Consumer Law & Policy Blog

"Mick Mulvaney Is Having a Blast Running the Agency He Detests"

That's the name of this article by Devin Leonard and Elizabeth Dexheimer. A key passage sets out what Mulvaney has done already and his vision for the agency:

Six months into his tenure, Mulvaney is doing everything he can to transform the CFPB from a regulatory crown jewel of liberals into one that he says follows the law, at least according to his interpretation. Along with reshuffling its initials, he’s reviewing its enforcement, supervisory, and rule-making functions. He’s frozen data collection in the name of security, dropped enforcement cases, and directed staff to slash next year’s budget. He also wants to curb the agency’s independence by giving Congress—rather than the Federal Reserve—control of its spending, and replace the powerful director position he fills with a five-person commission. The ultimate goal, he says, is to move the CFPB beyond the realm of partisan bickering and turn it into what he calls one of the “gold-standard” regulators, like the U.S. Securities and Exchange Commission. To do that, he says he’ll have to disassociate the CFPB from its origins. “We are still Elizabeth Warren’s child,” he laments. “As long as we’re identified with that one person, we’ll never be taken as seriously as a regulator as we should.”

Will higher gas prices wipe out the middle-class gains, if any, from the tax cut? And is that Trump's fault?

Ben White at Politico has written this piece on surging gas prices and whether the cost to consumers is gobbling up gains, if any, to the middle class from the tax cut. Here's an excerpt:

President Donald Trump is hoping a wave of tax-cut-fueled economic euphoria will boost his approval ratings and his party’s political fortunes this fall. A sharp spike in gas prices could slam the brakes on all of that. As Americans head out for traditional Memorial Day weekend road trips, they’ll confront gas prices of nearly $3 a gallon, the highest since 2014 and a 25 percent spike since last year. The increased cost of fuel is already wiping out a big chunk of the benefit Americans received from the GOP tax cuts. And things could get worse as summer approaches following the administration’s standoff with Iran and a move by oil-producing nations to tighten supplies.

Public Citizen blames Trump for increases in gas prices, citing (1) the roll-back of Obama-era fuel-economy standards, (2) Trump's failure to reverse Obama's lifting of the oil export ban (that sounds more Obama's fault, even if it's Trump's too), and (3) pulling out of the Iran nuclear deal.  

My Latest Op-ed: The Consumer Financial Protection Bureau, leaving the public high and dry

Here, in the Daily News. Excerpt: 

Mulvaney once called the bureau a "sad, sick joke" and co-sponsored a bill to eliminate it. The solution he has adopted to run an agency he thinks should not exist is to "be a good bureaucrat," and do what the law requires — but no more. Mulvaney even extends this strict-construction approach to congressional testimony: He explained that he did not have to answer questions from the members of Congress because the statute said he had to "appear" before them but said nothing about responding to their queries — though he did so.

A problem with this grudging approach is that no legislature can write statutes to prohibit all the ways businesses devise to take advantage of consumers. When the bureau, then led by Obama appointee Richard Cordray, fined Wells Fargo $100 million for opening millions of unauthorized accounts, it did not rely on a statute that said banks cannot open sham accounts, because there is no such statute. Instead, the bureau used the more general authority Congress had given it to punish banks for unfair and abusive practices.

But a Consumer Financial Protection Bureau that interprets those powers as applying only to Wells Fargo will not provide consumers needed protection against other financial institutions. And not even Wells Fargo would have to worry if the Republican-controlled House of Representatives gets its way on a bill it passed to do away with the bureau's power to sue financial institutions for unfair and abusive practices.

CORRECTION: As Jonathan Joshua has pointed out to me, 15 USC § 1642 prohibits the issuance of credit cards in the absence of a "request or application."  While Wells Fargo issued unauthorized credit cards, I'm not sure how many unauthorized credit cards it issued, and how many ordinary bank accounts it opened, though I have the impression that it opened many more bank accounts.  

