“Unqualified” Trump appointee set to take over consumer protection agency

From today’s Los Angeles Times:

If all goes according to Republican plan, this is the week a person with no experience in consumer protection will take over the consumer watchdog agency that the party has been steadily weakening to the point of irrelevancy.

Kathy Kraninger, a White House budget official, received the green light for final approval last week after Republican senators shut down debate on her nomination with a party-line vote of 50 to 49. The only wild card is whether memorial services for former President George H.W. Bush will delay action by a few days.

Kraninger would replace White House budget chief Mick Mulvaney, who has been leading the Consumer Financial Protection Bureau on an interim basis and fulfilling President Trump’s pledge to make the agency friendlier to the businesses it was intended to crack down on — banks, payday lenders and others.

“If the Senate approves this unqualified acolyte of Mick Mulvaney, who has no consumer protection or financial regulation experience, expect her to simply follow his playbook,” said Ed Mierzwinski, senior director of the federal consumer program for the U.S. Public Interest Research Group.

That means Kraninger will “leave service members and their families at the mercy of predatory lenders, work with payday lenders to eliminate the payday lending rule even Congress was afraid to vote to repeal, and reduce enforcement penalties, if any, to parking tickets, not punishments,” he said.

Read the complete article here.

Student Loan Watchdog Quits, Says Trump ‘Turned Its Back’ On Borrowers

From today’s NPR News:

The federal official in charge of protecting student borrowers from predatory lending practices has stepped down.

In a scathing resignation letter, Seth Frotman, who until now was the student loan ombudsman at the Consumer Financial Protection Bureau, says current leadership “has turned its back on young people and their financial futures.” The letter was addressed to Mick Mulvaney, the bureau’s acting director.

In the letter, obtained by NPR, Frotman accuses Mulvaney and the Trump administration of undermining the CFPB and its ability to protect student borrowers.

“Unfortunately, under your leadership, the Bureau has abandoned the very consumers it is tasked by Congress with protecting,” it read. “Instead, you have used the Bureau to serve the wishes of the most powerful financial companies in America.”

The letter raises serious questions about the federal government’s willingness to oversee the $1.5 trillion student loan industry and to protect student borrowers.

Read the complete article here.

Senators urge CFPB not to ‘abandon’ duty to protect troops, families

From today’s Military Times:

In the wake of reports that a key federal consumer protection agency is considering pulling back from efforts to protect service members from predatory lenders, 49 senators have signed a letter asking for a commitment that the bureau will continue to ensure troops are protected.

The Consumer Financial Protection Bureau “should not be abandoning its duty to protect our service members and their families” the senators wrote in a Wednesday letter to Mick Mulvaney, director of the Office of Management and Budget, and acting director of the Consumer Financial Protection Bureau. The lawmakers — all 48 Senate Democrats and independent Vermont Sen. Bernie Sanders — asked for a commitment that the CFPB will use “all of the authorities available to the CFPB to ensure that service members and their families continue to receive all of their [Military Lending Act] protections.”

Rather than actively examining lenders’ records to determine whether they are following the law under the Military Lending Act, several sources say the CFPB instead would rely on complaints from service members and their families to trigger potential investigations. CFPB officials reportedly have expressed a concern that they don’t have the authority to conduct these lender examinations, although they have been doing so for years.

According to the CFPB, their enforcement actions have resulted in about $130 million that has been provided in relief to service members, veterans and their families.

The possible change was first reported in the New York Times. The move wouldn’t change the law itself, only the enforcement techniques. In the past, some lenders have expressed concern to Military Times about what they perceived as aggressive and unfair practices by the CFPB.

Read the complete article here.

Mick Mulvaney says CFPB’s priority is ‘free markets and consumer choice’

From today’s LA Times:

Consumer Financial Protection Bureau chief Mick Mulvaney told lawmakers Wednesday that the agency’s new priority is “to recognize free markets and consumer choice” and take “a humble approach to enforcing the law,” according to prepared remarks released in advance.

In his first testimony to Congress since his controversial appointment as the bureau’s acting director, Mulvaney acknowledged that many lawmakers have disagreed with his actions in the job, “just as many members disagreed with the actions of my predecessor.”

Mulvaney blamed lawmakers’ frustrations on the structure of the bureau, an independent watchdog created in the wake of the financial crisis. He was an outspoken critic of the bureau as a Republican congressman, and last week he formally asked Congress to reduce the bureau’s authority.

