Consumer Law & Policy Blog

Politico Article on Expected Changes in Leadership for House Financial Services Committee

Here.

Julie Williams Steps Down As OCC Chief Counsel

Julie Williams, the Office of the Comptroller of the Currency's notorious longtime Chief Counsel and sometime Acting Comptroller, is stepping down from her post effective September 30. According to a statement released by the agency, she will retire from the government at the end of this year; it's unclear whether that means that she won't do any lobbying for banks after leaving the agency. The Wall Street Journal has the story here.  The published reports do not indicate whether Williams was fired, but that's what I have heard from some reliable sources.

Williams has long been a target of criticism by consumer advocates; in a post earlier today, Naked Capitalism calls her "the Lex Luther of bank regulators."  The main reason for the criticism is Williams' role as the principal architect and chief defender of the OCC's expansive preemption regime, which wiped out state anti-predatory lending laws at the very time they were most needed. Even after Congress took specific action to roll back OCC preemption through the Dodd-Frank Act, Williams persisted, spearheading new rules last summer that attempt to circumvent the Act.  More generally, Williams was known for her tendency to prioritize banks' interests over consumer protection and for her hostility to the CFPB and the Dodd-Frank Act.

Although she held the position during previous vacancies, Williams was passed over for Acting Comptroller by the Obama Administration and there has been much speculation about whether she would be fired outright by the new comptroller, Tom Curry.  Curry had a very different, and more balanced position on preemption when he ran the state banking agency in Massachusetts, but has been circumspect on the topic since taking over the OCC.  

J.W. Verret in Forbes: About The Dodd-Frank Act, George Washington Would Be Turning Over In His Grave

by Jeff Sovern

That's a pretty provocative title, right?  Verret turns out to be an assistant professor at George Mason and a Senior Scholar at the Mercatus Center Working Group on Financial Markets.  He has several complaints about the CFPB.  Thus:

The CFPB Director is indeed the czar of czars. He or she may only be removed for neglect or malfeasance in office. That is not true of most other financial regulatory agencies, where the President can replace the Chairman at will by designating another Commissioner as Chairman.

 

That's very cleverly put.  Notice the phrase "other financial regulatory agencies."  Put that broadly, the comparison is to agencies like the SEC, CFTC, etc. The problem is that those agencies are not agencies that regulate consumer financial transactions, and so are really a different animal.  Why didn't Verret confine himself to agencies that regulate consumer financial transactions?  Could it be because those agencies don't have the structure Verret describes?  The agencies that regulate consumer financial transactions tend to have structures like the CFPB's.  For example, the Comptroller of the Currency, the head of the Federal Reserve, and the head of the FDIC all have fixed terms and can't simply be removed at the president's will (I suppose the Federal Trade Commission, whose chairman the president can replace with another commissioner--though the former chairman retains the position of commissioner--might be an exception, except that it has little power over financial institutions). 

Here's Verret's lead: "In his farewell Presidential address, George Washington noted the 'love of power and proneness to abuse it which predominates in the human heart' and he suggested the 'necessity of reciprocal checks of political power...'" He uses that to suggest that the power exercised by the CFPB director would offend Washington.  I wonder why Verret doesn't mention the other financial regulators that exercise similar power, like the OCC?  Could it be because the OCC tends to be a darling of the financial industry, rather than an agency that restrains it?  I certainly don't know enough about Washington to know what his views were about consumer protection agencies, but I wonder how Washington would feel about the power exercised by financial institutions today. They are probably our most powerful lobby and bestow enormous sums on legislators (and who knows how much they are spending on campaigns after Citizens United).  Would Washington have approved of the LIBOR rate-fixing scandal, robo-signing, or the subprime crisis?  Given Washington's desire for checks on power, would he perhaps have liked an agency that would check the power of financial institutions?

Another quote from Verret: "The CFPB Director has authority to determine, for example, that credit card frequent flier miles are “abusive practices” that will be prohibited…and a federal judge would have limited ability to stop him." This is a classic lawyer's technique for arguing: you pick a crazy example that no one would ever want, and then you say that it could happen (remember the imaginary law that says you have to eat broccoli in the context of the Affordable Care Act--so-called Obamacare).  But this time, I'm not sure that it's even true that the crazy example is within the CFPB's power. The CFPB can only outlaw terms that satisfy a statutory test for being abusive. Here's the statutory text:

Abusive- The Bureau shall have no authority under this section to declare an act or practice abusive in connection with the provision of a consumer financial product or service, unless the act or practice—

(1) materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service; or

(2) takes unreasonable advantage of--

(A) a lack of understanding on the part of the consumer of the material risks, costs, or conditions of the product or service;

(B) the inability of the consumer to protect the interests of the consumer in selecting or using a consumer financial product or service; or

(C) the reasonable reliance by the consumer on a covered person to act in the interests of the consumer

Personally, I don't see how frequent flyer miles take unreasonable advantage of people in the way described or materially interfere with the ability of a consumer to understand them,  but we already know Verret is more imaginative than I am. 

I'm disappointed.

Commonweal: Holding All the Cards

Here.  A comment on arbitration, among other consumer issues.

