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.

Goldman Sachs Is Riding High Over Trump

By Carter Dougherty

Over the past month, Goldman’s share price has hovered above its previous all-time high which was set in late 2007, just before the worst financial crisis since the Great Depression hit the global economy. That’s a 42 percent increase since Trump’s election!

The business press knows why. Bloomberg News: The share price has rallied on optimism that the Trump administration “will spur trading and dealmaking, slash corporate taxes and roll back costly regulations after installing the firm’s executives in top government posts.”

Today’s news: Trump has nominated Goldman alumnus Jim Donovan to be deputy Treasury secretary.

Goldman Sachs alumni are assuming more powerful positions in Washington than ever before.

He’ll have plenty of company. There’s Gary Cohn, director of the National Economic Council in the Trump White House. And Treasury Secretary Steve Mnuchin, the former Goldman banker who lied to Congress about his role in the fraudulent processing of foreclosure documents.

Dina Powell is also in the White House, having been an adviser to Trump’s daughter, Ivanka, from her perch at Goldman. Trump’s close adviser and far-right media maven Steve Bannon also worked there. And, Trump’s nominee to run the Securities and Exchange Commission, Jay Clayton, has long been a Goldman lawyer from his perch at Sullivan & Cromwell.

“Cohn and Mnuchin are poised to preside over a rollback of financial regulations that arguably threatened Goldman more than any other top bank in the years following the financial crisis,” Bloomberg pointed out.

Even the Financial Times finds this level of self-dealing by Goldman embarrassing

“It is becoming awkward for Goldman,” writes longtime Financial Times columnist John Gapper. “Having former executives in governments and central banks around the world is useful, as is the prospect of looser regulation. Being visible at the helm is embarrassing, especially when executive power is clearly being used to Wall Street’s benefit.”

Goldman employees enjoy huge Goldman bonuses before joining government

Goldman gave Cohn a severance package of nearly $300 million when he left the firm, a huge golden parachute that makes it even cushier for executives to work in the government.

“They’re playing a game, and they’re playing a game to make this person feel beholden to Goldman Sachs,” Richard W. Painter, a professor at the University of Minnesota Law School and former Bush administration official, told The New York Times.

Appointees are involved with policy affecting Goldman, no matter the “recusals”

Cohn has let it be known through anonymous sources that he will recuse himself from anything “directly” affecting Goldman. But the comment only underscores how serious the problem is. The White House isn’t supposed to involve itself in enforcement at all, nor should it jump into the regulatory process at independent agencies. So as a matter of course he should not be involved in this kind of matter “directly” involving the company. And what does “directly” mean?

He is already deeply involved in matters bearing on Goldman’s profits. He and Treasury Secretary Mnuchin are both working, for example, on plans to roll back the Volcker Rule, a regulation that protects the economy by barring big banks from speculating with their customers’ money. It also stops Goldman from profitable activities it would love to continue.

 

New Report Shows Wall Street Benefits from Huge Tax Subsidies

Twenty-three major American financial firms – including Goldman Sachs, JP Morgan Chase, State Street, PNC Bank, and Wells Fargo – received over $95 billion in tax benefits from 2008 to 2015, according to a new study. Loopholes in federal policy lowered their effective tax rate from the headline 35 percent to below 20 percent – a reduction that increases the fiscal burden on everyone else.

The Institute for Taxation and Economic Policy examined taxes paid by 258 Fortune 500 corporations over the past eight years, and how these taxes compared to what would be paid if these companies paid the full corporate tax rate of 35 percent.

The institute found that these companies enjoyed huge tax subsidies that lowered their tax rates far below the 35 percent rate set in the law,.

The 23 financial firms in the study – including such major banks as Goldman Sachs, JP Morgan Chase, State Street, PNC Bank, and Wells Fargo – received over $95 billion in total tax benefits over the study period.

Some $69 billion of these tax benefits were received by just four highly profitable banks: Wells Fargo, JP Morgan Chase, PNC Bank, and Goldman Sachs.

