Bad news for American consumer rights, as CFPB director announces departure

Richard Cordray, the head of Consumer Financial Protection Bureau, is stepping down at the end of the month. The bureau was created in the wake of the financial crisis and has recovered $12 billion from financial firms on behalf of consumers, but Republicans have fought Cordray and the bureau, claiming its very existence is illegal and that it has harmed consumers by stifling lending.

Listen to the NPR Roundtable discussion about his announcement, and what it means for American consumers here.

Pence casts deciding vote in Senate to deny consumers rights to sue banks

From today’s Washington Post by Ken Sweet:

Call it a win for “the swamp.”

President Trump and Republicans in Congress handed Wall Street banks a big victory by effectively killing off a politically popular rule that would have allowed consumers to band together to sue their banks.

The 51-50 vote in the Senate, with Vice President Mike Pence casting the deciding vote, means bank customers will still be subject to what are known as mandatory arbitration clauses. These clauses are buried in the fine print of nearly every checking account, credit card, payday loan, auto loan or other financial services contract and require customers to use arbitration to resolve any dispute with his or her bank. They effectively waive the customer’s right to sue.

The banking industry lobbied hard to roll back a proposed regulation from the Consumer Financial Protection Bureau that would have largely restricted mandatory arbitration clauses by 2019. Consumers would have been allowed to sue their bank as a group in a class-action lawsuit. Individual consumers with individual complaints would still have to use arbitration under the rules.

President Trump is expected to sign the Senate resolution into law, overturning yet another Obama-administration initiative. Trump spent months of the 2016 campaign accusing his opponent Hillary Clinton of being in the pocket of the big banks and therefore unwilling to take on Wall Street.

At least among voters, the CFPB’s regulations had bipartisan support. A poll done by the GOP-leaning American Future Fund found that 67 percent of those surveyed were in favor of the rules, including 64 percent of Republicans. Other polls on the subject show similar levels of support.

The overturn marks a significant victory for Wall Street. After the financial crisis, Congress and the Obama administration put substantial new regulations on how banks operated and fined them tens of billions of dollars for the damage they caused to the housing market. But since Trump’s victory last year, banking lobbyists have felt emboldened to get some of the rules repealed or replaced altogether. Top or near the top of the list was the CFPB’s arbitration rules.

“(The) vote is a giant setback for every consumer in this country. Wall Street won and ordinary people lost. This vote means the courtroom doors will remain closed for groups of people seeking justice and relief when they are wronged by a company,” said CFPB Director Richard Cordray, who was appointed by President Barack Obama, in a statement.

The big banks and its lobbyist groups are calling this a victory for U.S. consumers, saying that arbitration is faster and the rules would have been an economic stimulus package for class-action trial lawyers. They also cite statistics from the Consumer Financial Protection Bureau’s own 2015 study that show that the average award from a class-action lawsuit is roughly $32 while an award from arbitration is $5,389.

But reality is more complicated. At best, the banking industry’s arguments twist the truth.

The reason why the award for most class-action suits is small is because people don’t typically sue individually his or her bank over a small sum of money, like an overdraft charge or account service fee, because it’s not worth the financial effort to recover a $10, $25, or $35 fee. Arbitration cases are less common, and usually involve more substantial disputes, hence the larger awards. Also the majority of consumers resolve their dispute with their banks in person, typically at a branch or over the phone.

If the CFPB’s rules had gone into effect, companies like Wells Fargo, JPMorgan Chase, Citigroup and Equifax would have been exposed to billions of dollars in lawsuits for future bad behavior. The Center for Responsible Lending estimates the U.S. banking customers paid $14 billion dollars in overdraft fee last year, and the industry has gotten in trouble in the past for shady tactics like transaction reordering, where a bank would reorder a day’s debits and withdrawals to extract the most overdraft fee income from its customers that day.