President Obama on Efforts to Cripple and Roll Back Dodd-Frank

In his weekly address, President Obama seizes on J.P. Morgan's gigantic trading loss as an illustration of why the American people should oppose "Republicans in Congress and an army of financial-industry lobbyists," who are "waging an all out battle to delay, dismantle and deform" the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Reiterating the themes of economic fair play from his brilliant speech late last year in Osawatomie, Kansas, the President explained that "unless you run a financial institution whose business model is built on cheating consumers or making risky bets that could damage the whole economy, you have nothing to fear from Wall Street reform." I expect we'll see the language and themes of the Osawatomie speech echoed throughout the campaign--particularly its insistence on a system in which "everyone engages in fair play and everybody gets a fair shot and everybody does their fair share."

House Financial Services Republicans Oppose Subjecting Bank Regulators to Congressional Appropriations Process--Except CFPB

by Jeff Sovern

Yesterday, Democrats on the House Financial Services Committee suggested that in response to the Republican proposal to subject the CFPB to the congressional appropriations process, other bank regulators, including the Fed and the Office of the Comptroller of the Currency, be subjected to that process (all three are currently funded independently).  House Republicans defeated the proposal for the Fed and the OCC while advancing the proposal to subject the CFPB to that process.  The Hill's On the Money Blog has more.  It is difficult to see why sauce for the goose is not also sauce for the gander.  As The Hill wrote:

Democrats contend that moving control of the bureau’s budget to Congress was less about oversight and more about GOP attempts to stifle it.

"This is the most blatant attempt to really defang and destroy the agency," Maloney said.

Last Night's GOP Presidential Debate and the Community Reinvestment Act

by Jeff Sovern

During last night's debate, Representative Paul seemed to attribute the foreclosure crisis partly to the Community Reinvestment Act when he said:

Well, the government . . . gave them a mess. They gave them a financial system that literally created this problem. . . . .[T]he Community Reinvestment Act added more fuel to it, you know, forcing banks to make loans that are risky loans.
So the whole bubble was easily seen. The consequences were anticipated. It was all government manufactured.

Except that as Alan White has explained, the CRA was not the cause of the foreclosure crisis.

The candidates also attacked the Dodd-Frank Act. For example, Governor Romney said "Dodd- Frank . . .made it harder for banks to renegotiate mortgages to help people get out."  And Speaker Gingrich chimed in: "If they would repeal [Dodd-Frank] tomorrow morning, you would have a better housing market the next day."  Yes, and more foreclosures in the future.  Sigh.

Senator Lindsay Graham Calls CFPB "Something Out of the Stalinist Era"

by Jeff Sovern

He said it on Meet the Press.  You can watch it here;  you can also find coverage here and here.  His claim seems to be based on the Bureau's having a director rather than a commission and not being subject to the congressional budgetary process.  Exactly like the Office of the Comptroller of the Currency, which Republicans seems to have no problems with.  Could the difference be that the banks have captured the OCC and not the Bureau?  Incidentally, according to the Center for Responsive Politics, among industries commercial banks are the eleventh largest contributor to Graham, while "miscellaneous finance" rank thirteenth. 

Times Roundup

Today's Sunday Times Magazine has an article about Elizabeth Warren that explains how the Consumer Financial Protection Bureau ended up with the power to enforce the Fair Credit Reporting Act:

Warren described her motivation to enter politics by recalling the time Barney Frank called her to the Capitol during the first days of writing the latest financial-regulation bill. Warren didn’t understand much about the process but observed as representatives argued about individual issues until Frank asked, “Can everybody live with that?” When he was met with nods, he said, “Done!” and aides wrote down the agreed-upon language. Warren watched the process several times before Frank asked if anyone had anything else to add.

“I said, ‘What about credit-reporting agencies?’ ” Warren said, noting that the bill should include monitoring to make sure those companies engaged in fair practices. “Barney looks around the room and says, ‘Anybody got a problem with that?’ And they say, ‘No,’ and he says ‘Done!’ and everybody writes it down. I thought, Whooaah.” Credit-reporting jurisdiction was added to the bill. “That was the first time,” she said, “that I understood — and real well — what it means to be in the room.”

Today's Times also has an editorial titled A Push for Online Privacy and an interesting column by Chicago's Richard Thaler, When Business Can’t Foresee Outrage, discussing Bank of America's since-rescinded decision to charge consumers for debit cards.

Wall Street Lobbying to Opt Out of Dodd-Frank

A Public Citizen report released today analyzes the efforts of 24 financial-services companies and trade groups to opt themselves out of Dodd-Frank's limits on incentive-based compensation. The report finds that, "[c]ollectively, the organizations have spent $242.4 million on lobbying since the beginning of 2010" and "have deployed 712 lobbyists, of whom 387 previously worked for the federal government, either as congressional staffers or in executive branch positions." Most of the organizations are seeking to be partially or completely exampted from rulemaking on Section 956 of Dodd-Frank, which imposes disclosure requirements and substantive restrictions on incentive-based compensation.  

In addition, the report finds that the organizations made $15.6 million in campaign contributions to congressional candidates during the 2010 campaign cycle.