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Financial Reform Newsletter: Trump Administration Is Protecting Financial Predators

“The Economics Behind the Demise of Democracy,” An Axios Must-Read
While many comment on the political, social and cultural upheaval from Trump and Brexit to the rise of authoritarians around the globe, few have recognized the critical role of economics and the 2008 financial crisis in particular.  A must-read Axios piece recently did:

“Unforced by coup or war, one developed country after another has chosen an authoritarian style of democracy over the last two years, an all-but unforeseen shift that has left more mainstream leaders scrambling to understand it and turn back time.

“The big picture: Economics ultimately underpins the turmoil, leading scholars tell Axios — a financial slide that has eroded the association of democracy with rising living standards and upward mobility, all while populists and partisan media have stoked resentment and promised better.”

 

“Trump Leaves Elderly Savers Vulnerable by Dooming Broker-Conflict Rule”
A recent Politico article detailed the consequences of the Trump administration killing the Department of Labor’s “clients’ best interest” fiduciary duty rule:

“Months after President Donald Trump abandoned a sweeping Obama-era rule preventing conflicts of interest among financial advisers, some of his biggest supporters are finding themselves vulnerable to abuse: elderly investors.

“Older savers are often the targets of brokers' self-enriching sales that saddle them with expensive products or investments they can't easily exchange for cash, interviews with financial advisers and their clients show. And the problem is probably being underreported since seniors are usually reluctant to disclose questionable conduct, they say.”

Pocketing those ill-gotten gains, the industry is rejoicing:

"’The operating environment for asset managers, insurers, and financial advisors are also improved following the death of the [Department of Labor] fiduciary rule, which we think will be replaced with a more workable and industry-friendly SEC rule,’ analysts at Credit Suisse wrote in a July 9 report.

“When the appeals court vacated the rule in June, Chip Anderson, executive director for the National Association for Fixed Annuities said in a statement, ‘We should celebrate.’"

Hardworking Americans struggling to save for retirement and needing every penny they have will not be celebrating. They are going to continue to be victimized by unscrupulous brokers who pretend to be acting in the clients’ best interests while lining their pockets.  Unfortunately, the SEC has proposed what they call “regulation best interest,” which, as Credit Suisse says above, is decidedly “industry friendly,” as we detailed in this comment letter.  All investors, especially those saving for retirement, deserve to have their best interest first and foremost.  Unfortunately, the Trump administration would rather enrich the industry rather than protect investors, but we’re going to continue to fight them every step of the way.

 

The SEC Is Supposed to Protect Investors, Not Take Away Their Rights, Force Them into Secret, Unfair & Biased Arbitration Proceedings, and Let Corporations Keep Tens of Billions of Dollars Stolen From Investors
In a recent interview with Politico Pro, SEC Commissioner Hester Pierce shared her thoughts on a wide range of topics, including her view that companies should be allowed to force shareholders into what is called “mandatory arbitration.”  That’s just a fancy way of saying that corporations can take away shareholders’ rights (1) to join together when defrauded, (2) to get a fair hearing in open court, and (3) to be represented by sophisticated lawyers who can match the corporations’ army of lawyers.  Put differently, she thinks corporations should be able to force each shareholder to individually hire a (frankly, unaffordable) lawyer to take on the corporation that ripped them off in secret, biased and unfair arbitration proceedings where the corporation almost always wins and where there are few if any rules protecting the shareholders.

Better Markets President and CEO, Dennis Kelleher, responded to these anti-investor views in Politico’s Morning Money:

"SEC Commissioner Peirce's view that the SEC should allow corporations to take away the rights of ripped off shareholders to recover their money in court and force them into unfair, biased and expensive arbitration violates the SEC's primary mandate to protect investors.

"It also fails to punish lawbreakers and actually enriches them because corporations will be able to keep the tens of billions of dollars wrongfully taken from their investors, rather than being forced by class actions to return those ill-gotten gains to investors."

SEC Chair Clayton has indicated that allowing corporations to strip shareholders of their legal rights and force them in to mandatory arbitration is not a high priority for him.  We have urged him to oppose all such anti-investor efforts, which would be the most anti-investor actions ever taken in the history of the SEC and would be a stain on the agency’s reputation, which would suffer irreparable damage for such a dereliction of duty.

 

The Trump Administration Continues to Protect Financial Predators Rather than Consumer and Student Victims
Following the Consumer Financial Protection Bureau’s (CFPB) dangerous and despicable policies (averaging more than 2 harmful, anti-consumer actions a month) of putting the interests of financial predators ahead of Main Street American consumers and families, the Department of Education has announced a series of proposed rule changes that put the priorities of for-profit colleges ahead of students with education loan debt.

The Department is seeking to abolish existing regulations that forced for-profit colleges to prove that their students were able to successful obtain gainful employment.  These requirements cut off federally guaranteed student loans to these schools if their graduates did not earn a sufficient salary to pay back their loans.  This comes on the heels of an earlier announcement scaling back a debt relief plan established in the Obama administration to help students who felt that they had been duped by the pie-in-the-sky appeals of for-profit colleges promising easy employment and huge salaries.

For years, for-profit schools have taken advantage of veterans and others, luring them in with deceptive marketing and illegal recruiting practices.  After years of complaints, both Corinthian Colleges and ITT Technical Institutes closed their doors, leaving students doubly victimized with massive debt and no degree.

The egregious actions of Education Secretary Betsy DeVos are straight out of the Mick Mulvaney CFPB playbook.  Instead of protecting and helping the victims of financial predators, Mulvaney is doing the opposite and protecting the predators.  DeVos is doing the exact same thing at the Department of Education.  She should be protecting the hopes and dreams of veterans, those seeking to change careers or jump start a stalled one, and other students reaching for the American Dream.  But instead she’s putting the predatory actions of for-profit colleges first.  That’s just wrong.

The student loan debt catastrophe will be more closely detailed in a soon-to-be-released Better Markets report.  The report exposes how the 2008 financial crash and the economic crisis it caused directly led to the current $1.5 trillion student loan crisis and what Wall Street should be made to do to solve it.  Stay tuned.

 

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