A few banks, such as State Street and PNC Bank, paid tax rates well under 10 percent. We do not have the data to determine precisely which tax loopholes created these massive benefits, although the ability to move profits to lower-tax foreign jurisdictions likely played a role. But one tax loophole that clearly was highly beneficial to many financial institutions was the ability to write off the giant stock option payments made to their top executives.

Goldman Sachs, for example, reduced its 8-year tax bill by almost 20 percent just using this one loophole.

As large as it is, this tax subsidy of nearly $100 billion is certainly a major underestimate of the tax benefits flowing to the financial sector.

Only 23 financial firms were included in the study, because it was limited to Fortune 500 public companies that had made profits — and therefore had tax liability — over every year in the study period. This rule meant that major banks like Citibank, Morgan Stanley, and Bank of America weren’t included in the study, to say nothing of numerous other companies that were either private companies or too small to be included.

Source: http://www.itep.org/pdf/35percentfullreport.pdf

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.

Consumer Bureau and NY Atty Gen’l Go After First Responder Scam

The list of hazards faced by first responders to the Sept 11th terror attacks is a long one. In addition to cancer, respiratory disease, and post-traumatic stress, the perils include financial scammers out to raid their medical compensation benefits.

In a federal lawsuit filed earlier this month, the Consumer Financial Protection Bureau (CFPB) and the New York Attorney General’s Office accuse a New Jersey company, RD Legal, of targeting firefighters, paramedics and police officers who rushed into the rubble of the World Trade Center.

“We allege that this company and its owner lined their pockets with funds intended to cover medical care and other critical expenses for people who are sick and sidelined,” Consumer Bureau  Director Richard Cordray said.

RD Legal’s modus operandi, according to the CFPB’s complaint, was to “swoop in” after victims had been awarded compensation but before they received it. The company would offer to “convert your settled cases into immediate cash,” and then charge illegally high interest on top of fees buried in the fine print of a long contract; some of its loans ended up costing the equivalent of 250% annual interest, the two agencies allege.

The Consumer Bureau was created after the 2008 financial crisis to do a simple job: get banks and lenders to treat people fairly. One way it does this is through enforcement actions which have so far delivered nearly $12 billion in refunds and relief to some 17 million Americans cheated by financial companies large and small.

In the RD Legal case, the Bureau is seeking to end the scam, impose monetary penalties, and force the company to return what could be millions of dollars to affected consumers. One of the potential beneficiaries is Elmer Santiago, a NYC police officer who was living in his jeep when he agreed to borrow $355,000. Eighteen months later, RD Legal handed him a bill for $860,000.

The company also pitched its services to former football players entitled to compensation from the NFL for neurological diseases such as CTE, Parkinson’s and Alzheimer’s. Contracts labeled “assignments and sale agreements” did not disclose interest rates because, RD Legal claimed, “the transaction is not a loan.”

Some people may have been seduced by the company’s promises to “cut through the red tape” and speed up their compensation. In fact, RD Legal provided no such help, according to the lawsuit.

RD Legal is a hedge fund and a player in what is known as the litigation finance industry, using wealthy investors to bankroll cash advances for lawsuits and settlements.The owner and founder of RD Legal, Roni Dersovitz, was named in the action, along with two affiliate entities. Dersovitz was previously sued by the SEC for defrauding investors and exploiting Beirut bombing victims.

— Madison Moore and Jim Lardner

 

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

Two of the Nation’s Three Largest Credit Reporting Agencies Deceived Consumers About the Value and Cost of their Products

The Consumer Financial Protection Bureau (CFPB)’s first enforcement action of 2017 will return more than $17 million to consumers who were deceived into purchasing unneeded credit reporting products. On January 3, 2017, the CFPB issued a consent order against TransUnion, LLC (TransUnion) and Equifax Inc. (Equifax) and their respective subsidiaries and affiliates for making false claims about the usefulness and actual cost of the companies’ credit score services.

