Special Protections for Wall Street, No Day in Court for the Rest of Us

Last week, some members of the House Financial Services Committee lavished praise on a piece of legislation they said would “restore due process rights to all Americans.”

“All the bill says is that if somebody wants their day in court, they should have their day in court,” the bill’s sponsor, Rep. Scott Garrett (R-N.J.), explained, adding that “preserving the rights of Americans to defend themselves in a fair and impartial trial…is one of the most fundamental rights, and it is enshrined in our Constitution.”

Representative Jeb Hensarling (R-Texas), Chair of the committee, championed the measure as well. “Every American deserves to be treated with due process,” Rep. Hensarling declared. “They ought to have the opportunity to have a trial by jury. They ought to be able to engage in full discovery. They ought to be subject to the rules of evidence.”

A listener might have thought these legislators were standing up againstforced arbitration — “rip-off clauses” that big companies bury in the fine print of contracts to prevent people from suing them, even if they have broken the law.

Astoundingly and unfortunately, the legislators were actually moving in the opposite direction. They were extolling HR 3798, the so-called “Due Process Restoration Act,” which would extend special legal protections to Wall Street banks and other financial firms charged with violating federal securities law by the Securities and Exchange Commission (SEC).

This piece of legislation does nothing to restore due process to ripped-off consumers and investors. Instead, the “Due Process Restoration Act” makes it harder for the SEC to hold corporate wrongdoers accountable when they break the law.

Big banks and others charged in SEC hearings already possess several crucial legal protections that their investors and consumers lack in forced arbitration: robust opportunity for discovery, a public hearing, a trained adjudicator bound to make a ruling based in law, and — crucially — the right to two full appeal processes, including a review in federal court. Yet HR 3798 would make it harder for the SEC to prove its case and allow the accused party to unilaterally terminate the proceedings, forcing the SEC to either drop the charges or refile in federal court.

According to Professor Joseph Carcello of the University of Tennessee, giving companies this right to “choose the venue is unlikely to be in the best interest of society, and will almost certainly make it more difficult for the SEC to deter and punish securities law violations, including fraud.” Professor Carcello further emphasized that if fairness is a concern for members of the committee, then it is more unfair for citizens to be forced into arbitration in their contracts with financial institutions.

An amendment offered by Reps. Keith Ellison (D-Minn.) and Stephen Lynch (D-Mass.) threw the gap between the words and actions of HR 3798’s supporters into particularly stark relief. The amendment would have ensured that firms using forced arbitration against consumers and investors could not benefit from the bill’s special protections. Yet, in a display of staggering hypocrisy, this commonsense amendment was defeated on party lines.

Despite grandiose claims of due process, HR 3798 would only further tilt the playing field in favor of special corporate interests when it comes to battling financial fraud and corporate rip-offs. If lawmakers truly wish to “restore due process rights to all Americans,” they should pass legislation to ban forced arbitration and support the upcoming Consumer Financial Protection Bureau rulemaking on this abusive practice.

Wall Street firms and brokers accused of breaking federal law do not need special legal protections, but the right of ordinary Americans to have their day in court very much does need defending. Lawmakers should legislate accordingly.

– Amanda Werner, Arbitration Campaign Manager

This post originally appeared on Medium.com.

Understanding the SAFE Act

Payday lenders may seem to be everywhere, but they were not always there. The first payday stores opened in the early 1990s – a byproduct of the same anything-goes deregulatory mania that led to a wave of booby-trapped mortgages and the financial and economic meltdown of 2008.

Almost as soon as they appeared on the scene, faith leaders and consumer and civil rights advocates called for rules to rein in the abuses of an industry whose business model is to advertise a form of “help” that consistently makes things worse, trapping people in long-term high-cost debt and imposing more economic distress on communities.

After a quarter of a century, these efforts are making progress. Fourteen states have meaningful regulations and the first nationwide rules are being developed by the Consumer Financial Protection Bureau (CFPB), the new agency established after the 2008 crisis to bring basic standards of fairness to the financial marketplace.

But the industry is also pressing ahead, employing new loan models and a battery of technological and legal ploys intended to skirt the rules, both existing and anticipated.

Senator Jeff Merkley D-Ore.), a longtime champion of consumer rights, has introduced legislation to address some of these evasive maneuvers. His Stopping Abuse and Fraud in Electronic Lending (SAFE) Act would make it easier to uphold the interest-rate caps and other measures taken by the states. Merkley’s bill would also bolster the effectiveness of the Consumer Bureau’s efforts to require payday-style consumer lenders to do what other lenders do: verify a borrower’s ability to repay before a loan can be issued.

