Payday Lenders Have a Pal at the White House

During a recent appearance on “Meet the Press,” unofficial Trump advisor Corey Lewandowski called forthe removal of Richard Cordray as director of the Consumer Financial Protection Bureau.

His statement seemed to come out of nowhere, prompting NBC’s Chuck Todd to seek an explanation: Did Lewandowski happen to have “a client that wants” Cordray fired?

“No, no,” he insisted, “I have no clients whatsoever.”

That emphatic denial stood unchallenged for two days – until the New York Times revealed Lewandowski’s ties to Community Choice Financial, an Ohio-based company that was a major client of his former consulting firm before offering his new firm a $20,000-a-month retainer for “strategic advice and counsel.”

Community Choice is one of the country’s biggest players in the world of triple-digit-interest payday and car-title loans. Majority-owned by Diamond Castle Holdings, a private equity firm with $9 billion in assets, the company has more than 500 storefronts and does business (factoring in its online as well as physical operations) in 29 states.

The company’s CEO has described the Consumer Bureau as “the great Darth Vader” of the federal government, and the source of that ill-feeling is plain to see.

The Consumer Bureau is getting ready to issue a set of consumer-lending rules that, if they resemble a proposal put forward last year, will require verification of a borrower’s ability to repay. That simple concept runs directly counter to the business model of the payday industry,  which is to keep its customers in debt indefinitely, making payments that put little or no dent in the principal. Many people end up spending more in loan charges than they borrowed in the first place.

Like other payday lenders, Community Choice Financial has been a magnet for complaints and investigations. A California class-action lawsuit filed last year accuses the company, along with its subsidiary Buckeye CheckSmart, of violating a federal telephone-harassment law. That is also the theme of dozens of stories submitted to the Consumer Bureau’s complaint database. “This company,” says one borrower, “called my elderly parents issuing threats against me to ‘subpoena’ me to court…”

Another complainant describes a series of phone calls and “threats of criminal prosecution… on a loan I know nothing about, did not apply for or receive, and have never received any bills for.” Community Choice and its subsidiaries – companies with names like Easy Money, Cash & Go, and Quick Cash – figure in more than 650 Consumer Bureau complaints, over unexpected fees, uncredited payments, bank overdraft charges triggered by oddly-timed electronic debits, and collection efforts that continue even after a debt has been fully repaid, among other recurring issues.

Community Choice has also been a pioneer in in the subspecialty of evading state interest-rate caps. In Ohio and Texas, among other states that have tried to ban payday loans, Community Choice’s payday shops have camouflaged their predatory loans by using bank-issued prepaid cards with credit lines and overdraft charges; calling themselves mortgage lenders instead of consumer lenders; and registering as credit repair companies in order to charge separately for their supposed assistance in resolving people’s financial troubles.

The success of these legal workarounds tells us that it will be very hard for the states to address the scourge of payday lending without help. That’s why payday lenders are pushing Congress to strip the Consumer Bureau of its authority over them. And, that’s why Community Choice brands CheckSmart and Cash Express have been generous contributors to sympathetic members of Congress, and why – with the help of Lewandowski and other mouthpieces – the industry is trying to get the Trump administration to remove the Bureau’s director (even if there is no legal basis for doing so) and replace him with someone who can be depended on to leave payday lenders alone.

Lewandowski may be too embarrassed for the moment to continue raising his voice on the industry’s behalf. We can hope that’s true, at any rate. With or without his assistance, however, the industry’s campaign will continue, and the Lewandowski episode has made the stakes very clear: Will the Consumer Bureau be allowed to go on doing the job it was created to do, standing up to the financial industry’s power and insisting on basic standards of transparency and fair play? Or will some of the financial world’s fastest and loosest operators find a way to undermine this agency and keep it from cracking down on their abuses at great long last?

— Jim Lardner

The CFPB Turns Six (and Ten)

The Consumer Financial Protection Bureau is marking a double birthday. As an institution, it turns six this week. As an idea, it goes back ten years – to the summer of 2007 and an article by a little-known expert on bankruptcy and household debt named Elizabeth Warren.

Writing in the wonky pages of Democracy magazine, then-Professor, now-Senator Warren pointed out that you couldn’t buy a toaster with “a one-in-five chance of bursting into flames and burning down your house.” And yet it was entirely possible “to refinance an existing home with a mortgage that has the same one-in-five chance of putting the family out on the street.”

