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.

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

Prepaid Cards Should Truly be Prepaid

The prepaid card market is relatively new, and growing quickly — the number of prepaid transactions increased from 1.3 billion in 2009 to 3.3 billion in 2013. AFR has urged the CFPB to establish rules that will ensure consumers are protected in this growing market. And the CFPB has proposed to do just that.

Last month, AFR and 44 members of our coalition submitted a comment letter spelling out a number of ways in which prepaid cards need to be made safer and fairer. Now we have delivered a petition in which more than 8,500 people urge the CFPB to move ahead with rules to keep prepaid cards from being loaded up with tricks or traps.

Prepaid cards are essentially debit cards that are not tied to an individual bank account (although it is becoming more common for banks to offer them). Prepaid cards can be used by employers in lieu of paychecks, or by colleges as a way to get financial aid to students. They are also often used by individuals who have been shut out of bank accounts or hit with too many bank overdraft fees. Prepaid cards can be very useful for some consumers, but they can also come with significant disadvantages—and lack basic consumer protections that apply to debit and credit cards.  Some are linked to payday-like loan features, or to fees that consumers don’t see coming. Sometimes colleges or employers steer students or employees into accepting funds on prepaid cards instead of a personal bank account – a practice that can create problems, such as a shortage or absence of free ATMS, the inability to write checks, and a lack of paper statements.

The CFPB proposal takes a number of important steps to offer greater protections for consumers and to advance a priority of ours – keeping prepaid cards actually prepaid, so that users can only spend dollars loaded onto the cards, and cannot overdraft, triggering high fees as a result.  The proposed rule very substantially limits, but does not totally prohibit, overdraft fees.

The petition asks the Bureau to make sure that prepaid cards have “no overdraft fees or credit features that cause people to spend more money than they have put on the card, and charge them extra for the ‘privilege….’ As you move forward in the rule-writing process, we strongly support the separation of prepaid from credit products, the elimination of overdraft fees, increased protections for those at risk of being steered to higher-cost payroll cards by their employers or schools, and the adoption of basic consumer protections that already apply to ordinary credit cards and bank accounts.”

The public comment period on the Bureau’s proposal ended in late March. A final rule is expected later this year or early next year.

 — Rebecca Thiess

Off the Deep End

Wall Street bonuses are back in the spotlight. The 2014 figures are out, and so is a new study by the Institute for Policy Studies: “Off the Deep End: The Wall Street Bonus Pool and Low-Wage Workers.” Last year, it shows, the nation’s bankers got bonuses adding up to more than double the combined earnings of the nation’s full-time minimum-wage workers.

Since the first group is far smaller than the second (167,800 bankers versus a minimum-wage workforce of just over a million), this works out to an even more astonishing per-person gap: while the average minimum wage earner made $13,903, the average banker got a bonus of $169,845 – and, of course, that’s extra money, above and beyond the banker’s base pay.

Numbers like these raise profound questions of economic justice. They also remind us of the role that reckless Wall Street pay practices played in the 2008 financial meltdown, and of reforms enacted by Congress that were intended to do something about that problem.

The Dodd-Frank Act included two pay-related provisions. Section 956 prohibits compensation practices that incentivize dangerous behavior on the part of Wall Street traders and executives. And Section 953 requires all publicly traded companies to disclose the gap between the pay of their CEO, on the one hand, and their median employee, on the other. The idea was to help shareholders guard their pocketbooks against self-seeking executives and better evaluate the long-term soundness of companies in light of evidence that runaway pay at the top inhibits teamwork and reduces employee morale and productivity.

Neither of these provisions has been implemented, however. Last fall, SEC chair Mary Jo White said she expected her agency to complete action on Section 953 by the end of 2014. But since she said that, her agency has been silent, while Wall Street lobbyists have continued to fight the idea – and to make absurd claims about the supposedly burdensome costs of compiling the information.

When it comes to Section 956, the situation is more promising. Federal regulators came out with a woefully inadequate proposal, calling for a modest delay between the awarding and payout of bonuses for a limited number of senior executives, in 2011; and let the matter slide for the next three years. In recent months, however, the Administration has highlighted the importance of this provision, with President Obama  urging regulators to act and Treasury Secretary Jacob Lew identifying pay reform as a high-priority task. And now the responsible regulators are working on a whole new draft proposal which we hope and expect will be stronger.

Meanwhile, European Union officials have come out with guidelines limiting executive pay at financial firms to 100% of base salary, or 200% with shareholder approval. Perhaps the forthright attitude of EU regulators on this issue is beginning to catch on in the U.S.

— Nickolai Sukharev