One big problem, for the CFPB as well as the states, is the fact that more and more payday lenders now do business online. Some companies hide from view, using anonymous domain registrations and websites with no physical contact information. Others, while describing themselves as payday lenders, turn out to be “lead generators” who collect personal information and then auction it off to lenders and other marketers. It is very hard to take legal action against criminals who have encased themselves in online camouflage. It gets even harder when they claim to be doing business from overseas or from Native American reservations in order to assert tribal-sovereignty privileges.

Online or out on the street, the basic formula is the same. These lenders charge triple-digit interest rates (nearly 400% on average) and are prepared to issue a loan as long as they can gain access to someone’s bank account – regardless of whether the borrower can actually afford the loan. Their standard, in other words, is the ability to collect, not to repay. In fact, while the industry promotes its products as short-term loans, most of its profits come from people who remain on the hook for months at a stretch and often end up paying more in fees than they borrowed in the first place.

Those who borrow online face special perils. They are often required to provide personal and financial information in loan applications – data that may be bought and sold by unregulated lead generators, loan brokers, lenders, and others. In some cases, this information is used to defraud people two or three times over.

Senator Merkley’s bill seeks to address these problems in three ways – by helping consumers regain control of their own bank accounts; by establishing standards of transparency for online lenders; and by cracking down on lead generators and other third-party predators. More specifically, the SAFE Act would require banks and other lenders to abide by the rules of the states where they do business; prevent third parties from using remotely created checks (RCCs) to withdraw money without an account-holder’s express pre-authorization; prohibit overdraft fees on prepaid cards issued by payday lenders in order to gain access to consumers’ funds and pile on extra charges; and ban lead generators and anonymous lending.

The great majority of Americans, regardless of political party, favor strong action to end the scourge of abusive payday, car-title, and other high-cost, debt-trap consumer loans. By supporting the SAFE Act and standing up for the complementary efforts of the states and the CFPB, members of Congress can heed this loud, bipartisan call from their constituents.

— Gynnie Robnett

Robnett is Payday Campaign Director at Americans for Financial Reform. This piece was originally published on The Hill’s Congress Blog.

An Easy Case: Why a Federal Appeals Court Should Reject a Constitutional Challenge to the CFPB

The Dodd-Frank Act created the Consumer Financial Protection Bureau (CFPB) to invigorate consumer financial protection by consolidating responsibility for those laws’ interpretation and enforcement in a single agency. Even before the CFPB opened its doors, industry forces set out to weaken it through bills that would change its single-director structure, among other means.

They lost that fight in Congress – repeatedly. But now the CFPB’s opponents have been given a glimmer of hope by the three-judge panel deciding a mortgage firm’s appeal of a CFPB enforcement order. If those judges follow Supreme Court precedent, however, that hope will be short-lived and the challenge to the CFPB’s structure will fail, just as it has intwo prior federal district court cases.

The latest case involves a company, PHH, which has been ordered to pay $109 million in restitution for illegal kickbacks to mortgage insurers that caused PHH’s customers to pay extra. After a full hearing before an Administrative Law Judge and then the CFPB’s Director, PHH appealed the CFPB’s decision to the U.S. Court of Appeals for the D.C. Circuit. Among a slew of arguments raised by the company, the court expressed particular interest in one. The three-judge panel, which will hear oral arguments on April 12, hasasked the parties to focus on the constitutionality of statutory limits on the president’s authority to remove the sole head of an agency like the CFPB.

By statute, the president may remove the CFPB Director only for “inefficiency, neglect of duty, or malfeasance in office.” 12 U.S.C. § 549(c)(3). PHH argues that the Constitution requires an agency headed by a single officer to be removable by the president without cause. Fortunately, Supreme Court precedents defining the scope of the removal power foreclose that argument.

The central flaw of PHH’s argument is that the Constitution is silent about whether an agency should be headed by a committee or a single officer. In fact, prior litigants have argued that multi-member heads of agencies are constitutionally suspect. The Supreme Court rejected that argument in Free Enterprise Fund v. Public Company Accounting Oversight Board (2010), embracing the view that agencies with a single head or a multi-member commission are constitutionally equivalent.

