Consumer Law & Policy Blog

WaPo's Michelle Singletary: Stop the insanity over the consumer protection board

Here. Excerpt:

Throughout history, Congress has had to step in to make corporations do the right thing. That’s why we have rules about working conditions. That’s why we have a minimum wage.

And that’s why the CFPB was established to help with gaps in consumer protection. It was time to do something different. It was time to set up an agency with as little political influence as possible that would work solely on behalf of consumers.

But still some legislators, with big business buzzing in their ears, want to roll back to a time of “let the buyer beware.” I guess the housing crisis is ancient history to them.

* * *

* * * Critics of the CFPB, many of whom have a biased agenda to back the financial industry, don’t want a consumer watchdog holding these corporations accountable. We would be foolish to allow them to succeed at that mission.

 

 

Excellent Analysis of the DC Circuit CFPB Decision . . .

. . .  from Adam Levitin at Credit Slips.  I don't usually link to Credit Slips, on the theory that most of our blog readers also read that blog, but this post was too good not to link to. It will be interesting to see if this decision does indeed take the wind out of the sails of attempts to hamstring the CFPB, as Adam predicts. This statement by House Financial Services Committee Jeb Hensarling suggests CFPB critics are not yet abandoning their efforts, though it's far too soon to know. 

Consumer Clinical Law Professors Comment on CFPB's Arbitration Rule

by Jeff Sovern

I meant to post this a long time ago, but then I got caught up teaching an intensive class, followed by an overload and didn't get to it. Anyway, here is a comment on the CFPB's proposed arbitration rule posted by law professors teaching consumer law clinics (we had previously covered a law professor letter that included doctrinal professors).  The letter reports on the experiences of the clinical professors representing clients and how arbitration clauses interfered with their attempts to obtain justice. Two examples of what they say, but they give others:

One of our clinics represented a Hispanic woman who was solicited at her home by a sales representative of a utility-finance company. The sales representative told her she could get utility service for a reduced rate because of her age and her disability. The conversation occurred entirely in Spanish because she does not speak English. The salesman stated he was from the local power company, which was not true. The consumer signed a utility-finance contract – which was entirely in English, in violation of state law – that cost her significantly more every month. The consumer, as is often the case, was upset and ashamed that she had somehow fallen for this bait-and-switch, and then outraged when she learned that many of her neighbors also had fallen victim. She wants to bring a class action on behalf of herself and her neighbors to get out of a contract she did not understand (and could not have understood) and to make sure that the company does not take advantage of other people in her situation. But the contract contains an arbitration clause banning class actions and class arbitrations. Even if her individual case goes forward, the deceptive and abusive practices likely will continue and more vulnerable consumers will become victims every day.

* * *

One of our clients is a single father living in California who immigrated to the United States. His dream is to become a nurse. He heard about a nursing program that he could complete and called to find out more. The salesperson told him that he could earn a nursing degree online that would qualify him for a nursing license in California and that he could transfer his educational credits from abroad to help fulfill the prerequisites for a nursing degree. He took out a private student loan from a credit union chosen by the online school and signed all of the paperwork for the loan and the program at the same time. He later learned that his credits were not eligible for transfer and that he the online degree would not allow him to obtain a nursing license. He ended up paying over $7,000 and spending countless hours taking classes online that did not actually lead to a degree, leaving him with a debt to the credit union for his private loan. Only after contacting our program for help did he realize that his contract with the school included a mandatory arbitration clause. The online school’s mandatory arbitration including the following blatantly unfair provisions: the arbitration must take place in Indiana, the school gets to choose the arbitrator, the client cannot have an attorney, and the client must pay $250 for the arbitration (much more than small claims court), and that the client must compensate TNC for attorney’s fees and costs if it prevails. This arbitration clause presents a significant obstacle to the client getting any kind of relief after being victimized by a scam.

LA Times: Republicans say there's another villain in the Wells Fargo scandal

by Jeff Sovern

Here.  The article reports GOP criticism of the CFPB in connection with the Wells scandal. Excerpt:

“Why does it take the L.A. Times to break this story, when we’re paying federal investigators to investigate?” [House Financial Services Committee Chair Jeb] Hensarling recently told Fox Business Network.

“Where was the CFPB? Why did they come in so late to the game?” he continued. “They have immense powers and this is their job to enforce these basic consumer laws and it appears they were asleep at the switch.”

Hensarling also has criticized regulators for the $185-million settlement with the bank, which allowed Wells Fargo to avoid admitting any wrongdoing.

 * * *

Democrats and consumer advocates said that the recent settlement Wells Fargo agreed to pay  — including a $100-million fine by the CFPB, the agency’s biggest ever — shows the value of the bureau in holding banks accountable for abusing consumers.