To overturn the CFPB’s rule, Congress used the Congressional Review Act. The CRA allows Congress to overturn any executive agency’s rules or regulations with a bare majority vote, but more importantly, the law prohibits that agency from issuing any “substantially similar” regulations without Congressional authorization. That means that until Congress passes a law to restrict arbitration, the CFPB’s hands are now permanently bound on this issue.

The political winds are in Wall Street’s favor going forward. Cordray’s term at the CFPB will end in mid-2018 but he is expected to step down before then to make a run for Governor of Ohio. Trump will be able to choose his own appointee and will likely pick someone more likely to favor the banks.

The CFPB was created after the financial crisis as part of the Dodd-Frank financial regulatory reform law that passed in 2010. The bureau was crafted to be independent and powerful, funded by the Federal Reserve instead of through the traditional Congressional appropriations process. Its director has considerable authority to pursue issues he or she considers important and generally cannot be removed from office.

There’s another major financial consumer protection now pending in front of Congress focused on the payday lending industry. The CFPB finalized new regulations weeks ago that would severely restrict the ability for payday lenders to make loans that its customers, often the poor and financially desperate, cannot afford. The payday lending industry is pushing hard to overturn these rules using the same process that was used to overturn the arbitration rules.

Ralph Nader: Trump’s Anti-Consumer Agenda Hurts His Voters

From today’s New York Times “Opinion” Section by Ralph Nader;

As a candidate, Donald Trump promised regular people, “I will be your voice,” and attacked the drug industry for “getting away with murder” in setting high prices for lifesaving medications. But as president, he has declared war on regulatory programs protecting the health, safety and economic rights of consumers. He has done so in disregard of evidence that such protections help the economy and financial well-being of the working-class voters he claims to champion.

Already his aggressive actions exceed those of the Reagan administration in returning the country to the “Let the buyer beware” days of the 1950s.

Though Mr. Trump is brazen in his opposition to consumer protections, many of his most damaging attacks are occurring in corners of the bureaucracy that receive minimal news coverage. His administration, for instance, wants to strip the elderly of their right to challenge nursing home abuses in court by allowing arbitration clauses in nursing home contracts. The Federal Motor Carrier Safety Administration has announced that it is canceling a proposed rule intended to reduce the risk of sleep apnea-related accidents among truck drivers and railway workers.

And the Environmental Protection Agency is busy weakening, repealing and under-enforcing protections, including for children, from toxic exposure. Scott Pruitt, the director, went against his agency’s scientists to jettison an imminent ban on the use of chlorpyrifos, an insecticide widely used on vegetables and fruits. Long-accumulated evidence shows that the chemical is poisoning the drinking water of farm workers and their families.

This assault began with Mr. Trump choosing agency chiefs who are tested corporate loyalists driven to undermine the lifesaving, income-protecting institutions whose laws they have sworn to uphold.

At the Food and Drug Administration, Mr. Trump has installed Dr. Scott Gottlieb, a former pharmaceutical industry consultant, who supports weakening drug and medical device safety standards and has shown no real commitment to reducing sky-high drug prices. At the Department of Education, Betsy DeVos, a billionaire investor in for-profit colleges, has weakened enforcement policy on that predatory industry, hiring industry insiders and abandoning protections for students and taxpayers.

Mr. Pruitt, as the attorney general of Oklahoma, filed suits against the E.P.A. He has hired former lobbyists for the fossil fuel and chemical industries. Mr. Trump’s aides and Republicans in Congress are pushing to restrict access to state courts by plaintiffs who seek to hold polluters accountable.

The administration is even threatening to dismantlethe Consumer Financial Protection Bureau and fire its director, Richard Cordray, who was installed after Wall Street’s 2008 crash. Their sins: They returned over $12 billion to defrauded consumers and plan to issue regulations dealing with payday debt traps and compulsory arbitration clauses that deny aggrieved consumers their day in court. (The Senate is now considering legislation to gut the arbitration rule.)

