Tag Archives: bank regulation

Under The Radar: Deregulation and Setting Up the Next Big Bank Debacle

If a person were thinking that the current administration, and those politicians in Nevada who espouse Trumpism, are dangerous in terms of health care insurance affordability, women’s’ health issues, and environmental sustainability — let me offer one more thing to worry about:  Financial deregulation.

Let’s start with the nomination of Brett Kavanaugh for a position on the US Supreme Court, this would be the self-same Kavanaugh who once ruled that the Consumer Financial Protection Bureau was “structurally unconstitutional.” [Politifact]  Please recall for a moment that one of the reasons for the CFPB’s creation was the propensity in some  retail banking circles to generate consumer indebtedness (which could in turn be used as the basis for derivatives) in ways that were definitely not beneficial to both the borrower and the lender.   We know one man’s debt is another man’s asset, but when the debt level becomes impossible and default becomes probable the derivatives become unstable.  This, as the saying goes, “ain’t rocket science.”  But wait! How do we know when things are likely to become unstable?  There’s supposed to be an agency for that, the Office of Financial Research.  However, the Trump nominee to head this agency would really rather eliminate it.

But the fact that this nomination is flying under the radar is not surprising. The OFR is arguably the most important piece of the Dodd-Frank Wall Street Reform and Consumer Protection Act that is never discussed. Despite its lack of public attention, the OFR’s crucial financial stability role demands a leader willing to aggressively execute its lofty mission. Unfortunately, President Trump’s nominee to lead the OFR is more likely to defang and defund the agency than to strengthen it. [AmBanker]

The American Banker explains further:

In the lead-up to the 2007-2008 crisis, financial regulatory agencies did not have a good grasp of how risks that were building across and outside of their specific jurisdictions could threaten financial stability. Regulators were not sharing sufficient data with one another and there were significant pockets of the financial sector where data was not available to any regulator. The Dodd-Frank Act sought to address this issue, in part, by creating the Office of Financial Research.

So, the budget was cut by 25% and the staffing levels by 38%.  This really isn’t conducive to sharing sufficient data and making data available to regulators.   If this is beginning to sound like telling the CDC it can’t investigate and collect data on gun violence in this country because then we might have more relevant statistics in order to understand the problems, that’s because it is.  So, let’s not collect data because then we’d find out things some folks would be happier if we didn’t know.

Then there are the more blatant attempts to roll back the Dodd Frank provisions, for example, see Investment News from last March.  On compliance teams from last May.  And, the JOBS Act 3.0 is just about a death knell for consumer protections, as of August 7 2018.

But wait yet again! There’s more.  There’s that matter of $1.4 trillion — that would be trillion with a T — in student debts in this country a larger portion of which Wells Fargo would really like to access. [Bloomberg] And, yes, this would be the same Wells Fargo which agreed on August 2, 2018 to pay out $2.09 billion in fines for a decade old mortgage loan scheme. [HuffPo]  This, while Secretary of Education, our Yacht Collecting Betsy DeVos, is proposing a rule which would cut student loan debt relief by some $13 billion. [LATimes]  [NYTimes]  So, if a person were scammed by, say, Corinthian, [WSJ] or The Fly By Night School of Urban Hang Gliding, or … Trump University [NBC] … good luck with that?

Did we take our eyes off the major players from the 2007-08 debacle?  Kindly review the “Malaysian Problem” re-emerging at Goldman Sachs.  Or, are we paying attention to what’s happening with a Goldman Sachs whistleblower case of possible wrongful termination which bubbles to the surface every so often? Stick a pin in the name Lars Windhorst for future reference? Why is Goldman Sachs moving jobs out of New York and into Utah? [BusinessInsider]  Cut costs? Yes, but why move back office compliance jobs to “remote” areas?

Then there’s the CFPB’s inexplicable turn to weakening the rules made with regard to loans made to members of the American Armed Forces. [NYT]  This reporting from NPR is pretty chilling:

“NPR has obtained documents that show the White House is proposing changes that critics say would leave service members vulnerable to getting ripped off when they buy cars. Separately, the administration is taking broader steps to roll back enforcement of the Military Lending Act.

The MLA is supposed to protect service members from predatory loans and financial products. But the White House appears willing to change the rules in a way that critics say would take away some of those protections.

“If the White House does this, it will be manipulating the Military Lending Act regulations at the behest of auto dealers and banks to try and make it easier to sell overpriced rip-off products to military service members,” says Christopher Peterson, a law professor at the University of Utah, who reviewed the documents.”

Bank deregulation didn’t work.  It didn’t work in the 1920s; it didn’t work in the 2000s; and, it’s not going to work now.  Notice, please, how when Republicans like Senator Dean Heller refer to Dodd Frank and other financial reform legislation they get vague and highly general. They speak of “onerous” regulator burdens, which are “job killing,” and don’t promote “free enterprise.”   These politicians need to be nailed down with specific questions, such as:

(1) Should the Federal Government collect data about banking trends and risk management and share this with relevant regulators?

(2) Should the Federal Government promote safe lending practices including the regulation of payday loans and similar loans made to members of the US Armed Forces?

(3) Should the Federal Government be taking a more critical look at the levels of student indebtedness, and at the accountability of the institutions offering student loans?

It’s hard to focus on some of the important news involving financial regulation, consumer protection, and other topics whilst we’re being fire-hosed with a daily inundation of surreptitious tapes, the latest cabinet level scandal du jour, and the musing of the misogynist in chief.  However, these are topics on which we should hold candidates accountable in November.