And for that reason, those supporters say Republicans, and Hensarling in particular, are hypocrites for trying to use the Wells Fargo scandal to reduce the bureau’s power.

“Hensarling reminds me of the kid who kills his parents and then wants to collect orphan benefits,” said Sen. Sherrod Brown (D-Ohio), one of the CFPB’s biggest backers. “He’s tried to underfund it. He’s tried to undercut. He’s done all he could to  block bank regulations.”

Never mind that the CFPB knew about the problem before the LA Times story.  Will Hensarling also attack law enforcement for the fact that we still have bank robberies and murders despite centuries of efforts to stop them?  Does he also blame the Bush administration for 9/11?

Media Reports on How Wells Fargo's Arbitration Clauses Might Block Consumers from Obtaining Compensation

Here is the Consumer Reports story.  Excerpt:

If a bank employee opens fake accounts and credit cards in your name, as recently happened at Wells Fargo, you may be charged fees for those fake accounts, which you didn't pay because you didn't know the accounts existed. And since you didn't pay those fees, your credit report and your credit score could be hurt. 

And there may not be a whole lot you can do about it.

That's the problem now facing many Wells Fargo customers. Over the course of five years, Wells Fargo employees opened as many as 2 million fake accounts in the names of Wells Fargo customers and made millions in profits for the company by charging customers overdraft fees, monthly service fees, annual fees, finance charges, interest charges, and late fees on those phony accounts. 

But customers lose their right to a trial in court over the creation of those phony accounts and the damage done to their credit if a pre-dispute mandatory arbitration clause was included in their customer agreement.  

Wells may end up being the poster child for the CFPB's arbitration rule. WaPo weighs in with an article headlined Why Wells Fargo customers won’t be able to sue the bank over fake accounts.  An excerpt:

One major group directly affected by the Wells Fargo scandal — the customers who had fraudulent accounts opened in their names — may have their hands tied.

As lawmakers pointed out at congressional hearings Thursday and last week, many Wells Fargo customers are blocked from suing the company because of arbitration clauses, little-known contracts that often ban customers from taking part in class action lawsuits. They are regularly included in the fine print for checking accounts, credit cards and other consumer products. 

In the case of Wells Fargo, the arbitration clauses that customers agreed to when they opened their real accounts are being used to keep them from suing about the fake accounts opened in their names.

In a terse exchange during Thursday’s hearing, Rep. Brad Sherman (D.-Calif.) pushed John Stumpf, the chief executive, on whether the bank would waive the clause for affected customers.

Stumpf defended the arbitration process, calling it “fair” and saying that consumers would be directed to mediators.

But Sherman asked the executive to be more direct about whether customers have the ability to challenge the company in court.

“If they want to go to court are you going to let them go to court? Yes or no?” Sherman asked.

“No, but …” Stumpf responded before being interrupted by Sherman, who said he understood that the answer was no.

Debate Moderators: Don't Forget About Consumer Protection

by Jeff Sovern

The country faces many issues which merit attention during the debates. Among them is consumer protection.  Failures of consumer law contributed to 2008's Great Recession.  Consumer protection is regularly in the headlines (just ask Wells Fargo or Volkswagen).  The choice of the next president is likely to have a huge impact on consumer protection.  One party generally supports the CFPB, its proposed arbitration rule, and a variety of other consumer protections; the other party wants to limit regulation in general and the CFPB in particular.  I very much hope one or more moderators asks about consumer protection.  If a moderator wanted to ask about the candidates' views of regulation, the moderator could make the question more concrete by asking whether the CFPB has been a positive force by, for example, fining Wells Fargo and returning billions to consumers, or if it should be limited or restrained, and how.

What I Learned From Listening to Wells Fargo's CEO Stumpf Testify (and to Senator Warren's and Brown's Questions)

by Jeff Sovern

As we noted yesterday, on Tuesday, Wells Fargo CEO John G. Stumpf testified before the Senate Banking Committee about the Wells Fargo Customer Fraud Fiasco.  Video is available here and Senator Elizabeth Warren's two rounds of questioning, by themselves, here. I have now listened to Mr. Stumpf's testimony, and I learned that Wells engaged in cross-selling to "deepen" its relationships with its customers.  I am somewhat embarrassed to acknowledge that I don't know what a deep relationship means to a bank (If you will forgive a personal note, I have banked at the same institution for nearly forty years, and I currently have four accounts there--and yet I don't know if our relationship counts as deep or not.  I would be surprised, though, if anyone at the bank knows my name, or could recognize me).  But I got a different perspective on why Wells pursued cross-selling so aggressively from Senator Warren's interrogation, during which she observed that in quarterly phone calls with stock analysts, Mr. Stumpf had repeatedly touted the number of accounts its average customer had, a number that increased over time.  Wells apparently led other banks in that number.  Senator Warren also reported that Wells' stock price increased during that same period, yielding Mr. Stumpf personally a profit in the hundreds of millions, if I understood correctly (though presumably the stock price also rose because of other activities as well).