One big reason for that difference, Warren wrote, was the Consumer Product Safety Commission, which had been watching over the world of toasters, power saws, baby cribs and the like since 1972. By contrast, the task of guarding consumers against defective financial products was scattered across half a dozen federal agencies; and their main concern, as she noted, was “to protect the financial stability of banks and other financial institutions, not to protect consumers.” Indeed, one of those agencies, the Office of Comptroller of the Currency, had repeatedly encouraged banks to thumb their noses at the handful of state regulators who were trying to crack down on predatory lending in the years leading up to the 2008 financial crisis.

As a remedy, Warren urged Congress to establish a watchdog agency with the full-time job of guarding consumers against deceptive and unfair practices in the financial marketplace, removing dangerous products before they could be peddled to the public.

Five years later, Warren was free to run for the U.S. Senate because the financial industry and its allies had blocked her appointment as director of the agency that Congress had gone ahead and created as part of the Dodd-Frank financial reform law. (Another birthday there: Dodd Frank was signed into law in July 2010 – seven years ago.)

Fortunately, President Barack Obama found a highly capable candidate in former Ohio Attorney General Richard Cordray. Under his leadership, the Consumer Bureau has racked up an impressive record of accomplishment. All told, CFPB enforcement actions have delivered more than $17 billion in financial relief to roughly 29 million consumers cheated in various ways by financial companies large and small.

Through its rulemaking and supervision as well as enforcement work, the Bureau has challenged a number of the financial industry’s cherished tricks and traps, like mortgages with teaser rates that adjust sharply upward after a year or two, and auto loan incentives that cause borrowers of color to be charged more than white borrowers of the same credit-worthiness. The CFPB has gone after abusive practices on the part of debt collectors, check cashers, private student lenders, and bogus “credit repair” services, as well as large-scale fraud committed by some of the country’s biggest banks, including JP Morgan Chase, Bank of America, and Wells Fargo.

In short, this is an agency that has been doing its job, standing up for ordinary consumers and resisting the power of the financial industry. But that power remains very great.

Since last fall’s elections, Wall Street lobbyists and their allies in Congress and the Trump administration have waged an all-out campaign to undermine the Bureau’s funding and authority as well as a number of its specific actions. Just this week, they launched an effort, with wide backing in both the House and Senate, to undo a CFPB rule reining in the industry’s use of fine-print forced arbitration clauses with class-action bans.

The industry’s attachment to this practice is easy to understand. Arbitration can be a just and efficient mechanism for resolving disputes between relatively equal parties who voluntarily agree to it. But the process works very differently when one party is a huge corporation and the other is a lone consumer required by a take-it-or-leave-it contract to direct all complaints of illegality to a private arbitration firm – one that has typically been chosen and paid by the company. The damages suffered by any one victim, moreover, are almost never large enough to justify the cost of pursuing a grievance, regardless of the venue. Thus the great majority of wronged consumers, once they learn that individual arbitration is the only path open to them, decide to do nothing. That’s just what happened, for example, with many of the victims of Wells Fargo’s phony accounts, enabling the bank to keep its scam under wraps for years.

In the same way, payday lenders have used these clauses to go on making triple-digit interest loans in defiance of state laws. Arkansas, for example, has a 17-percent interest rate cap inscribed in its constitution; yet it took authorities many years to make headway against lenders who continued to operate there, relying on arbitration clauses to squelch resistance.

This fight is crucial because forced arbitration, in practice, functions as a Get Out of Jail Free card for banks and lenders, allowing them to chisel lots of money out of lots of people, a little at a time. Naturally, the lobbyists and their political allies claim to be defending the “right” of consumers to choose arbitration. In reality, consumers have no say in the matter. The point of the CFPB rule is precisely to give them a choice.

Unsurprisingly, the great majority of Americans support the CFPB on this question, just as they want the Consumer Bureau itself to survive as a strong and effective agency.

It will if lawmakers heed their constituents and stop regurgitating Wall Street’s nonsensical talking points.

— Jim Lardner

Oppose Wall Street’s CHOICE Act

“This terrible bill ignores the lessons of the financial crisis and includes a huge list of giveaways to Wall Street,” said Lisa Donner, executive director of Americans for Financial Reform. “Though it may work for Wall Street and assorted predatory lenders, it is dangerous policy that is bad for financial stability, bad for consumers, bad for investors, and bad for the real economy.”

