Consumer Law & Policy Blog

CNBC: Despite critics' claims, Dodd-Frank hasn't slowed lending to business or consumers

Here.  Excerpt:

"We expect to be cutting a lot out of Dodd-Frank," [President Trump] told a group of bankers and other corporate executives [on Friday, when signing an Executive Order pertaining to Dodd-Frank], "because, frankly, I have so many people, friends of mine that have nice businesses that can't borrow money. They just can't get any money because the banks just won't let them borrow because of the rules and regulations in Dodd-Frank.

" * * *

But statistics on bank lending don't back up that claim. Since the law took effect in July 2010, bank lending to businesses and consumers has continued to hit new highs.

NCLC's Lauren Sanders in USA Today: Protect our troops, not Wall Street

Here.  Excerpt (but the whole piece is worth reading):

Young servicemembers are often easy targets for financial firms marketing loans with ultra-high interest rates. Tens of thousands of servicemembers have benefited from the CFPB’s actions. The agency worked with state attorneys general to secure debt relief for 17,000 servicemembers tricked into taking out high-cost loans for computers, video games and electronics purchased near military bases. It sanctioned U.S. Bank and a partner company, ordering the return of $6.5 million in hidden fees to military borrowers. It ordered Navy Federal Credit Union to pay $28.5 million in penalties and refunds for using a variety of illegal debt-collection tactics. And it is now suing Navient, the nation's largest student loan company, for illegal practices against millions of borrowers, including severely injured veterans.

Corporate interests would prefer a weaker, less independent commission structure — not a strong, single director who can be held accountable. The CFPB’s enemies have also proposed to reduce the consumer agency to second-class status by politicizing its funding and cutting staff salaries below those of other big bank regulators.

* * *

A rigged system is what led to the financial crisis. Giant financial institutions had the ear of financial regulators and ordinary people suffered tremendously. A strong consumer watchdog protects our troops and helps to unrig the system, making it work better for regular Americans. In the real world, the world outside the Washington Beltway, most Americans support having a strong financial regulator on their side.

Politico: Trump Admin Divided Over Firing Cordray, Has Spoken to Todd Zywicki About the Job

Here. Excerpts:

“There has been talk of getting rid of Cordray, but I think they're trying to figure out what they can do and what [Trump] will actually go along with,” said a person close to the administration.

Lawyers who say they’re providing guidance to the White House declined to comment for the record or be identified, citing confidences with people connected to the administration. They say they’re responding to questions from those people but won’t say who they are.

* * *

Trump advisers are divided. One told POLITICO that the agency was on a “short list” for an overhaul and the administration isn’t convinced that Cordray would play along. Another person close to the White House said there has been no explicit call for the director’s firing.

* * *

Many Republicans on Capitol Hill are keen to take on the CFPB. House Financial Services Chairman Jeb Hensarling has promised to rein in the bureau’s independence regardless of what Trump does. If Trump does want an excuse to fire Cordray, Hensarling and his business allies have spent years documenting what they say are the director’s missteps.

A bill introduced last month by Republican senators Deb Fischer of Nebraska, John Barrasso of Wyoming and Ron Johnson of Wisconsin would replace the bureau’s independent director with a five-person commission.

* * *

“Trump’s base, the reason he won, is because of working-class voters in Rust Belt states. They certainly benefited from the foreclosure avoidance programs at the CFPB,” said Laurence Platt, a partner at Mayer Brown * * *

The administration has spoken to Todd Zywicki, executive director of the Law & Economics Center at George Mason University, about succeeding Cordray. Zywicki, who has called the bureau a “tragic” failure, has not been offered a job.

 

WSJ: Financial Choice Act 2.0 Could be Introduced This Week

Here (behind paywall). House Financial Services Committee Chair's Financial Choice Act, passed last fall by the committee,  is expected to be introduced again in a revised version as soon as this week. While Senate Democrats can usually block legislation by using the filibuster, as long as they hold together, the WSJ reports that some aspects of this bill could be passed through the reconciliation process, thereby evading filibusters.  According to the article, that would "include cutting off the CFPB’s independent source of funds and forcing it to seek congressional approval for its budget. . . ." The article explains:

Senate Banking Committee member Sen. Pat Toomey (R., Pa.) is pushing for use of the reconciliation process and has encouraged industry groups in private meetings to lobby for such an approach.

Other Senate Republicans, including Senate Banking Committee Chairman Mike Crapo (R., Idaho), are still figuring out how they might proceed. A senior Republican aide said Mr. Crapo is considering multiple options to change the law, including through reconciliation.

What Wells Fargo's Survival After Defrauding Millions Tells Us About the Free Market: It Isn't Enough to Stop Misconduct

by Jeff Sovern

As well-covered on this blog and elsewhere, Wells Fargo employees opened millions of sham accounts for customers, for which they have paid fines and suffered reputational damage. During the House Financial Services Committee September hearing on the Wells fiasco, some Republican committee members berated Wells Fargo's then-CEO, John Stumpf, for giving ammunition to supporters of regulation.  In contrast, the committee's chair, Jeb Hensarling, said that while he didn't believe in companies, he did believe in free markets.  So how has the market treated the bank? Well, here's what Brian Tayan posted in December at the Harvard Law School Forum on Corporate Governance and Financial Regulation:

The long-term impact on the bank was unclear. Customer visits to branches declined 10 percent year-over-year in the month following the scandal. Credit card and debit card applications also fell. Deposits and new checking accounts, however, continued to grow—albeit at below-historical rates.

And here are some excerpts from a January 13, 2017 news release reporting on Wells's income for 2016:

Net income of $5.3 billion, compared with $5.6 billion in fourth quarter 2015.

