Economic Regulation (Part 1): Greed is (Not) Good

In 1987, the movie “Wall Street” was released.  A tense scene depicted the character Gordon Gekko, the king of corporate raiders, explaining why he was dismantling an airline corporation and laying off its employees.  He simply said, “Greed is good.”  

 
I think of the actor Michael Douglas giving this speech when I see some of the pernicious scams perpetrated by the financial industry. 
 
My office recently sued a finance company that charged veterans 200 percent interest for small loans that required the veterans to sign away significant portions of their monthly pension for years to come. [1]  We sued a bank that put unauthorized charges for identity theft protection packages on customers’ accounts. [2]  We enjoined companies that signed people up for credit cards using the credit of other customers. [3]  We stopped student loan companies that promised students phony debt relief. [4]  And last month, we secured a court order that that should help to get an estimated $20 million in usurious loans wiped out.  [5]
 
With all this greed, it is troubling that the financial industry wants to abolish the federal Consumer Financial Protection Bureau (“CFPB”). The Bureau was established to be a consumer watchdog over the financial industry at the federal level.  The industry says the CFPB needlessly intrudes into the free market with unnecessary consumer protections.  Really?  Let’s take a look:
 
Mandatory Arbitration. Banks and credit card companies bury mandatory arbitration clauses in the fine print of their customer agreements.  These arbitration clauses deprive people of their right to have their day in court if the company treats them unfairly, such as charging them too much interest, failing to credit payments, or debiting unauthorized charges.   
 
The CFPB recently proposed a rule to restrict the placement of mandatory arbitration provisions in fine print contracts.  The financial industry doesn’t like the rule.  The industry wants to force people into arbitration before arbitrators picked by the industry.
 
In 2009, I sued the largest consumer arbitration company in the world, the National Arbitration Forum (“NAF”). NAF handled hundreds of thousands of cases throughout the nation each year. In almost every case, the consumer lost, and the bank won. Our investigation found that NAF hand-picked arbitrators who were favorable to the banks.  We also discovered that NAF had an ownership affiliation with a New York hedge fund group that owned the operations of the largest debt collection enterprise in the country. In the end, we barred NAF from handling consumer arbitrations. [6]
 
Congress then held hearings on the matter. [7]  I advocated for the CFPB to promulgate rules to abolish this slanted practice. The CFPB has now promulgated such a rule, but Congress wants to get rid of it.
 
Fake Accounts.  Last September, Wells Fargo agreed to pay $185 million to the CFPB to settle charges that the bank pressured employees to open more than 2 million fake accounts that weren’t authorized by customers. [8]  The customers were charged fees on accounts they didn’t know they had, and some customers were chased by collection agents for fees on accounts that they didn’t know existed.  To make matters worse, Wells Fargo forced consumers who complained they had fakes accounts created in their names into, you guessed it, mandatory arbitration.
 
Forced Automobile Insurance.  An internal report by Wells Fargo was published two weeks ago.  The report said that Wells Fargo illegally forced auto insurance on 800,000 borrowers who didn’t need it. [9]  The bank immediately offered to refund $80 million to borrowers.  The cost of the unnecessary insurance reportedly pushed almost 275,000 customers into delinquency, and nearly 25,000 vehicles were reportedly wrongfully repossessed.  
 
These actions by the CFPB are only the tip of the iceberg. Adam Smith, the so-called “Father of Economics,” said that fierce competition between purchasers and sellers is good.  But he never said that greed, avarice, and fraud were proper motivators in our economic system. 
 
The CFPB can play an important role in protecting regular folks from the excesses of Wall Street.  This is why I went to court to defend the constitutionality of the independence of the CFPB. [10]
 
If you agree with my observations in this report, I ask you to let your Congressional Representatives know that the CFPB is an integral part of a balanced economy.
 

[1]  http://www.startribune.com/minnesota-ag-sues-companies-that-allegedly-bilked-veterans-and-seniors/440766003/

[2]  http://www.twincities.com/2010/12/06/discover-card-hit-with-minnesota-attorney-generals-lawsuit/

[3] https://www.mprnews.org/story/2009/11/24/swanson-card-lawsuit

[4] http://www.startribune.com/attorney-general-sues-company-allegedly-promising-student-loan-debt-forgiveness/311248281/

[5] httphttp://www.startribune.com/minn-supreme-court-says-globe-school-of-business-issued-illegal-student-loans/436775953/://src.bna.com/do3
 

[6] http://www.npr.org/templates/story/story.php?storyId=106913248

[7] http://www.startribune.com/swanson-criticizes-mandatory-arbitration-in-u-s-senate-hearing/131809273/

[8]http://www.nj.com/politics/index.ssf/2016/09/wells_fargo_refunding_customers_26m_in_banking_sca.html

[9] https://www.cnbc.com/2017/07/27/wells-fargo-reportedly-forced-car-loan-customers-to-buy-auto-insurance.html

[10] PHH Corporation v. Consumer Financial Protection Bureau, Amicus Brief, United States District Court for the District of Columbia Circuit, No. 15-1177, filed March, 2017.