Office of the Comptroller of the Currency will authorize banks to compete with payday lenders

This NY Times article by Stacy Cowley and Emily Flitter explains that 

A federal regulator on Wednesday encouraged banks to offer small, short-term loans to people in need of emergency cash, the Trump administration’s latest relaxation of banking regulations and a rare moment of common ground with consumer groups that oppose payday lending. The Office of the Comptroller of the Currency, which regulates national banks, said it will start allowing banks to make small loans — typically in the range of $300 to $5,000 — outside of their standard underwriting processes. * * * The Pew Charitable Trusts, which has fiercely opposed payday lending, praised the change of heart. “If banks begin offering these loans according to strong safety standards, it could boost financial inclusion and be a game-changer for the millions of Americans who use high-cost loans today,” said Nick Bourke, the director of Pew’s consumer finance research. But some major obstacles remain. The biggest is a new rule from the Consumer Financial Protection Bureau, scheduled to take effect in August 2019, that places strict limits on loans with a term of 45 days or less. Those rules would cover the kind of deposit advance loans banks used to offer. Mick Mulvaney, the acting director of the bureau, has said he wants to reconsider the rule, but he has not yet began the formal process needed to alter or eliminate it.

Also take a look at Would a Bank Payday Loan Be Any Safer? by Liz Weston at Nerdwallet. For other coverage go here, here, and here.

"Predatory Colleges, Freed to Fleece Students"

A strong editorial from the New York Times today about the failure of the Department of Education to protect students from predatory colleges and the House of Representative's bill to make the situation worse, here.

Jeb Hensarling, the Financial Choice Act, and Wells Fargo

by Jeff Sovern

When the Bureau fined Wells Fargo $1 billion, it did so using its power to prohibit unfair practices in 12 USC 5531(c), 5536(a)(1)(B). (see pages 9 and 12 of the consent order). House Financial Services Committee Chair Jeb Hensarling's Financial Choice Act, passed by the House, would eliminate that power.  But don't take my word for it: the bill's Executive Summary says it would "Remove the [CFPB's] opaque and ill-defined 'unfair, deceptive, or abusive acts and practices' (UDAAP) authority (emphasis added)." The relevant section of the statute is 736, which provides that the bill would repeal section 5531 altogether and would also repeal subsection 5536(a)(1)(B), the two provisions under which the Bureau proceeded. So I was mystified when Congressman Hensarling praised the $1 billion fine--which would have been impossible under the power the Bureau used if he had gotten his way--as "well-deserved." 

During a recent interview, Politico's Ben "Morning Money" White asked Hensarling about the conflict. Hensarling first asked why the Bureau would not have had the power to assess the fine under his bill, and then said it would have. Certainly that would not be true under the powers the Bureau actually used. 

Mr. Hensarling also complained during the interview that the Bureau's use of its power to bar financial institutions from engaging in abusive practices is itself abusive.  His bill would also eliminate that power.  While the Bureau did not use its "abusive" power in connection with the billion dollar fine, it did use it, along with its unfairness power, when it fined Wells $100 million for opening unauthorized accounts. When discussing the unauthorized accounts scandal, Mr. Hensarling mentioned the Truth in Savings Act and Truth in Lending Act and seemed to suggest that the Bureau could have taken the same actions under those statutes.  As for the billion dollar fine, given that Interim Director Mulvaney's party thinks that the Bureau should not have the power to punish financial institutions for behaving unfairly, it is odd that Mr. Mulvaney would have used it if he had alternatives, especially given Mr. Mulvaney's view that he will do only what the law requires of him, and the use of the unfairness power necessarily requires some discretion.

CORRECTION: As Jonathan Joshua has pointed out to me, 15 USC § 1642 prohibits the issuance of credit cards in the absence of a "request or application."  So Wells did violate the Truth in Lending Act when it issued credit cards without such a request or application.  While Wells Fargo issued unauthorized credit cards, I'm not sure how many unauthorized credit cards it issued, and how many ordinary bank accounts it opened, though I have the impression that it opened many more bank accounts. I'm still not sure what Mr. Hensarling thinks in the Truth in Savings Act bears on the opening of bank accounts.  