The Supreme Court decided in Humphrey’s Executor v. United States (1935) that statutory restrictions on the removal of Federal Trade Commission (FTC) commissioners, and by extension the heads of other administrative agencies, were constitutional. To support the flimsy claim that there is a constitutional difference between single-director and multi-commissioner agencies, PHH relies on stray language in Humphrey’s Executorreferring to the FTC’s character as a multi-member body and suggesting those passages add up to a constitutional limitation. But Humphrey’s Executor itself says that whether the Constitution requires the president to enjoy unfettered authority to remove the head of an agency “depend[s] upon the character of the office.”

As the Supreme Court explained in Wiener v. United States(1958), “the most reliable factor for drawing an inference regarding the president’s power of removal . . . is the nature of the function that Congress vested” in the agency. The CFPB is characteristic of the administrative agencies for which the Supreme Court has upheld for-cause removal. InHumphrey’s Executor, the Court explained that “[i]n administering the [prohibition] of ‘unfair methods of competition’ — that is to say in filling in and administering the details embodied by that general standard — the [FTC] acts in part quasi-legislatively and in part quasi-judicially.” The CFPB has the same quasi-legislative and quasi-judicial responsibilities to define and enforce the prohibition of “unfair, deceptive, or abusive act[s] or practice[s]” in consumer finance, 12 U.S.C. § 5531, as well as to make rules and enforce enumerated consumer finance statutes, 12 U.S.C. § 5481(12).

Ultimately, the concern animating the removal cases is whether, as the Court said in Morrison v. Olson (1988), “the Executive Branch [retains] sufficient control . . . to ensure that the President is able to perform his constitutionally assigned duties.” It’s certainly plausible that the president could find that a single officer was guilty of “inefficiency, neglect of duty, or malfeasance in office.” In Bowsher v. Synar (1986), the Supreme Court said those “terms are very broad and . . . could sustain removal . . . for any number of actual or perceived transgressions . . . .” But it is quite difficult to envision a scenario in which the president could plausibly claim that a majority of an agency’s commissioners met the criteria for removal. Moreover, responsibility for the failures of an agency headed by a multi-member commission are inherently more diffuse than for an agency with a single-director, giving the president less ability to identify the source of “inefficiency” and “neglect” in a multi-member commission than a single director. So PHH’s proposed rule – that the president’s removal power can only be limited for multi-member agencies – has it backwards. If anything, limitations on the removal power for a multi-member agency would be more suspect than those limitations on single-director agencies, so it’s not surprising that PHH cannot cite a single case adopting their proposed rule.

A decision striking down the CFPB’s structure would not only break new constitutional ground, it would have wide-reaching practical consequences as well. Such a holding would mean that the structures of at least three other agencies are also unconstitutional because they are headed by a single official removable only for cause:

  • the Federal Housing Finance Administration, 12 U.S.C. § 4512(b)(2) (removal “for cause”);
  • the Office of Special Counsel, 5 U.S.C. § 1211(b) (removal “only for inefficiency, neglect of duty, or malfeasance in office”); and
  • the Social Security Administration, 42 U.S.C. § 902(a)(3) (removal “only pursuant to a finding by the President of neglect of duty or malfeasance in office”).

For the president to remove the head of a fifth agency, the Office of the Comptroller of the Currency, “reasons” for the removal must be “communicated by [the President] to the Senate,” 12 U.S.C. § 2, suggesting that the president does not have the power to do so without cause. So if the attack on the CFPB’s structure succeeds, it will not hit the CFPB alone.

Unfortunately, PHH could hardly be more fortunate in thepanel drawn to decide this issue. All three judges were appointed by Republican presidents. One judge on the panel has suggested in a prior case that he believes the Constitution would be best interpreted to require that all agency heads be removable by the president without cause and that the Supreme Court was mistaken when it decided otherwise 80 years ago. But even if the three-judge panel rules that the CFPB’s structure is unconstitutional, it will hardly have the last word: The CFPB can seek further review by the full D.C. Circuit and the Supreme Court.

— Brian Simmonds Marshall

Cross-posted from American Constitution Society blog.

Scott Tuckers payday-loan scam spotlights industry-wide lending abuses

You can learn a lot about payday lending from the story of Scott Tucker, the race car driver who stands accused, along with his attorney, of bilking 4.5 million people out of a combined $2 billion.

Their criminal indictment, announced by the U.S. Attorney’s Office for the Southern District of New York, grew out of an investigation launched by the Federal Trade Commission in 2012. Hundreds of pages of court documents from that inquiry have now been unsealed, thanks to a lawsuit filed by Public Justice on behalf of Americans for Financial Reform. As a result, we know a great deal about how Tucker’s operation worked.

