SCOTUS could upend consumer financial protection as we know it

From today’s CNBC News Online:

A case before the Supreme Court has the power dramatically to reshape how the U.S. government polices financial fraud and other misdeeds against consumers — which many experts fear would weaken existing protections and expose the public to more harm.

The case, which concerns the Consumer Financial Protection Bureau, ultimately could lead to the dissolution of the agency, which lawmakers created in the wake of the 2008 financial crisis and was bestowed with broad powers to issue and enforce consumer-protection rules in areas such as banking, student loans, credit reporting, mortgages, payday loans and debt collection.

Depending on their verdict, Supreme Court justices could also diminish states’ power to investigate and punish financial wrongdoing.

“It would be effectively a big rollback in the consumer protection enforcement authorities,” said Christopher Peterson, the director of financial services and a senior fellow at the Consumer Federation of America, a consumer advocacy group. “There would be fewer deterrents [for financial institutions] to use tricks and traps” to ensnare the American public, he said.

Congress created the Consumer Financial Protection Bureau in 2010 when it passed the Dodd-Frank financial-reform law, giving it a mission to protect Americans from unfair, deceptive and abusive financial practices. At the time, families were grappling with the effects of the worst financial crisis since the Great Depression, perpetuated by irresponsible lending practices that reverberated across the U.S. and global economies.

Oversight of consumer finance was previously “scattered across government” and laws “escaped regular federal oversight,” according to the CFPB website. The CFPB has collected billions of dollars in penalties from financial companies for wrongdoing. Its largest, for $2.13 billion in 2013, was levied against mortgage servicing firm Ocwen Financial Corp. and a subsidiary for allegedly putting thousands of people at risk for losing their homes.

The agency has recovered more than $12 billion for consumers to date, according to a Consumer Federation of America report published in March last year. The agency’s activity has dropped off under the Trump administration, the report says.

Read the complete article here.

Many Adults Would Struggle to Find $400 in an emergency, the Fed Finds

From today’s New York Times:

Four in 10 American adults wouldn’t be able to cover an unexpected $400 expense with cash, savings or a credit-card charge that could be quickly paid off, a new Federal Reserve survey finds.

About 27 percent of people surveyed would need to borrow or sell something to pay for such a bill, and 12 percent would not be able to cover it at all, according to the Fed’s 2018 report on the economic well-being of households, which was released Thursday.

The share that could cover such an expense more easily has been climbing steadily and now stands at 61 percent, up from just half when the Fed started this annual survey in 2013. Still, the finding underlines the fact that many Americans remain on the edge financially even as this economic expansion is approaching record length and people have become more optimistic.

Household finances over all have shown a marked improvement over the life of this report, thanks in large part to an improving labor market that has lifted wages and left more Americans with jobs. Three-quarters of adults said they were “doing O.K.” or “living comfortably” when asked about their economic well-being, up from 63 percent in 2013.

Underlying disparities persist. Just 52 percent of rural residents said their local economy was doing well, compared with 66 percent of city dwellers. And while nearly seven in 10 white adults viewed their area’s economy as good or excellent, only six in 10 Hispanic adults and fewer than half of black adults said the same thing.

Read the complete article here.

An International Final Four: Which Country Handles Student Debt Best?

From today’s New York Times:

Although an American college degree remains a good investment on average — the higher earnings for most graduates justify the cost— millions of borrowers are in default on their loans.

Policy analysts generally agree on a need for reform, but not on which path policymakers should take. Can America learn anything from other nations? We gathered experts with a range of perspectives, from America and abroad, and asked them to compare the systems in Australia, Britain, Sweden and the United States.

We chose this grouping of nations because they highlight important differences both in loan repayment systems and in related policies such as tuition and loan limits, not necessarily because they all belong among the best systems in the world. In the spirit of March Madness, we devised a bracket-style tournament, seeding the countries so that those with more similar systems would meet in the semifinals.

Sweden vs. United States

Sweden and the United States differ in whether the monthly loan payment remains the same over time and in the number of years borrowers can repay their loans.

The average American borrower with a bachelor’s degree leaves college with $28,400 in debt. Students can borrow for both tuition and living expenses, although loan limits make it hard for an undergraduate to borrow more than $45,000 over four years.

In Sweden, average debt levels are similar — the equivalent of around $21,000 — even though students borrow only for living expenses (Swedish universities do not charge tuition). Interest rates are also very low; the rate for 2018 is now 0.13.

In the United States, borrowers are required to begin making payments six months after leaving college. By default, payments are set so the whole principal and interest, which is tied to the market rate at the time the loan is made (currently 4.45 percent), will be paid off in equal monthly installments paid over 10 years.

American borrowers can opt into alternative repayment plans, including plans that tie payments to income or that start lower and increase over time. Income-based plans offer forgiveness of any remaining balance after 10 to 25 years, but enrolling in these plans requires making a request to the servicer and filing paperwork annually. If you miss the paperwork, you are put back into a 10-year repayment schedule, but can ask to re-enroll. There are a large number of plans that are hard for borrowers to navigate, especially in times of financial stress.

Swedish borrowers, on the other hand, pay off their loans over a much longer period. Borrowers can be in repayment for up to 25 years, with the typical borrower paying for 22 years.

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.

No Accounting Skills? No Moral Reckoning

From NYT’s “The Great Divide” Blog by Jacob Soll:

“A population well-versed in double-entry accounting will not immediately solve our complex financial problems, but it would allow average citizens to understand the nuts and bolts of finance: balance sheets, mortgage interest, depreciation and long-term risk. It would also give them a clearer sense of what financial accountability really means and of how to ask for and assess audits. The explosion of data-driven journalism should also include a subset of reporters with training in accounting so that they can do a better job of explaining its central role in our economy and financial crises.

Without a society trained in accountability, one thing is certain: There will be more reckonings to come.”

Read the entire article here.