Mr. Stumpf, to his credit, took responsibility for the fiasco and also promised to make things right.  But he said little about what making things right means. For example, when senators asked about Wells customers who might have had their credit scores reduced because of the phony accounts (e.g., if Wells employees requested credit reports as part of the process of opening a credit card account a consumer had not requested) which might have resulted in consumers paying higher interest rates on mortgages they later applied for, say, Mr. Stumpf was unable to say more about what would be done in such cases beyond making it right.   I would have expected that Wells would be prepared to say what would make things right by now.  After all, this matter became public in 2013, when the Los Angeles Times reported on it, and the CFPB, OCC, and Los Angeles City Attorney have been investigating for some time, an investigation that culminated in the largest penalty in CFPB history.  But Mr. Stumpf didn't know the answer to that question.

Regular readers will recall that I hoped that a senator would ask whether Wells will waive its arbitration clauses in defending civil law suits arising from the matter.  In fact, Senator Sherrod Brown asked just that--but all I learned from the answer is that Mr. Stumpf is not an attorney. He didn't know the answer to that question either. But maybe the answer has come from the cross-selling cases already brought in which Wells did not waive its arbitration clause. Sigh.

HuffPo: Here’s Why Republicans Are Suddenly Demanding Tougher Bank Regulation

Here.  Excerpt:

Republicans don’t like the Consumer Financial Protection Bureau. They opposed the very idea of the watchdog when Elizabeth Warren first proposed its creation, and they have been trying to defang and defund it ever since Congress made her vision into a reality.

* * *

But CFPB is still facing heat from Republicans ― ironically, this time, for not regulating Wells Fargo hard enough.

* * *

“Why did it take an LA Times reporter to uncover what should have been uncovered by Wells Fargo’s regulators? If there were ever a textbook case where consumers needed protection, this was it,” [Senate Banking Committee Chair and] senator [Richard Shelby] added. “How many millions of unauthorized accounts does it take before the CFPB notices?”

* * *

[CFPB Director Richard] Cordray said Tuesday, however, that the CFPB knew about the abuses before the Los Angeles Times, first learning about them from whistleblowers in mid-2013.

 

House Financial Services Committtee Votes to Cripple CFPB Right After CFPB Punishes Wells Fargo for Opening Phony Consumer Accounts

by Jeff Sovern

As has been widely reported, last week the CFPB fined Wells Fargo $100 million for setting up phony accounts in consumers' names.  But that didn't stop the House Financial Services Committee from voting yesterday on a largely party-line vote to adopt the Financial Choice Act, which would gut the Bureau. According to Law360, the bill has no "shot a[t] passage this year but it seen as a preview of Republicans’ 2017 banking legislation."  According to the Committee's Executive Summary, here is what the bill would do to the CFPB: 

•  Change the name of the CFPB to the "Consumer Financial Opportunity Commission (CFOC)," and task it with the dual mission of consumer protection and competitive markets, with a cost-benefit analysis of rules performed by an Office of Economic Analysis.
•  Replace the current single director with a bipartisan, five-member commission which is subject to congressional oversight and appropriations.
•  Establish an independent, Senate-confirmed Inspector General.
•  Require the Commission obtain permission before collecting personally identifiable information on consumers.
•  Repeal authority to ban bank products or services it deems "abusive" and its authority to prohibit arbitration.
•  Repeal indirect auto lending guidance.

 

 

Senator Brown, Top Dem on Senate Banking Committee, Wants to "Beef Up" CFPB

From Morning Consult's How Would Democrats Run the Senate Banking Committee?:

Remarks over the last year from Sen. Sherrod Brown of Ohio, the committee’s top Democrat, make it clear that Democrats think they stand a chance at facilitating bipartisan legislation in the financial sector if they take back the Senate for the 115th Congress. Brown, as the ranking member, is the top candidate to lead the panel if Democrats win a majority in November. He has not formally prescribed a specific agenda of how Democrats would run the committee, but he hinted at some priorities last week in a brief interview with Morning Consult.

There’s “a whole host of questions,” Brown said. “What do we do with capital standards? What do we do with the Fed? What do we do to beef up the consumer bureau?”