People who borrowed money from his companies, which had names like Ameriloan, OneClickCash and USFastCash, were led to believe they would be responsible for repaying the principal plus a one-time finance charge of 30 percent. But as the FTC alleged and a federal court in Nevada subsequently agreed, borrowers got routed onto a much costlier path once they had signed over access to their bank accounts.

Technically, there were three repayment options. That fact, however – along with the procedure for choosing one over another – was buried in a tangle of tiny hyperlinks and check-boxes on the company’s website. And customer service representatives were explicitly told not to explain any of this clearly.

Nearly all borrowers, like it or not, were defaulted into the so-called renewal option, which began with a series of “renewal fees” costing 30 percent of the original amount borrowed. With each fee payment, borrowers would incur another renewal fee of 30 percent of the principal. Four payments later, they would wake up to discover that they had paid back 120 percent of the original amount – without putting a dent in the balance. By these means, someone who had taken out a $500 loan would end up making nearly $2,000 in payments!

The unsealed documents include transcripts of angry phone calls in which borrowers either refused to continue paying or said they couldn’t afford to do so. Tucker’s companies responded, as the transcripts show, with a variety of illegal loan collection practices, including warnings that nonpayment could lead to arrest.

Unsurprisingly, there were many complaints and at least a few investigations at the state level. For years, however, Tucker’s companies successfully hid behind an assertion of tribal sovereignty based on their false claim to have turned over ownership and management powers to tribal governments in Oklahoma. Courts in several states with strong usury laws dismissed enforcement actions against Tucker’s companies based on the sham tribal-sovereignty claim. In fact, the documents reveal, the tribes received only a tiny portion of the companies’ revenues for letting Tucker make use of their sovereignty, while Tucker kept close reins on the lending capital, staff and management.

Some aspects of the case were particular to Tucker’s companies. It is certainly not every payday lender who uses the money made by fleecing people to finance a sportscar racing career. But in much of what Tucker is alleged to have done, he was drawing on the basic payday industry playbook of loanshark-style fees and rates, bait-and-switch marketing, automatic bank withdrawals and convoluted schemes to avoid state laws.

The standard payday loan is marketed as a one-time quick fix for those facing a cash crunch. But the typical borrower ends up in a very long series of loans – 10 on average – incurring extra fees each time out. Car-title and payday installment lenders play variations on the same theme: A high proportion of their customers remain on the hook for months or even years, making payment after payment without significantly diminishing the principal. And these are the borrowers who make the loans profitable: We are talking about an industry, in other words, whose business model is to trap people in a cycle of debt.

Tucker has been put out of business – that is one big thing that sets him apart. Thanks to the efforts of the FTC and the Department of Justice, with investigative assistance from the IRS and the FBI, he faces fraud and racketeering charges carrying penalties as long as 20 years in prison.

The industry as a whole, however, is going strong across much of the country. Although these loans are prohibited or highly restricted in about a third of states, there are more payday lending storefronts in the U.S. than Starbucks and McDonalds combined. Triple-digit-interest consumer lenders are a particularly big presence in low-income communities and communities of color – communities still reeling, in many cases, from the financial crisis and aftereffects of a wave of high-cost, booby-trapped mortgage loans.

But the problem is not a hopeless one. The Consumer Financial Protection Bureau, the agency conceived by Sen. Elizabeth Warren and created by the Dodd-Frank reforms of 2010, has already drafted and begun to implement rules to guard against a resurgence of deceptive and unsustainable mortgage lending. Now it is working on rules to rein in the abusive practices of payday, car-title and payday installment lending.

The key principle should be the same: Small-dollar consumer lenders, like mortgage lenders, should be required to issue sound and straightforward loans that people can afford to repay.

Across party lines, Americans support that simple concept. By insisting on a strong ability-to-repay standard, the Consumer Financial Protection Bureau can help bring an end to a quarter-century-long wave of debt-trap.

—  Gynnie Robnett and Gabriel Hopkins

Gynnie Robnett directs the payday lending campaign at Americans for Financial Reform.

Gabriel Hopkins is the Thornton-Robb Attorney at Public Justice.

This post was originally published on US News.com.

Advocates and Lawmakers Press for Relief to Groups of Students Victimized by Predatory Practices

For well over a year, lawmakers, law enforcement, advocates and scammed students alike have been pressuring the Department of Education to relieve the staggering debt of students who attended for-profit colleges like Corinthian which broke the law. In response, the Department convened a negotiated rulemaking session to clarify what the process would be going forward for students who were victims of illegal acts by their school, and wanted to assert their legal right to a “defense to repayment,” or debt cancellation.