Call it what it is: Wall Street’s CHOICE Act. A detailed analysis of the bill can be found here. In broad terms it would:

  • Create unprecedented barriers to regulatory action that would effectively give large financial institutions veto power to overturn or avoid government oversight.
  • Eviscerate the Consumer Financial Protection Bureau and make it impossible for it to act forcefully against unfair or abusive practices in consumer lending markets.
  • Eliminate critical elements of regulatory reforms passed since the financial crisis, including restrictions on subprime mortgage lending, the Volcker Rule ban on banks engaging in hedge-fund like speculation, and restrictions on excessive Wall Street bonuses.
  • Increase the ability of “too big to fail” financial institutions to hold up taxpayers for a bailout by threatening economic disaster if they failed.
  • Weaken investor protections and accountability in the capital markets, including the elimination of crucial new fiduciary protections for retirement savers.

“The level of venom directed at the Consumer Financial Protection Bureau, an agency that is successfully carrying out its mission of preventing tricks and traps that harm American families, is astounding,” Donner said. “The changes proposed by the legislation only make sense if you want to weaken consumer protections and make it easier for Wall Street, and predatory lenders, to profit by cheating people.”

Wall Street’s CHOICE Act would:

  • End the Consumer Bureau’s authority to supervise large banks, returning to the failed consumer regulatory model that brought us the financial crisis.
  • Take away the Consumer Bureau’s core authority to take on unfair, deceptive and abusive practices, a power that has enabled the Bureau to stop Wells Fargo from opening fake accounts in their customers’ names; prohibit lenders from making false threats in debt collection; and refund consumers tricked into paying for worthless credit card add-ons.
  • Limit supervision of non-bank financial companies.
  • Undermine the Consumer Bureau’s independence, making it subject to the whims of the White House and Wall Street lobbyists.
  • Eliminate all CFPB jurisdiction over payday and title loans, preventing it it from taking on the unaffordable lending at the heart of the payday debt trap, and also from acting against payday lenders that break the law.
  • Stop the Consumer Bureau’s rulemaking on forced arbitration, which is otherwise on track to restore consumers rights to hold financial institutions accountable in court if they break the law..
  • Create massive loopholes in the rules put in place to discourage the kind of unaffordable mortgages that were at the heart of the foreclosure crisis.
  • Hide the public consumer complaint system that has been so useful in making financial companies more responsive to their customers.

NetSpend Stealthily Settles FTC Charges Ahead of Fight Over CFPB Prepaid Card Rules

The Georgia company leading the charge against new rules for prepaid cards has agreed to refund $53 million for denying customers’ access to their own money despite ads promising “instant access.”

The under-the-radar settlement between NetSpend and the Federal Trade Commission was released late last Friday night, just two days after Senator David Perdue and other Georgia lawmakers quietly moved to utilize an obscure law to block the Consumer Financial Protection Bureau’s prepaid card rule. That rule would guard consumers against fraud, improve disclosures of hidden fees, and limit – although not prohibit – prepaid cards with overdraft features that turn the cards into high-cost credit products.  The rule also protects workers by requiring employers to disclose fees on payroll cards before employees sign up and making sure that workers know they do not need to accept their pay in that form.

Prepaid cards should be just that: prepaid, as are 98 percent of such cards currently on the market. NetSpend is the big exception to the rule – the only major prepaid company with opt-in overdraft fees, deceptively marketed as “protection.” NetSpend primarily sells its cards, which can repeatedly trigger $15-$25 overdraft fees, through payday lenders and employers, such as fast food chains. The company’s biggest single distributor is the payday lending chain ACE Cash Express. NetSpend cards are also unusual in permitting payday lenders to debit accounts on a user’s payday, potentially triggering an overdraft fee.

The company is fighting the CFPB rule because, it has told investors, it stands to lose roughly $80 million in fees annually if the rule goes through.

Users of prepaid cards often live paycheck to paycheck. But after wooing customers with ads promising “guaranteed approval” and “immediate access” to funds with “no waiting,” NetSpend kept some people waiting for weeks, or never approved them at all, even after they had loaded money onto their cards. The FTC order prohibits NetSpend from misrepresenting its card activation procedures in the future, in addition to requiring the company to return $53 million to those who were denied access to their money.