Mulvaney and other Republicans have said the bureau is unaccountable because its funding, like that of other financial regulators, is outside the appropriations process, and the president can fire the bureau’s director only for cause, rather than at will.

Read the complete article here.

When Wall Street Writes Its Own Rules, It’s An Age of Unprecedented Corruption

From today’s New York Times:

On July 25, 2013, a high-ranking federal law enforcement officer took a public stand against malfeasance on Wall Street. Preet Bharara, then the United States attorney for the Southern District of New York, held a news conference to announce one of the largest Wall Street criminal cases the American justice system had ever seen.

Mr. Bharara’s office had just indicted the multibillion-dollar hedge fund firm SAC Capital Advisors, charging it with wire fraud and insider trading. Standing before a row of television cameras, Mr. Bharara described the case in momentous terms, saying that it involved illegal trading that was “substantial, pervasive and on a scale without precedent in the history of hedge funds.” His legal action that day, he assured the public, would send a strong message to the financial industry that cheating was not acceptable and that prosecutors and regulators would take swift action when behavior crossed the line.

Steven A. Cohen, the founder of SAC and one of the world’s wealthiest men, was never criminally charged, but his company would end up paying $1.8 billion in civil and criminal fines, one of the largest settlements of its kind. He denied any culpability, but his reputation was still badly — some might argue irreparably — damaged. Eight of his former employees were charged by the government, and six pleaded guilty (a few later had their convictions or guilty pleas dismissed). Mr. Cohen was required to shut his fund down and was prohibited from managing outside investors’ money until 2018.

Now, with the prohibition having expired in December, Mr. Cohen has been raising money from investors and is set to start a new hedge fund. He’ll find himself in an environment very different from the one he last operated in. His resurrection arrives as Wall Street regulation is under assault and financiers are directing tax policy and other aspects of the economy — often to the benefit of their own industry. Mr. Cohen is a powerful symbol of Wall Street’s resurgence under President Trump.

As the stock market lurched through its stomach-turning swings over the past week, it was hard not to worry that Wall Street could once again torpedo an otherwise healthy economy and to think about how little Mr. Trump and his Congress have done to prepare for such a possibility. Stock market turbulence typically prompts calls for smart and stringent financial regulation, which is not part of the Trump agenda. One of Mr. Trump’s first acts as president was to fire Mr. Bharara, who made prosecuting Wall Street crime one of his priorities. Mr. Trump has also given many gifts to people like Mr. Cohen.

Read the complete article here.

CFPB to reconsider rule on payday loans

From CNN Money Edition:

The watchdog agency said in a statement Tuesday that it intends to “reconsider” a regulation, issued in October, that would have required payday lenders to vet whether borrower can pay back their loans. It also would have restricted some loan practices.

If the rule is thrown out or rewritten, it would mark a major shift for an agency that had zealously pursued new limits on banks and creditors before Mick Mulvaney, President Trump’s budget director, became the CFPB’s acting director.

Mulvaney took over the top job at the CFPB in November following a leadership scramble. A vocal critic of the CFPB when it was run by President Obama appointee Richard Cordray, Mulvaney since said the agency would cut back on burdensome regulations.

Tuesday’s announcement does not amount to a formal repeal of the payday lending rule. But it does cast doubt on whether it will ultimately be implemented.

Payday loans provide those in need with small amounts of cash — typically between $200 and $1,000. The money needs to be paid back in full when a borrower receives his or her next paycheck, and such loans often come with exorbitantly high interest rates.

Consumer advocates that have supported the CFPB’s restrictions on the loans say such transactions often take advantage of people in desperate financial situations.

“The CFPB thoroughly and thoughtfully considered every aspect of this issue over the course of several years,” Karl Frisch, executive director of progressive group Allied Progress, said in a statement. “There is no reason to delay implementation of this rule — unless you are more concerned with the needs of payday lenders than you are with the interests of the consumers these financial bottom-feeders prey upon.”

The sentiment was echoed in a statement by Sen. Elizabeth Warren, a Democrat who helped create the CFPB.

“Payday lenders spent $63,000 helping Mick Mulvaney get elected to Congress and now their investment is paying off many times over. By scrapping this rule, Mulvaney will allow his campaign donors to continue to generate massive fees peddling some of the most abusive financial products in existence,” Warren said.

Read the complete article here.

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.