But as outlined in a letter delivered this week and signed by 34 organizations, the Department’s draft of the proposed regulations has moved in the wrong direction. Among the worst items of their proposal is a requirement that defrauded borrowers seek debt cancellation within two years — or lose eligibility. This is particularly troubling because there is no limit on the number of years the government can collect on the student debt.

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Uncapturing the Regulators

There’s been a lot of talk in Washington lately about regulatory “reform.” Some of that talk is beginning to focus on what Senator Elizabeth Warren (D-Mass.) has identified as the key problem: a playing field badly tilted in favor of big banks and other corporate players.

A number of advocacy groups have joined forces to mount a campaign called Presidential Appointments Matter. “Who a President nominates to senior financial policy and financial regulatory posts – Treasury Secretary, Attorney General, leaders of financial oversight agencies – makes all the difference in what policies we end up with, and whether our economy works for most people,” says Lisa Donner, executive director of Americans for Financial Reform. “Our next President should make demonstrated willingness to stand up to Wall Street power in order to protect the public interest a bottom line criteria for these positions.”

Efforts are also underway to address the conflicts of interest that can make government agencies reluctant to challenge deceptive or unethical industry practices. Senators Tammy Baldwin (D-Wis.) and Rep. Elijah Cummings (D-Md.) have introduced the Financial Services Conflict of Interest Act, which would ban so-called “golden parachute” payments to bank alumni who accept government jobs, in addition to taking other steps to slow the revolving door between Wall Street and Washington. The Federal Reserve Independence Act, backed by Senators Bernie Sanders (I-Vt.) Barbara Boxer (D-Calif.) and Mark Begich (D-Alaska), would prohibit bank executives from serving as directors of the 12 Federal Reserve banks.

Such measures are needed to counter Wall Street’s ability to spend massive amounts of money on litigation, lobbying, and the forging of political connections. The financial industry uses those connections both to shape individual rules and, over time, to sap the will of regulators to act forcefully. “I talk with agency heads who are like beaten dogs — just trying to keep their heads down,” Senator Warren said in her speech to a Capitol Hill symposium on the phenomenon of regulatory capture. As a result, she added, “the rulemaking process often becomes the place where strong, clear laws go to die.”

While some lawmakers are looking for ways to bolster the independence and effectiveness of financial regulators, others – a worrisome number – are pushing a very different brand of regulatory reform: one intended to make it easier for large financial companies to bend the rules to their liking.

In January, AFR and People’s Action organized an online petition urging Senators to reject a bill to curb the political independence of the Consumer Financial Protection Bureau and other oversight agencies. In a joint letter earlier this week, AFR and eight partner organizations voiced their opposition to the so-called TAILOR (Taking Account of Institutions with Low Operation Risk) Act, the latest in a succession of proposals to hamstring regulators by requiring them to perform burdensome and redundant “cost benefit” studies of the impact of (in this case) past as well as future rules.

Regulators need to listen to all sides, but, as Senator Warren went on to say, “bludgeoning agencies into submission undercuts the public interest. The goal should be to have a system where influence over new rules is measured not by the size of the bankroll, but by the strength of the argument.”

The complete text of her speech, in which she laid out four key principles of reform, can be found here.

— Jim Lardner

Ferguson Report Cites Payday Lending as a Key Economic Barrier

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

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

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

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

CFPB Takes on Payment Processors for Facilitating Fraud

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

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

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

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

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

— Rebecca Thiess

Hill Threats Escalate as CFPB Protects Consumers, Servicemembers (Ed Mierzwinski)

Today, the House Appropriations Committee, at the behest of both Wall Street and predatory lenders seeking to run amok, will vote to eliminate the CFPB’s independence from the politicized appropriations process. The bill will also further hamstring the SEC, a federal financial agency that struggles to protect small investors since its funding is already subject to the committee’s whims. You can watch the debacle here at 11am ET. Wall Streeters and payday lenders will be lighting their cigars with $100 bills– chump change compared to the $1.9 million dollars/day ($1.4 billion total in this election cycle) they’ve been spending to roll back Wall Street reform.

You can read the opposition letter from Americans for Financial Reform, PIRG, Consumer Federation of America, the NAACP and other leading groups here (excerpt):

“Changing the CFPB’s independent funding would leave the CFPB more vulnerable than the Federal Reserve, the OCC, and the FDIC to industry influence, once again treating consumer financial protection as a less important matter. It would give Wall Street and the worst elements of the financial services industry endless lobbying opportunities to deny the CFPB the funding to do its job if and when the regulator took action that a sector of the industry did not like.”