Largely at NetSpend’s behest, lawmakers have filed resolutions in both the House of Representatives and the Senate, invoking the rarely used Congressional Review Act to keep the CFPB’s prepaid card rule from taking effect. If the resolutions are approved, the consumer watchdog will be forever barred from enacting a substantially similar rule without Congress’s permission.

The largest prepaid card company, Green Dot, supports the CFPB’s rule, which basically assures prepaid card users of protections they already enjoy with credit and debit cards. In fact, no prepaid card company other than NetSpend has come out against the rule. It would be outrageous for Congress to block these common sense protections for millions of Americans simply in order to allow a single company to keep gouging cash-strapped families with overdraft fees to the collective tune of $80 million or more a yea

The prepaid card rule is scheduled to go into effect on October 1, 2017, although the CFPB has agreed to extend the effective date until to April 1, 2018, to allow companies more time to bring their practices into full compliance. — Lauren Saunders

Lauren Saunders is Associate Director of the National Consumer Law Center
Related National Consumer Law Center Related Materials:

 

Ahead of CFPB Rule, Congress Prepares for a Showdown over the Future of Forced Arbitration and Consumer Class Actions

Image credit: Johnny Silvercloud (CC BY-SA 2.0)

Last week, lawmakers laid the groundwork for a battle over consumer rights and forced arbitration that likely will play out through the spring.

First, congressional Democrats introduced several bills to restore consumers’ right to hold corporations accountable in court for wrongdoing. Led by U.S. Sen. Al Franken (D-Minn.), lawmakers on March 7 introduced a slate of bills aimed at ending the use of forced arbitration in various sectors. Forced arbitration provisions, also known as “ripoff clauses,” block consumers from challenging illegal corporate behavior.

Lawmakers were joined at a packed press conference by people who had been harmed by forced arbitration: a veteran illegally fired from his job while serving in the military and blocked from suing his employer; a victim of Wells Fargo fraud whose class action was kicked out of court; and former news anchor Gretchen Carlson, barred from speaking out about sexual harassment she had suffered at Fox News.

Among the bills introduced were Franken’s Arbitration Fairness Act, which would prohibit forced arbitration in consumer, employment, civil rights, and antitrust cases and Sen. Sherrod Brown’s (D-Ohio) Justice for Victims of Fraud Act, which would close the “Wells Fargo loophole” by restoring consumers’ right to sue when banks open fraudulent accounts without their knowledge.

However, in stark contrast to this push to strengthen rights and restore corporate accountability, GOP lawmakers began pressing to make it harder for consumers to band together when harmed and take corporations to court.

Two days after the Franken press conference, the House passed H.R. 985, the so-called “Fairness in Class Action Litigation Act” would effectively kill class actions by imposing insurmountable requirements to file group lawsuits. This would make it nearly impossible for consumers to hold corporations accountable for illegal and abusive behavior.

Among other onerous provisions, H.R. 985 would require that each harmed person suffer the “same type and scope of injury.” Under this absurd standard, a Wells Fargo customer with two fake accounts opened in his or her name could be barred from joining together with customers who had three fraudulent accounts. The bill also would build in costly and unnecessary delays and appeals, limit plaintiffs’ choice of counsel, and drastically restrict attorneys’ fees.

Joining together in a class action often is the only chance real people have to fight back against widespread harm, including corporate fraud and scams – particularly when claims involve small amounts of money, where it would be too costly for an individual to pursue a separate claim. Class actions have also been critical vehicles for overcoming race- and gender-based discrimination and have been instrumental in achieving victories as momentous as desegregation of our schools, as was the case in Brown v. Board of Education.

Beyond protecting the rights of the disadvantaged, class actions act as a crucial check on corporate misbehavior by returning money to harmed consumers and workers. Removing the threat of class liability would encourage systemic fraud, as banks and lenders that pad their bottom lines by committing fraud would have a competitive advantage in the marketplace.

In the financial sector, the proposed CFPB arbitration rule is a major target of financial industry lobbyists precisely because it would restore the right of consumers to join class action lawsuits. According to the CFPB’s arbitration study, class actions returned $2.2 billion in cash relief to 34 million consumers from 2008-2012, not including attorneys’ fees and litigation costs. While the CFPB rule is expected to be finalized this spring, it would be rendered largely ineffective should H.R. 985 become law.