Consumer Law Professors, Please Take My Survey About Coverage

by Jeff Sovern

At the Teaching Consumer Law conference, on Friday, I asked questions of those who have taught consumer law recently or intend to teach it in the near future.  The questions, in a somewhat different form because of the limits of the survey software, were drawn from the survey that appears below the fold, but because of time constraints, I didn’t get through all of them.  I am reprinting the entire ten-question survey here so that those who want to take it and were not at the conference can, and also so that those who were at the conference can answer the additional questions, if they so desire.  Most of the questions are of two types: one is about what respondents cover in their consumer law classes, and will give you a voice in what we put in the next edition of our casebook, which we will work on next year.  The other questions consist of things I am curious to know about consumer law professors, like whether they read contracts and mandated disclosures.  A couple of questions ask about what kind of course people teach and how long they have been engaged with consumer law.  At some point, I plan to make the responses to the first three questions available, as well as as many of the others if they elicit enough responses, so you will be able to see what others cover, which may inform your own coverage decisions. You can email me your answers at sovernj@stjohns.edu, or if it is easier for you, I can email you a copy of the survey in Word and you can then send it back. If you answered the questions at the conference, please begin with question four.  Thanks for your help!

Mr. Smith Goes to Washington

by Jeff Sovern

Last Thursday, I posted on the blog Republican FTC Commissioners Name Payday Lender Lawyer to Run Consumer Protection Bureau Over Dem Commissioners' Objections.  Alan Kaplinsky posted in response A reply to Professor Sovern, in which he wrote that "Jeff’s characterization of Andrew as a “Payday Lender Lawyer” in the title of his blog post coupled with his use of the quote “set a thief to catch a thief,” seems intended to raise questions about Andrew’s integrity based solely on his past representation of payday lenders." In fact, that was not my intent and I am surprised that Alan took it that way, especially as I said, as Alan noted, that "just to be clear, I do not mean that Mr. Smith is a thief."  As I indicated in the post, when President Roosevelt's nomination of Joseph Kennedy to helm the SEC was challenged, Roosevelt retorted “set a thief to catch a thief.” Kennedy was confirmed and served as the SEC chair.  I don't think President Roosevelt or the Senate saw Kennedy as a thief when they nominated or confirmed him, respectively, and I thought that that explanation would suffice to convey my meaning. Perhaps Mr. Smith's offspring, if he has any, will also serve in the presidency and Congress, as Mr. Kennedy's later did. 

But let me clarify what I meant.  I do not question Mr. Smith's ethics, nor do I question his competence as an attorney, and I don't believe the post did that. My concern is with naming an industry lawyer to a position involving conflicts between the industry and consumers. Sometimes that works out, as the reference to Kennedy was intended to convey. But it hasn't worked out so well in the consumer regulation arena.  Lawyers who represent a particular set of clients tend to identify with those clients and view matters when they are not representing the clients accordingly. I hope that Mr. Smith does not succumb to that tendency. We will see.  

I apologize for the title of this post (I couldn't resist). But I don't apologize for the original post, though I would be sorry if anyone thought that I was raising questions about Mr. Smith's ethics or integrity. 

"Trump signs repeal of auto-loan policy that targeted racial bias," and Mick Mulvaney tells us why that's a good thing.

Read Steven Lane's piece in The Hill entitled Trump signs repeal of auto-loan policy that targeted racial bias.

Acting CFPB director Mick Mulvaney is pleased. In a press release issued today, Mulvaney "thanks the President and the Congress" for nixing the CFPB's policy because the agency had acted "outside of federal statutes." "As an executive agency," Mulvaney says, "we are bound to enforce the law as written, not as we may wish it to be" (emphasis added).

So, given that Mulvaney appears to support the substance of the auto-loan policy, do you think he will now urge Congress and the President to make it a reality?

For our earlier coverage of the CFPB's auto-lending guidance, go here, here, and here. 

Supreme Court holds employers can use arbitration agreements to ban collective employment actions

In a 5-4 opinion this morning, the Supreme Court continued its string of pro-arbitration decisions. In Epic Systems v. Lewis, the Court held that arbitration agreements that ban collective proceedings do not violate the federal labor laws’ protection of concerted worker action. Instead, the Court held, the Federal Arbitration Act requires enforcement of those bans when contained in arbitration agreements.

The opinion is here.