Some Borrowers Owe More than a Million Dollars in Student Loans

by Jeff Sovern

So says the WSJ here.  It reports on how one such borrower landed in that position. Meanwhile, the Times reports on How Student Debt Can Ruin Home Buying Dreams.  Disturbing articles, especially for those of us in education.

WSJ Reporter Needed a Football Field to Print Her New Privacy Policies.

Here. She also offered ways to deal with the privacy policies, including what terms to search for to cut the reading down to thirty or forty yards. 

Is the CFPB Making it Easier for Financial Institutions to Discriminate in Lending?

by Jeff Sovern

Allison blogged earlier about Kate Berry's American Banker article, CFPB signals pullback on discrimination cases. I wanted to say a bit more about this area.

Depending on how you count, there are basically three ways to prove credit discrimination cases. One, that is theoretically possible, but that you virtually never see in practice, is what I call the smoking gun type of case, when, for example, the lender says it discriminates.  A rare example is Moore v. United States Dep't of Agric., 55 F.3d 991 (5th Cir. 1995) (no whites can qualify).  Because that kind of case is so unusual, some people don't count it and say there are only two ways to prove credit discrimination. The second way to prove discrimination is called disparate treatment. That requires the plaintiff to show that the defendant discriminated deliberately.  As you might imagine, it is difficult to show such deliberate discrimination, so successful disparate treatment cases are also rare.  On top of that, the Seventh Circuit bars its use in credit discrimination cases. See Latimore v. Citibank Federal Savings Bank, 151 F.3d 712 (1998).

That leaves the disparate effects test, also called the disparate impact test.  That test doesn't require the plaintiff to show that the defendant intentionally discriminated, but only that the lender's credit practices have a discriminatory effect, in the sense that they affect some groups more than others. Even if the plaintiff succeeds in showing that, the lender can still continue with its practice if it can show that the challenged practice is legitimate.  It is this disparate effects type of proof that the CFPB is reconsidering. Berry reports that HUD is also reconsidering use of the disparate effects test in its own enforcement actions. As Berry notes, the Supreme Court has upheld the use of disparate impact analysis in at least some circumstances in FHA cases.  Lenders are obviously hoping that Mulvaney will limit the disparate impact test as much as possible.

Problems already exist with use of the disparate effects test. For one thing, its use typically entails expensive statistical analysis, and anything that increases the cost of consumer litigation makes such litigation less likely. That's one reason why it's important that public agencies like the CFPB bring such cases, because they have the resources to do so.  Another problem is that the Supreme Court, in the Twombly and Iqbal cases, has made it harder to get past the motion to dismiss stage and on to discovery than was once the case.  It is a challenge for plaintiffs to satisfy the Twiqbal standards in disparate impact cases before they get access to the defendant's files, and yet they can't see those files until they satisfy the standard. It's like a catch-22: you can't get discovery until you can show the defendant's conduct had a discriminatory effect, and you can't show the defendant's conduct had a discriminatory effect until you can see their files.  

So all in all, it will be easier for lenders to discriminate and get away with it.  

 

"CFPB signals pullback on discrimination cases "

This article from the American Banker discusses Acting Director Mulvaney's intention to re-examine how the Consumer Financial Protection Bureau enforces the Equal Credit Opportunity Act, which prohibits discrimination in lending. "Mulvaney's comments suggest the CFPB may make it harder for protected groups, including minorities and women, to claim they were adversely impacted by discriminatory practices. It is the first time that the CFPB has signaled publicly that it plans to clarify the language of Regulation B, which is intended to prevent consumers from being discriminated against in any aspect of a credit transaction."

"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.