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Filed under banking, Economy, financial regulation, Politics

Trump’s Conflicted Interests

Trump Favorite Picture There is little more chilling today than this piece of information from Mother Jones concerning The Trumpster’s conflicts of interest:

That concern exists with Trump, but he presents a unique problem when it comes to conflicts of interest: He and his companies have borrowed hundreds of millions of dollars. These are loans that potentially afford his lenders leverage over Trump. This creates the possibility that Trump may find himself in the position of choosing between US interests and his lenders’ interests. There’s no better example of this than the $364 million Trump owes the struggling Deutsche Bank, which is staggering under fierce pressure from US financial regulators who want the bank to pay for its misdeeds during the run-up to the 2008 mortgage crisis. (Trump is in a real estate partnership that borrowed $950 million from a group of banks including a subsidiary of Deutsche Bank and the state-owned Bank of China.) (emphasis added)

The entire article is well worth the time it takes to read it.

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Filed under Economy, Politics

Senator Heller’s Choke Point

Heller Amendment Operation Choke Point

One thing in life is almost more certain than death and taxes – if there is legislation that the banking industry wants then Senator Dean Heller (R-NV) will be quite happy to sponsor it, carry water for it, vote for it, and then remind anyone who is still listening how he’s a Man for the Consumers because he once voted against the “bail-out.”   To see Senator Heller’s latest foray into playing the Banker’s Boy one needs to dig a bit, unearthing S.Amdt 4715 to S.Amdt 4685 amending HR 2578, the Commerce, Justice, Science and Related Agencies Appropriations Act of 2016.

Senator Heller has teamed up with Senators Vitter, Crapo, Paul, Lee, and Cruz to insert the following: 

Sec. __.  None of the funds made available in this Act may
    be used to carry out the program known as “Operation Choke
    Point”. [Cong.gov]

What is Operation Choke Point and what was it intended to do?  The Department of Justice was disturbed by reports that fraudulent merchants had found a way around federal banking regulations and once they inserted themselves into the banking system they could team with payment processors to initiate debit transactions against consumer’s accounts and have the amounts transmitted to their own accounts.

Even more disturbing, the Department’s investigations revealed that some third party processors knew that the merchants with whom they were working were frauds but they continued to process their transactions in direct violation of federal law.  [Harris pdf]

So, for example, Quickie Check Instant Lending could get a customer to sign a loan agreement for some outrageous amount of interest, and then hand the item over to a payment processor.  With some cooperation from the bank (usually garnered by providing a handsome fee thereto) the payment processor would have the bank make automatic debits to the person’s account.  Or, say, the Fast Weight Loss Pill Factory got an order from John Q. Public, and the payment processor + bank would insure that John’s bank account was regularly debited for the fraudulent product, or for products not delivered, or whatever scam was being run.

The idea behind Choke Point was to gather information from banks which appeared to be engaged in fraud, or might have evidence of fraudulent conduct by others. Subpoenas were issued, and indeed there were some banks doing some rather obnoxious business.  [See Fair Oaks Bank]  The Fair Oaks Bank had received hundreds of notices from consumers’ banks that the people whose bank accounts were being charged had NOT authorized the payments; had evidence that more than a dozen merchants served by the payment processor had “return rates” over 30% and one had a “return rate” over 70%; and, Fair Oaks had evidence of efforts by merchants to conceal their real identities.

One of the obvious targets are payday lenders who were operating in violation of state regulations regarding the amount of interest that could be charged to a customer.  As the New York Times explained back in January 2014:

“The new, more rigorous oversight could have a chilling effect on Internet payday lenders, which have migrated from storefronts to websites where they offer short-term loans at interest rates that often exceed 500 percent annually. As a growing number of states enact interest rate caps that effectively ban the loans, the lenders increasingly depend on the banks for their survival. With the banks’ help, the lenders that typically work with a third-party payment processor that has an account at the banks are able, authorities say, to automatically deduct payments from customers’ checking accounts even in states where the loans are illegal.”

The object of Choke Point was to cut the insidious relationship between the banks, the processors, and the fraudsters – or choke it off.  If one wanted to promote the interests of the payday lenders, third party processors, and banks willing to turn a blind eye toward the nature of these transactions – there are fewer ways much better than to hamstring the Department of Justice’s investigations into these kinds of transactions.  However, that is precisely what Senator Heller is proposing.

The DoJ’s investigations were also reviled because some of the ammosexuals among us got the idea that if pawn shops couldn’t use the untraditional routes for payment, therefore the whole operation was one giant gun grab. Senators Cruz and Lee bought this horse and have been riding it for some time now.  One quick visit to Politifact will demolish the SunTrust Bank/Brooksville Pawn shop story that made the rounds in 2015.

“SunTrust announced in a Aug. 8, 2014, press release that the bank had “decided to discontinue banking relationships with three types of businesses – specifically payday lenders, pawn shops and dedicated check-cashers – due to compliance requirements.” The bank still works with firearms dealers, according to the release.” [Politifact]

Hence, the policy decision made by SunTrust was no more “anti-gun” than it was anti-jewelry, anti-guitar, anti-CD, anti-work out equipment, or anything else  in a pawn shop.

There are some salient features of this story – once again Senator Heller who delights in his description as a “moderate,” has teamed up with some of the most radical members of the GOP in the U.S. Senate (witness his previous alliances with Senator Jim DeMint (R-SC).  Once again Senator Heller has sided with the payday lenders against any action taken to regulate their relationships with their customers. And, once more Senator Heller has demonstrated his willingness to carry any water in any bucket the American Bankers’ Association wants him to transport to the Senate floor.

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Filed under banking, Economy, financial regulation, fraud, Heller, Nevada politics