* * *

Total average deposits for fourth quarter 2016 were $1.3 trillion, up 2 percent from the prior quarter, driven by both commercial and consumer growth.

In other words, the free market is not doing much to punish Wells. While it is impossible to know if Wells would have done even better in the absence of the scandal, Wells does not seem like a company on the brink of failure.  True, the free market may yet catch up with Wells, but it seems far more likely that consumers inclined to move to other banks would have done so last summer or fall, when the scandal was the subject of frequent news coverage, than now, when Wells has largely fallen out of the news cycle. And just to be clear, this is not a situation of the government propping up a too-big-to-fail bank.  Far from helping Wells, the government fined Wells and gave its bad conduct publicity. It's not the government opening up those new accounts; it's consumers.

So regulators have actually done quite a bit to discipline Wells for its misconduct while the free market has dropped the ball.  Why then, would Jeb Hensarling and his colleagues want to limit the power of regulators and leave discipline to the free market?  In his terrific new book, Economism (about which I expect to post more another time), Connecticut law professor James Kwak suggests that economism is a religion-like ideology that adherents use to justify opposition to regulation.  Chairman Hensarling believes in free markets even when the evidence is that the free market failed. 

Just to be clear, I have no desire to see Wells shut down or suffer significant reverses. I just want it appropriately disciplined for defrauding consumers, forced to compensate injured consumers, and deterred from similar conduct in the future.  Until regulators got involved, none of that seemed to be happening.  The free market dropped the ball on this one. In fact, as far as I know, the free market did nothing at all until Wells's misconduct was publicized by regulators.

Why haven't consumers abandoned Wells? I've heard it suggested that consumers don't like to switch bank accounts because they incur transaction costs in also switching direct deposits, automatic withdrawals, etc. (I'm not sure of my source for that and so can't attribute it; if you know of a source, please let me know in a comment). That may account for part of it, but it wouldn't explain why accounts are growing.  But for purposes of this discussion, it's not necessary to explain why consumers haven't punished Well; it's enough to note that they haven't.  In other words, despite perhaps the biggest retail banking fraud since the Great Recession, we can't depend on the free market to discipline financial institution misconduct.  Yet another demonstration of why we need strong, independent regulators--exactly what the Republican Congressmen who placed ideology ahead of helping consumers feared.

 

CBS News: Senate Republicans aim to gut debit-card safeguards

Here. This is about the resolution we reported about on Thursday to block the CFPB's prepaid debit cards rule from going into effect.  The resolution has now drawn the support of seven senators. Excerpt:

A spokesman for Sen. Mike Lee said that the “CFPB’s prepaid card rule is overly broad” and would increase compliance costs. Those costs “would be borne by the consumers who use this fast-growing product, but it would also stifle innovation in the payments industry,” the spokesman said.

Consumer advocates decried the resolution as a thinly-veiled giveaway to Netspend, a controversial issuer of prepaid cards. Netspend is one of the main opponents of the CFBP’s proposed prepaid card disclosure requirements and would potentially lose up to $80 million annually in overdraft fees imposed on the largely low-income buyers of its prepaid cards, according to the National Consumer Law Center (NCLC).

“It is outrageous that Congress may block basic fraud protections on prepaid cards so that Netspend can keep gouging struggling families with overdraft fees that have no place on prepaid cards,” said Lauren Saunders, associate director of the National Consumer Law Center (NCLC).

WSJ: "Trump administration said it would seek broad changes at the Consumer Financial Protection Bureau by altering its 'personnel'"

Another claim without a source, but the story is here (behind a paywall).

Miles Kimball: The Philosophical Basis for Consumer Financial Protection as Part of Limited Government

Here. This has been up since December, but I only just saw it. It offers a perspective from an economist.  An excerpt:

I can see three principles that can justify consumer financial protection beyond simple contract enforcement: 

Duping people is fraud even if they wouldn’t have been duped had they had infinite time and infinite intelligence. * * *

Facilitating gain for oneself and harm to others by taking advantage of preexisting confusion is predation of those who are especially vulnerable. * * *

It is legitimate to protect time-slices of people from serious injury by other time-slices of people. * * *

Other than the possible issue of almost unfireable regional Fed Presidents who have not been confirmed by the Senate voting on monetary policy, the Fed has passed US constitutional muster. So it seems possible that the CFPB could be governed in a similar way without being unconstitutional. The [PHH case] suggests that if only the Chair of the Fed could vote, the Fed would be unconstitutional too. If that is, so, there could be more people appointed to govern the CFPB, just like the Fed. But in practice, the way the Fed is governed seems quite different in practice from the usual bipartisan board for government agencies.

WH's Spicer Calls CFPB Unconstitutional

Here. 

Senator Moves to Block CFPB Prepaid Card Rule Day After CFPB Fines Card Issuers for Harming Consumers

by Jeff Sovern

Who needs fiction when we have this?  Information about the resolution, introduced under the Congressional Review Act, and so filibuster-proof, is here.  It's sponsor is GOP Senator David Perdue of Georgia.  The CFPB's press release is here.  Here' s the first paragraph of the press release:

The Consumer Financial Protection Bureau today took action against Mastercard and UniRush for breakdowns that left tens of thousands of economically vulnerable RushCard users unable to access their own money to pay for basic necessities. In October 2015, a rash of preventable failures by Mastercard and UniRush meant that many customers could not use their RushCard to get their paychecks and other direct deposits, take out cash, make purchases, pay bills, or get accurate balance information. UniRush then failed to provide customer service to many consumers who reached out for help during the service breakdown. The CFPB has ordered Mastercard and UniRush to pay an estimated $10 million in restitution to tens of thousands of harmed customers. The CFPB also fined Mastercard and UniRush $3 million.