You can watch our video against H.R. 985 here and follow developments on Twitter using the hashtag, #RipoffClause.

Faces of Forced Arbitration

Stories of consumers harmed by forced arbitration in financial services contracts.

Photo credit: Juli Shannon (CC BY-NC-ND 2.0)

This afternoon, lawmakers introduced several pieces of legislation to curb the growing use of “ripoff clauses” and ensure harmed consumers, service members, students, and workers have a right to fight back in court against corporate wrongdoing. Known as forced arbitration, this practice strips Americans of any meaningful way to hold companies accountable for fraud or abuse and grants corporations a license to steal to pad its bottom line.

Forced arbitration no place in any system that is fair to everyday people. The bills introduced today would work hand-in-hand with a rule proposed by the Consumer Financial Protection Bureau (CFPB) to restrict the financial industry’s use of forced arbitration. Below are the stories of several real people harmed by forced arbitration, who would benefit from this newly-introduced legislation and the proposed CFPB rule.

Credit Cards

Tracy Kilgore, New Mexico

In July 2011, Tracy Kilgore went to a local Wells Fargo branch to change a signature card on behalf of the Daughters of the American Revolution, where she volunteered as Treasurer. Tracy did not personally bank with Wells Fargo or have any accounts with them. The bank teller asked her for her name and ID and began typing away her computer, and she promptly left once the change was processed.

Two weeks later, Tracy received a letter from Wells Fargo saying her credit card application had been rejected, though she never applied for one. When she saw the application was filed the day after she had visited the Wells Fargo branch, it became clear the bank tried to open a fraudulent credit card in her name. After Tracy found the rejected application was listed on her credit report, she called and wrote to Wells Fargo for months asking them to remove it. The bank kept saying it would take another 7-10 days, then another 2-3 weeks, to no avail. In the end, she never even got an apology.

Now, Tracy has joined with other defrauded customers in a class action lawsuit against the bank, but Wells Fargo is trying to force each consumer to fight them one-by-one in a biased and secretive arbitration system. Even though Tracy has never banked with Wells Fargo, their lawyers are trying to block her from suing them in court by pointing to an arbitration clause she never signed.

Auto Financing

Sergeant Charles Beard, California

Sergeant Charles Beard was about to be deployed to Iraq and asked for some help making his car payments. His lender, Santander Consumer USA, Inc., offered him a forbearance for a few months, but in exchange, had Sergeant Beard sign a modified lease agreement. Little did he know, a forced arbitration provision was buried in the fine print.

While serving his country in Iraq, Sergeant Beard fell behind in his payments.  Men came to his home and repossessed the car – breaking federal law, which protects active duty soldiers by requiring lenders to obtain court orders before seizing their cars. Sergeant Beard brought a class action against the lender with other soldiers to enforce their protections under federal law, but their claims were thrown out due to a class action ban in the arbitration clause.

Payday Loans

Stephanie Banks, Oregon

In August 2013, Stephanie Banks made $15 an hour as a bookkeeper for the Salvation Army. To help pay rent for her and her son, she took out a $300 loan from the payday lender Rapid Cash, putting up the title to her car as collateral. Her interest rate was capped at 153.73% per year under state law.  Soon after, Ms. Banks started chemotherapy to treat her lung cancer and retired from her job. A year later, she was in serious financial trouble, and had to declare bankruptcy. She listed the loan from Rapid Cash as a debt to discharge and finished the process in court with a lawyer.

Then, in August 2015, Ms. Banks almost had a heart attack when she received a letter from a collection service, claiming she owed Rapid Cash over $40,000. They threatened to destroy her credit if she did not pay immediately. Ms. Banks filed a free motion in court to dispute the $40,000 claim. Rapid Cash responded by pointing to an arbitration clause, buried in the fine print of the original agreement she signed two years earlier. The court ruled the clause still held and Ms. Banks would have to argue her case to a private arbitration firm chosen by Rapid Cash. To do this, she would have to pay $200 in arbitration fees, almost as much as her original loan.

Debt Relief

Bernardita Duran, New York

Bernardita Duran was 53 years old with only $700 in Social Security income when she paid an Arizona debt relief company to settle her credit card debts. Four thousand dollars later, Ms. Duran realized she had been scammed. She sued the company in New York federal court to get her money back, but the company pointed to a clause in their contract which stated her claims must be decided a private arbitrator – located in Arizona.