Draconian budget cuts, new restrictions on health insurance, diminished privacy protections and denying climate change while putting off fuel-efficiency deadlines and auto safety standards will hurt all Americans, including Mr. Trump’s most die-hard supporters.

Read the complete article here.

Cordray Gives No Signal of Departure Plans as CFPB Finalizes Payday Rule

From law.com Oct. 5, 20 by C. Ryan Barber:

As the Consumer Financial Protection Bureau moved Thursday to impose tighter restrictions on the payday lending industry, one question still looms large at the Obama-era agency: whether Director Richard Cordray will leave before the end of his term next year.

For consumer and industry advocates, the CFPB’s issuance of a payday lending rule was a long-awaited moment. It was seen as one last hill for the CFPB before Cordray, as many anticipate, will leave the agency before next July. The former Ohio attorney general is rumored to be interested in running for governor in the Buckeye State.

In recent months, Cordray has traveled to Ohio not only for his regular weekend returns home to Columbus but also for trips to Cincinnati and Cleveland, where he has extolled the CFPB’s work under his watch. The speeches have only served to fuel speculation that he’s about to step into the political ring.

Cordray’s inevitable departure will give President Donald Trump an opportunity to name a new leader for the agency at a time when the constitutionality of its independent, single-director structure is under attack in Congress and the courts. And just last week, a new major lawsuit was filed over the agency’s push to curtail mandatory arbitration in financial services contracts.

A federal appeals court in Washington is expected to issue a decision on that question this fall. On Capitol Hill, the Republican chairman of the House Financial Services Committee has proposed making the CFPB’s director fireable by the president rather than protected by a tougher “for cause” removal standard. That lawmaker, U.S. Rep. Jeb Hensarling, has voiced frustration with the looming question of what he described as Cordray’s “personal political ambitions.”

Cordray offered no insights into any personal political ambitions during his prepared remarks Thursday, in which he framed the CFPB’s payday lending rule as an effort to prevent consumers from falling into “debt traps.” The rule requires the nearly $40 billion industry to assess upfront whether consumers are able to repay their loans. Also, it aims to prevent repeated rollovers of loans, in which consumers take out new loans to repay older ones—a practice that can lead to spiraling fees.

“This cycle of piling on new debt to pay back old debt can turn a single unaffordable loan into a long-term debt trap,” Cordray said. “It is a bit like getting into a taxi for a ride across town, then finding yourself stuck in a ruinously costly cross-country journey with no exit ramps.”

Cordray did not take questions Thursday.

A CFPB attorney, Brian Shearer, said the rules would “set a floor” of protections in the 35 states that allow payday lending. In 15 states and the District of Columbia, caps on interest rates have effectively illegalized payday lending. Annual percentage rates for payday loans, which are typically for small-dollar amounts to be repaid within two-to-four weeks, often exceed 300 percent.

Financial industry groups were quick to attack the CFPB’s rule Thursday.

“The CFPB whiffed at an opportunity to provide assistance to the millions of Americans experiencing financial hardship,” said Richard Hunt, president and chief executive of the Consumer Bankers Association. “It is hard to believe just days after the CFPB reported more than four in ten Americans were struggling to pay monthly bills—often because of unexpected or emergency expenses—the bureau would drive Americans to pawnshops, offshore lenders, high-cost installment lenders and fly-by-night entities.”

The rule is set to take effect 21 months after its publication in the Federal Register. But it may first have to survive a legal and political gauntlet similar to one Republicans and the financial industry have set up for another rule, finalized in July, barring mandatory arbitration clauses that prevent consumers from banding together to file class action lawsuits.

The U.S. House, wielding a legislative tool known as the Congressional Review Act, voted in July to undo the rule. Facing an early November deadline, Senate Republicans have been pushing to follow suit but have not yet held a vote. Consumer groups fighting to save the rule have credited Equifax Inc.’s widely criticized response to its data breach—a now-withdrawn arbitration clause the company included in the terms of its credit monitoring service—for aiding their efforts to stave off a repeal vote.