TransUnion and Equifax are two of the nation’s three largest credit reporting agencies. They collect consumers’ credit information in order to generate credit reports and scores to be used by businesses to determine whether to extend credit.  These companies also sell their own products directly to consumers, including credit scores, credit reports, and credit monitoring.

According to the order, TransUnion and Equifax told consumers that they would receive the same score typically used by lenders to determine their creditworthiness.  But that claim was false: in fact, the scores they sold to consumers were rarely used by lenders. Since at least 2011, TransUnion has been using a credit score model from VantageScore Solutions, LLC (VantageScore) — a model not used by the vast majority of lenders and landlords to assess consumers’ credit. Similarly, between July 2011 and March 2014, Equifax used its own proprietary credit score model, the Equifax Credit Score, which was in the form of “education credit scores” and thus intended for consumers’ educational use and rarely used by lenders.  In fact, the most widely used scores in lending are FICO scores.

TransUnion and Equifax also falsely advertised the price of their services.  They told consumers that their credit scores and credit-related products were free, or in the case of TransUnion, cost only “$1.” In reality, the companies required consumers to sign up for either a seven-day or 30 day free trial period of credit monitoring, which then automatically turned into a monthly subscription costing $16 or more per month, unless the consumer had cancelled by the end of the free trial. This payment structure, called “negative option billing,” was not adequately disclosed in the companies’ ads.

Credit reporting agencies are required by law to provide a free credit report once every 12 months. They are not allowed to advertise add-on services until “after the consumer has obtained his or her annual file disclosure.” The CFPB found that Equifax violated that requirement.

The CFPB has ordered TransUnion to pay more than $13.9 million in restitution to affected consumers, and Equifax to pay almost $3.8 million, in addition to fines of $3 million and $2.5 million respectively. The companies have also been directed to truthfully and clearly describe the usefulness of their credit score products, and to obtain consumer consent before enrolling anyone in automatic billing.

Consumers who want access to their credit reports for free should go to the official source: www.annualcreditreport.com. They can stagger their requests by ordering one report from each of the Big Three credit reporting agencies (Equifax, Experian, and TransUnion) every four months, essentially obtaining “credit monitoring for free.” In addition, many consumers can now get a FICO score for free through the FICO Open Access program from participating credit card companies or nonprofit credit counselors.

— Veronica Meffe

CFPB Stops Companies from Lying to Seniors about Reverse Mortgages

This month the Consumer Financial Protection Bureau (CFPB) took action against three reverse mortgage companies for promising seniors a financial product that was too good to be true. The CFPB’s investigation determined that several of the claims the companies made in TV and print ads were not true. All three companies “tricked consumers into believing they could not lose their homes” with a reverse mortgage, CFPB Director Richard Cordray said in a statement accompanying the Bureau’s announcement of the settlements it has reached with Reverse Mortgage Solutions, Aegean Financial, and American Advisors Group,  which is the largest reverse mortgage lender in the United States.[1]

A reverse mortgage is a special type of home loan for homeowners who are 62 or older, that converts a portion of the equity that has been built up over years of paying a mortgage, into cash. Homeowners do not have to repay the loan until they pass away, sell, or move out of the house, or fail to meet the obligations of the mortgage.  These three companies promised consumers that their reverse mortgages would eliminate debt without any monthly payment obligation.  In fact, a reverse mortgage is itself a debt[2] and consumers are required to make regular payments related to the home, including for property taxes, insurance and home maintenance.[3] Consumers can default on a reverse mortgage and lose their home if they fail to comply with the terms of the loan, including making such payments.

The CFPB settlement requires the three companies to make clear and prominent disclosures of the possible dangers of reverse mortgages in their future adds, and to pay a  combined $800,000 in penalties

The CFPB provides information for consumers about reverse mortgages on its website.

— Veronica Meffe

[1] Consent Order in the Matter of American Advisors Group, No. 2016-CFPB-0026 (Filed Dec. 7, 2016), at 6 (“American Advisors Group Consent Order”).
[2] Id., at 11.
[3] Id., at 9.