Ms. Duran protested that she could not afford to travel to Arizona, as it would cost more than a month’s worth of her income and prevent her from making rent. But the appeals court ruled that only the arbitrator in Arizona could decide if Ms. Duran could bring her claim in New York – meaning she would have to first travel across the country to Arizona to argue to the arbitrator that it’s unfair and unconscionable to force her to arbitrate her case there.

Private Student Loans

Matthew Kilgore, California

Ever since he was a child, Matthew Kilgore wanted to be a helicopter pilot. Mr. Kilgore thought he was on his way to achieving his dream when he enrolled at Silver State Helicopters, a for-profit aviation school that offered pilot training and certification. At the school’s recommendation, Mr. Kilgore took out a $55,000 private student loan from lender Keybank to cover his tuition. But Mr. Kilgore’s ambitions came to a sudden end in 2008 when his school abruptly went out of business and filed for bankruptcy, leaving students with tens of thousands of dollars in student loans but no marketable skills or diplomas. Since then, his loans nearly doubled to $103,000 with accrued interest.

Mr. Kilgore filed a lawsuit on behalf of himself and other Silver State students against Keybank to prevent them from enforcing their loan agreements or ruining the students’ credit. However, Keybank loan contracts contained an arbitration clause which prohibited class actions. An appeals court ruled the students would have to settle disputes with Keybank individually in arbitration. Meanwhile, other Silver State students who had similar loans with Student Loan Express, Inc. got $150 million in debt relief because their loan agreements did not include an arbitration clause.

Five big arguments against a move to fire Cordray

They’re spinning hard.

​Lobbyists for big Wall Street banks and predatory lenders are pushing the Trump Administration to fire CFPB Director Richard Cordray, and they’re telling reporters it’s a done deal. They’re hoping their spin will make it so.

They don’t want the Trump team to think before they act. And that’s understandable, because firing Cordray would be a terrible idea, as well as an unlawful one. Here are five reasons why:

#1 The CFPB has done a world of good for consumers. Since it got up and running less than six years ago, this agency has been bringing basic rules of fair play to the financial marketplace. Through its enforcement actions and complaint system, the Consumer Bureau has delivered some $12 billion in financial relief to more than 29 million Americans cheated by financial companies large and small.

#2 Students, servicemembers, veterans, and seniors would raise hell. The CFPB has been steadfastly in the corner of our nation’s service members and veterans, working with the Defense Department to close loopholes and make sure that the 36 percent APR limit on consumer loans to servicemembers and their dependents actually works,  while taking enforcement actions against a succession of financial fraudsters who specialize in exploiting military families. The Bureau has also stood up for student loan borrowers with actions such as its recent lawsuit against Navient, charging the nation’s largest servicer of student loans with an array of deceptive practices. And it has been aggressive in combating the growing problem of financial exploitation of the elderly.

#3 The CFPB is hugely popular. By refusing to be cowed by the payday lenders, the big banks, and their Congressional buddies, Cordray and his agency have made quite a few powerful enemies. But they have also a vast number of devoted friends. Across party lines, voters have an overwhelmingly favorable view of the CFPB and its work. Trump voters are no different: by a margin of 55 to 28 percent, they oppose efforts to weaken or eliminate this agency.

# 4 The White House would have a vexingly hard time explaining a move to fire the CFPB’s Director. Many people voted for Donald Trump in part because of his countless promises to stand up to the power of Wall Street. Attempting to remove Director Cordray would be an obvious cave-in to the financial industry. It would not go unnoticed.

# 5 He would almost certainly not get away with it. The CFPB is by law an independent agency, and not part of the Administration. Director Cordray’s term runs through July 2018, and the law says he can be removed only “for inefficiency, neglect of duty, or malfeasance in office.” Despite their feverish efforts, hostile lawmakers have been unable to come up with any charge that would pass the laugh test, and  no president has ever yet succeeded in removing an appointee for cause.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Mnuchin foreclosed on thousands, becoming known as the Foreclosure King

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

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

Mnuchin’s foreclosure practices also targeted vulnerable communities:

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

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

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

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

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

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

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

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

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

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

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

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

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

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