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Financial Reform Newsletter: The Punch Bowl Runneth Over

The Punch Bowl Runneth Over
Rolling back financial reform laws and rules -- and deregulation of the financial industry more broadly -- is almost always based on the claim that lending and economic growth will increase.  For example, community banks and their advocates have claimed that the passage of the Senate deregulation bill (S. 2155) will spur more mortgage, rural, agricultural and small business lending, and the banks between $50 billion and $250 billion which are going to be deregulated have made similar claims.  However, lending is already pretty high, often more than double economic growth.  Given that, for example, lending by community banks increased by 7.7% in 2017 and by 8.3% in 2016, we need to ask if there really are that many credit worthy borrowers to responsibly absorb the increase in credit supply. 

With consumer debt already exceeding the levels before the 2008 financial crash (including student loan debt of almost $1.5 trillion, auto loans of $1.2 trillion and credit card balances reaching the highest level ever at more than $1 trillion) and subprime lending (conveniently rebranded as innocuous “nonprime” loans) jumping, does it makes sense for the financial industry to be peddling more debt when wages are stagnant and the Federal Reserve is beginning a cycle of increasing interest rates (which will increase everyone’s credit costs)?  For example, “a record 516 million personal loan solicitations were mailed out in the first quarter of 2018, up 46% from a year ago,….the fifth-consecutive record-breaking quarter.”

That’s why we think this recent headline was a little misleading: “The surprising return of the repo man.”  It’s not surprising:

“Although the US economy recently entered its second-longest-ever period of expansion, the auto loan delinquency rate last year reached its highest point since 2012, driven by souring subprime auto loans.  It’s evidence of how the economic recovery has not been evenly felt, with some of Americans’ biggest purchases – automobiles – being fueled by unsustainable borrowing rather than rising wages.” 

Tellingly, the story notes “so much of America is a heartbeat away from a repossession – even good people, decent people who aren’t deadbeats.” 


In a Major Victory for Big Bank Accountability and Transparency, The Fed Agrees to a Public Vote Before Lifting its Sanctions on Wells Fargo
Scoring a major victory for keeping banks accountable and the public informed, it was announced that the Federal Reserve would require a public vote by the Board of Governors before it would lift the unprecedented growth restrictions placed on Wells Fargo for its egregious, years-long predatory actions ripping off its consumers.  Additionally, the Fed said it would make public as much as it could of the third-party review of how Wells is implementing reforms.

The news stems from a March 2018 hearing in which Senator Elizabeth Warren (D-MA) pressed Fed Chair Jerome Powell to commit to a full vote by the Fed before approving Wells’ remediation plan, which was required by the Fed’s order limiting its growth.  Senator Warren later followed up with a letter to Chair Powell who subsequently accepted the Senator’s requests.

"After further consideration, the decision about terminating the asset growth restriction will be made by a vote of the Board of Governors," wrote Chair Powell. He continued that when the third-party review of Wells Fargo's remedial actions is ready, "we will review that report to determine whether and to what extent the report can be publicly disclosed without impairing protected interests."  Senator Warren greeted the news saying

"I'm glad the Fed's Board of Governors changed course and will ‎vote on whether to lift the growth restriction, rather than delegating that important question. The Fed must strictly enforce its order to show Wells Fargo that it means business."

Both Senator Warren and Fed Chair Powell deserve praise for taking action to ensure that Wells Fargo is held to a high standard and that the public be fully informed about actions Wells, and the Fed, are taking. 

Speaking of Wells Fargo, Now It Has Reportedly Also “Pocketed Fire and Police Department Pension Fund Fee Rebates”

Wells Fargo would like you to believe, thanks to its new advertising campaign: “Established in 1852. Re-established in 2018.” that it is making the necessary changes to recover from the fraudulent checking account scandal and is starting anew.  That fresh start may be a bit premature as it was recently reported that, as the headline above notes, the bank was collecting fees for itself that should have been returned to the fire and police pension fund in Chattanooga, Tennessee.

It wasn’t until the pension fund’s board grilled the bank over what it thought were suspicious practices in its institutional retirement and trust unit that the bank’s actions were brought to light.

Wells blamed the mistake on errors made when setting up the rebates.  However, isn’t it odd that such bank “errors” always result in enriching the bank?  Such errors never seem to go in the opposite direction and, for example, enrich customers.  If these were truly random errors, shouldn’t some favor the bank and some favor customers?  Just sayin’.


Where Does It End?  CFPB Acting Director Mulvaney Now Doesn’t Want the Consumer Protection Bureau to Protect Student Loan Borrowers from Being Ripped Off
Described by a former CFPB official as a move that “defangs the watchdog and instead turns the office into a lapdog for the industry” acting director Mulvaney last week announced that the Bureau’s student loan unit would be folded into the financial education unit. With 42 million Americans currently holding an historically high $1.5 trillion in student loan debt and many students being victimized by predators and scam artists, this is no time to stop protecting students from being ripped off and defrauded, but that looks like what Mulvaney is doing.

Leaving students to be preyed upon by crooks seems to be a priority of this administration.  For example, the Department of Education just gutted the office that investigates fraud at for-profit colleges and put a former officer of a sanctioned for-profit college in charge of enforcement.  As California Attorney General Xavier Becerra said, “The Trump Administration is inviting the fox to take charge of the henhouse.”  Make sure to watch Trevor Noah on The Daily Show spell out how ludicrous this really is.

Mulvaney’s latest move comes at the same time the he has the CFPB reconsidering, according to reports, its lawsuit against Navient, the largest servicer of private and federal student loans. According to the CFPB in 2017, Navient “created obstacles to repayment by providing bad information, processing payments incorrectly, and failing to act when borrowers complained,” and cheated borrowers out of repayments that they should have received, forcing them to pay more than they had to on their loans.

Of course, we wouldn’t have known about any of that were it not for the CFPB’s student loan office and we won’t know about it in the future after Mulvaney guts this consumer protection that is important to 42 million Americans.  Former CFPB Director, Richard Cordray, recently discussed many of the predatory actions in the student loan market on All In With Chris Hayes, which is worth watching.




Cuts to CFTC’s Budget Irresponsibly Weakens One of the Most Important Cops on the Wall Street Beat
Better Markets applauded CFTC Chairman Christopher Giancarlo for fighting to increase the CFTC’s budget.  He correctly stated the obvious:  to be an “effective 21st century regulator” meant that 21st century tools were needed to monitor and protect commodities trading as well as the enormous $400+ trillion derivatives market. 

Ignoring logic, common sense and their duties, Congress not only didn’t provide the CFTC with appropriate funding, it actually cut the CFTC’s budget.  We wondered how the Commission could be expected to do its job with such meager funding.  We also warned that leaving one of the cops on the Wall Street beat so drastically out-gunned, was a recipe for disaster, especially given the size of the markets and the key role derivatives played in the 2008 crash.

Predictably, some of our warnings have started to come to fruition: the CFTC announced this past week that it would soon be offering voluntary buyouts to reduce staff, cut back on training opportunities, and scale back its information technology capabilities.  Handcuffing the CFTC by underfunding them only benefits Wall Street’s biggest dealer banks and only hurts consumers and markets.  This will not end well and once again US taxpayers will be on the hook for the cleanup bill.


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