Consumer Law & Policy Blog

CNN Money: LA City Attorney Who Brought First Government Case Against Wells for Phony Accounts "angry about Republican attack on CFPB"

Here. Excerpt:

[LA City Attorney Mike] Feuer said one of the key lessons of the Wells Fargo (WFC) scandal is the need to have a "very viable and muscular CFPB."

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"It's true we brought the case in the first place, but our collaboration with the CFPB enabled there to be nationwide relief for Wells customers," Feuer said.

CFPB Prepaid Card Rule Expected to Survive CRA Challenge

Congress could have blocked the rule using the Congressional Review Act, but the deadline for the Senate vote appears to be tomorrow and it looks like the Senate won't get to it, and that even if it did, it might not pass. Bloomberg and American Banker have reports. Here's an excerpt from the American Banker story:

In the end, it appears Congress didn't have the appetite to reject the prepaid regulation, which a Senate Republican staffer said was partly due to an extensive ad campaign by progressive groups.

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However, [Senator David] Perdue [who tried to block the rule] issued a warning Tuesday to the CFPB that he would be willing to use the Congressional Review Act in the future if the agency were to promulgate other controversial rules.

"The Congressional Review Act process was an important tool to inject some oversight of this rogue agency, and something we will utilize again to rein in future overreaching rules," said Perdue.

 

My Latest Law Review Article: Free-Market Failure: The Wells Fargo Arbitration Clause Example

by Jeff Sovern

It's for an arbitration symposium at Rutgers and is available for download here.  I would love to hear comments!  Here's the abstract:

In September 2016, regulators charged Wells Fargo with opening millions of unauthorized accounts on behalf of its customers. When some of those customers filed class actions against Wells, the bank initially responded by moving to compel arbitration on the ground that the consumers had agreed to arbitrate disputes and waive their class action rights. Because most customers with claims in small amounts would probably have foregone filing an arbitration claim, the effect would have been to leave their damages uncompensated except for the refunding of fees, which Wells agreed to in the consent order it entered into with regulators.

The Consumer Financial Protection Bureau has proposed a regulation which, if it had been in effect at the relevant time, would have enabled the injured Wells customers to obtain class action relief. But the proposed rule is encountering objections in Congress, based partly on free-market economic theory. This Article argues that free-market economics is not sufficient to protect consumers from the type of problem present in the Wells Fargo case for two reasons. First, free-market economics assumes that consumers have complete information while empirical evidence shows that consumers do not understand arbitration clauses, much less that consumers realize that such clauses would bar class actions as to fraudulent accounts that the consumers did not know about. Second, the number of primary checking accounts at Wells consistently increased as the fraud became public, suggesting that the free market did not discipline Wells for its misconduct until regulators intervened, and did so only modestly at that point. It is even possible that by enforcing arbitration clauses as written, free-market economics prolonged the Wells fraud, thus enabling more consumers to be injured.

In short, some device beyond the free market is necessary to prevent financial institutions from cheating many consumers out of small amounts. Class actions are one such device, but arbitration clauses as currently enforced enable financial institutions to prevent their use, thus reducing their incentive to comply with the law.

House Financial Services Committee By Party Vote Passes Choice Bill To Cripple CFPB

The HIll report is here. Excerpt:

The CHOICE Act also places major restraints on the Consumer Financial Protection Bureau (CFPB), an agency created by Dodd-Frank that the GOP has long called unaccountable, abusive and redundant.

The bill renames the CFPB the Consumer Law Enforcement Agency and reduces its power to enforce pre-existing consumer protection laws. Its sole director would be removable at will by the president, and its budget would be controlled by Congress through the traditional appropriations process.

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The bill could likely pass in the House along party lines, though it’s widely considered a long-shot to be taken up in the Senate.

The Hill Reports House Financial Committee Expected to Vote on Choice Act Wednesday While Morning Consult Says Thursday

The report about tonight is here while the report about tomorrow is here. In either case, it's soon. Not surprisingly, in light of the makeup of the Committee, CFPB supporters' proposals are being rejected.

What Would Stop Illegal Student Loan Schemes if the Choice Act is Enacted?

by Jeff Sovern

Rohit Chopra senior fellow at the Consumer Federation of America and formerly student loan ombudsman at the CFPB, testified last week on the Choice Act and listed a few of student loan cases that could not have been brought under the Choice Act.  Here is his list:

While many know of Wells Fargo’s years-long fake accounts scandal leading to blockbuster fines in September 2016, just two months earlier the CFPB also fined Wells Fargo millions for illegal student loan practices, including allocating borrower payments in order to maximize late fees. This action would not be possible under the proposal.

In 2015, the CFPB announced that it had caught Discover, another big student lender, for illegal billing and debt collection practices, which would also not be possible under the proposal.

In 2014, the CFPB sued Corinthian Colleges for an illegal student loan scheme coupled with strong-armed debt collection tactics to shake down their students. Ultimately, the CFPB secured $480 million in debt relief for borrowers and Corinthian is no longer operating. This action would not be possible under the proposal.

And just this year, the CFPB sued student loan behemoth Navient, formerly known as Sallie Mae, for illegally cheating borrowers out of their repayment rights through shortcuts and deception at every stage of the repayment process so that it can pad its own profits. The allegations are severe, impacting millions of borrowers. This action would not be possible under the proposal, since the consumer agency would simply lack the authority to enforce critical consumer protection laws.

If the CFPB couldn't stop these schemes, who would?

 

Should the Financial Choice Act be Called the Accountability to Lobbyists Act?

by Jeff Sovern

During hearings on the CFPB and the Choice Act, I kept hearing critics of the CFPB saying they want to increase its accountability (I haven't started listening to the markups yet, but it's probably a recurring theme there too).  In fact, the CFPB is accountable.  But assume it isn't for the moment.  CFPB critics argue that one way it should be made more accountable is by subjecting it to the congressional appropriations process.  While that sounds good in theory, the problem is that the voices of lobbyists are much louder at appropriations committee proceedings than the voices of consumers. Corporate lobbyists have the resources to pay attention to the inside baseball of appropriations while ordinary consumers busy making a living and providing for their families don't.  The result of such "accountability" in the past has been that lobbyists urge members of Congress to starve regulators of funds if the regulators don't play ball with the lobbyists--and that in turn leads to regulatory capture.  That is exactly what happened with Fannie and Freddie's former regulator, which was a disaster.  Critics of the Choice Act have been calling it the Wrong Choice Act, but they could also call it the Accountability to Lobbyists Act, because that's what it would create.

House Financial Services Committee to Markup (Vote on?) Choice Act Tuesday

The Hill reports that "Panel Democrats say they're preparing to offer dozens of amendments and plan to draw out the hearing for hours, as they make the case to protect the Obama-era financial regulation law."  Meanwhile, according to CNN Money,  the "bill is likely to clear the House, where Republicans hold the majority and don't need Democrat's support. It's chances in the Senate, however, would require Democratic support to win a 60-vote majority to pass." The CFPB structure is a particular sticking point.

Credit Union Times on the Financial Choice Act Hearing: Partisan Infighting

Here.

House Financial Services Committee Reported Set to Markup Financial Choice Act Next Week

by Jeff Sovern

So CNNMoney reports here. The Committee will hold a hearing tomorrow; the witness list appears here.  Seems pretty rushed for a 600-page bill that would make major changes in financial regulation, including changing the structure of the CFPB, eliminating its power to prohibit unfair, deceptive, and abusive practices, abrogating its power to regulate arbitration, and plenty of other changes.  But that's how this Congress rolls. I suspect this bill will share the fate of Trumpcare, though it may get further in the legislative process than Trumpcare did.