Meanwhile, over at the CFPB, important work to protect consumers, including servicemembers, from unfair and predatory financial practices continues. Some recent highlights include:

Of course, the CFPB continues to work on other major projects that have drawn the ire of powerful special interests. WIthin a few days, expect new detailed consumer narratives (stories) to appear in the highly successful Public Consumer Complaint Database. Expect further action this year on the CFPB’s effort to rein in payday and other high-cost lenders. Expect further action on its research finding that pre-dispute mandatory arbitration clauses in financial contracts harm consumers.

But, expect further attacks on the CFPB in both the Senate and the House. Recently, freshman Senator David Perdue (GA) escalated his own over-the-top attack, alleging that the bureau was “a rogue agency that dishes out malicious financial policy” and filing a bill similarly eliminating the CFPB’s independence. (By the way, the so-called US Consumer Coalition” listed in the Perdue release is a front group for some financial industry that won’t disclose its backing.)

The American public supports the CFPB, overwhelmingly and on a bi-partisan basis. After all, the idea of the CFPB needs no defense, only more defenders. Congress needs to start listening to consumers, instead of special interests. Why should they be allowed to run amok, even as our economy struggles to recover from the recession caused by the 2008 financial collapse triggered by “rogue” financial practices?

— Ed Mierzwinski

Originally published on U.S. PIRG

 

Big-bank Threat Backfires

During the 2014 election cycle, banks and financial companies were associated with almost half a billion dollars in campaign contributions to candidates for national office. (See AFR’s latest “Wall Street Money in Washington” report, drawing on data compiled by the Center for Responsive Politics.) That figure was more than twice the spending level of the next biggest business sector.

What do these institutions expect in return? Benefactors and beneficiaries alike almost always insist there’s no quid pro quo. But several weeks ago, insiders at Citigroup, JPMorgan Chase and BankofAmerica broke with that tradition, quietly acknowledging an effort to use their political spending for a very clear purpose: to get Senate Democrats to back away from calls by one of their leaders, Senator Elizabeth Warren (D-Mass.), for a breakup of the biggest banks.

In a December speech, Warren cited Citi as a bank that had grown dangerously large. “Instead of passing laws that create new bailout opportunities for Too-Big-To-Fail banks, let’s pass… something – anything – that would help break up these giant banks,” she said.

That statement, coupled with Warren’s growing influence among Senate Democrats, caused alarm on Wall Street and led to a discussions in which, Reuters reported, “representatives from Citigroup, JPMorgan, Goldman Sachs and Bank of America [debated] ways to urge Democrats, including Warren and Ohio Senator Sherrod Brown, to soften their party’s tone…”

Citi in particular, according to the Reuters article (citing “sources inside the bank”), “decided to withhold donations… to the Senate Democratic Campaign Committee over concerns that Senate Democrats could give Warren and lawmakers who share her views more power.” JPMorgan, the article added, has given Senate Democrats only a third of its usual amount this year, while its “representatives have met Democratic Party officials to emphasize the connection between its annual contribution and the need for a friendlier attitude toward the banks.”

All this led Ari Rabin-Havt of the American Prospect to ask: “Did one of the largest banks in the United States accidentally acknowledge an attempt to bribe members of Congress?” And: “Will JP Morgan face any investigation, let alone penalty, for their attempted bribe?”

“It would be naïve to think so,” Havt wrote, answering his own question. “Yet the only defense for this sort of corruption seems to be that it happens all the time.”

In the short run, at least, Wall Street’s efforts don’t seem to have had the intended effect. Warren, according to USA Today, “immediately seized on the report, using it in a defiant fundraising appeal for her network of supporters nationwide to make up the amount in contributions to the Senate campaign fund.”

“The big banks have thrown around money for years,” she wrote in an e-mail posted on her blog. “But they are moving out of the shadows. They have reached a new level of brazenness, demanding that Senate Democrats grovel before them.”

Another prominent Democrat responded by vowing not to accept any campaign donations from the megabanks. “Wall Street won’t be happy until Democrats stop listening to progressives like me and Elizabeth Warren – and instead carry out orders from the biggest banks in the world,” said Maryland Representative (and Senate candidate) Donna Edwards . And the chairman of Democracy for America, a group founded by former Democratic National Committee Chairman Howard Dean, urged candidates across the country to follow Edwards’ example if they “want to prove that they’re not owned by Wall Street bullies.”

 — Jim Lardner