged them to stop the withdrawals.”

For the banks, it can be a lucrative partnership. “many customers are already on shaky financial footing,” Silver-Greenberg explains, payday loan withdrawals “often set off a cascade of fees.”

The Federal Deposit Insurance Corporation, the Consumer Financial Protection Bureau, and authorities in New York and Arkansas, among other states, are said to be investigating the role of major banks in the rise of online payday lending. Senator Jeff Merkley (D-Ore.) has introduced legislation that would require such lenders “to abide by the laws of the state where the borrower lives, rather than where the lender is” while allowing borrowers to cancel automatic withdrawals more easily.

Who Gains from Efforts to Weaken the CFPB?

Posted on by
Reply

Since his renomination as director of the Consumer Financial Protection Bureau, Richard Cordray has drawn praise from far and wide. Business and financial leaders as well as consumer, community, civil rights, labor, and faith groups have commended the Bureau for its openness, thoughtfulness, and balanced and responsible approach under Cordray’s leadership.

But that hasn’t stopped 43 Senators from signing on to a letter declaring their refusal to even consider this nomination unless their demands to weaken the consumer bureau are met.  Their stand multiplies the uncertainty created by an early February circuit court decision against a set of recess appointments to the NLRB made in the same time frame as Cordray’s recess appointment. Who does that uncertainty help?

Well, here’s one piece of evidence: At the height of the housing crisis, the Chance Gordon law firm persuaded desperate homeowners to pony up money for loan-modification help, and then did “little or nothing” for them, according to a CFPB complaint filed last July.  It sounds like a classic foreclosure relief scam – a type of scam that has robbed already beleaguered homeowners of their last dollars, and sometimes their homes.

Now, according to Bloomberg’s Carter Dougherty, the firm is trying to take advantage of the court ruling – and the difficulty of securing an up or down Senate vote on any nominee for the director’s job – to get the CFPB to back off. The firm’s attorney has written to the bureau seeking “a negotiated settlement… in light of a federal court ruling that invalidated so-called recess appointments similar to Cordray’s. “I want to give them an opportunity to resolve this without court intervention,” the attorney told Dougherty. “Resolving this informally would be preferable.”

Gordon has characterized his firm as a “legal publishing company,” which sold documents detailing certain lender abuses; any loan-modification help, he says, was a free add-on service. But the firm was charged with violating the Mortgage Assistance Relief Services rule, which, as Dougherty explains, “bans businesses from collecting fees until homeowners have acceptable written offers of a loan modification from their lenders.” The complaint also asserted that the firm “encouraged people to stop paying their loans in order to hire his firm, leading some customers to lose their homes.”

Senators opposing a vote on Director Cordray’s nomination might wish to check out the activities of the Gordon firm, and ask themselves if this is really the kind of business enterprise they want to support.