NEWS: June 1

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Consumer spending jumps; monthly inflation rebounds 
By Lucia Mutikani

U.S. consumer spending recorded its biggest increase in four months in April and monthly inflation rebounded, pointing to firming domestic demand that could allow the Federal Reserve to raise interest rates next month.

The Commerce Department said on Tuesday that consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased 0.4 percent last month after an upwardly revised 0.3 percent gain in March. Households spent more on both goods and services last month.

April's increase was the biggest since December and could ease concerns about second-quarter economic growth after weak reports on core capital goods orders, the goods trade deficit and inventory investment in April. Consumer spending was previously reported to have been unchanged in March.

U.S. stock index futures pared losses after the data while the dollar edged up against the yen. Prices of U.S. Treasuries were trading slightly higher.

Consumer spending grew at its slowest pace in more than seven years in the first quarter, helping to restrict gross domestic product growth to a 1.2 percent annual rate in the first three months of the year. GDP growth estimates for the second quarter range between a rate of 2 percent and 3 percent.

Minutes of the Fed's May 2-3 policy meeting, which were published last week, showed that while policymakers agreed they should hold off hiking rates until there was evidence the growth slowdown was transitory, "most participants" believed "it would soon be appropriate" to raise borrowing costs.

The U.S. central bank hiked rates by 25 basis points in March. Expectations of further policy tightening next month are also supported by steadily rising inflation. Read more at REUTERS
Judges divided on consumer agency power

WASHINGTON - Federal appeals judges are divided as they hear arguments over whether the president should be able to more easily fire the head of the government's consumer finance watchdog agency.

The U.S. Court of Appeals for the District of Columbia, in a rare hearing Wednesday by a majority of its judges, took up the politically charged case involving the Consumer Financial Protection Bureau and the power of its director. The judges are reconsidering a three-judge panel's 2-1 ruling last fall that would make it easier for President Donald Trump to fire CFPB Director Richard Cordray. He was appointed in 2011 by President Barack Obama.

Lawyers for the Trump administration and a company sanctioned by the consumer agency argued that the way the CFPB was created, by Obama and Democrats in Congress after the financial crisis, violated the Constitution, by giving the director excessive power.

The 11 judges - six appointed by Democratic presidents and five by Republicans - appeared split along ideological fault lines as they challenged, in turn, the opposing arguments put forward by the Trump administration and the CFPB.

In an unusual turn, the Trump Justice Department is opposing the consumer watchdog agency within its own government.

"This agency goes further than anything Congress has attempted to do in history," declared Ted Olson, the prominent attorney with Supreme Court victories who represents the mortgage lender in this case, PHH Corp. The company was accused of illegal conduct by the CFPB and ordered to pay $109 million, then struck back by bringing the case that has raised constitutional issues and moved up to the nation's second most influential court.

The appeals panel ruled in October that the way the CFPB is organized violates the Constitution's separation of powers by limiting the president's ability to remove the director. The law creating the CFPB allows its director to be removed only "for cause" - such as neglect of duty - and not over political differences. The judges said that conflicts with the Constitution, which allows the president to remove officials for any reason. Read more at MINNESOTA LAWYER
Dreher Tomkies LLP
Congressional Critics Gunning For Consumer Financial Protection Bureau

The House Financial Services Committee, led by Chairman Jeb Hensarling (R-Texas), is keeping up a shrill campaign to reform the Consumer Financial Protection Bureau generally, and to get rid of CFPB Director Richard Cordray specifically, in increasingly personal terms.

"Everyone knows Mr. Cordray will likely leave the CFPB soon and pursue political office in Ohio again," Hensarling said in a written statement issued on May 17, after Hensarling said Cordray attended a weekly caucus for House Democrats. Cordray is a former Ohio state attorney general.

"But his attendance at what amounts to nothing more than a Democrat pep rally shows just how partisan and politicized he and his supposed 'independent' agency truly are," Hensarling said.

Auto lending is a particularly sore spot between the CFPB and its critics in Congress, including some Democrats. Congress specifically exempted auto dealers from the CFPB's jurisdiction when the CFPB was created in 2010, but the CFPB has indirectly gone after dealers for allegedly engaging in discriminatory practices, by cracking down on the auto lenders that buy finance contracts from dealers.

Hensarling's attack on Cordray is nothing new. The committee chairman kicked off a hearing last month by telling Cordray to his face President Trump should fire him. In less personal terms, Hensarling wants to replace the position of a single director for the CFPB with a panel that would have members from both parties. Read more at FORBES
CFPB is Busier than Ever - And Not Only with the Usual Suspects

Despite the new administration's distaste for Dodd-Frank and the CFPB, 2017 has been quite an active year so far: as of May 1, there have been 21 enforcement actions initiated by the CFPB against various entities across the U.S. By comparison, the CFPB filed only 12 actions in the same period in 2016, and 17 in 2015. Many of this year's targets are mortgage servicers, student loan servicers and credit reporting companies, which is no surprise given the CFPB's priority of increasing fairness and transparency for mortgages, credit cards and student loans. Among these 21 enforcement actions so far are a few notable variations from the CFPB's regular targets.

In February, the CFPB announced an enforcement action arising out of a single mishap as opposed to a pattern and practice of inappropriate behavior. Mastercard and UniRush (the program manager for RushCard, the reloadable prepaid debit card co-founded by Russell Simmons) were the target of an enforcement action based upon an apparently botched platform transfer. According to the CFPB, UniRush picked MasterCard as its new payment processor in 2014, and the two companies spent months preparing to switch UniRush's processing platform, which ultimately occurred on October 10 - 12, 2015. The switch did not go well: there were several problems that resulted in many RushCard holders being unable to access their funds for days or, in some situations, weeks after the switch. Perhaps most notably, the CFPB specifically cited UniRush's lack of adequate customer service in the weeks and months following the switch as a "preventable failure" resulting in the enforcement action. Indeed, the onslaught of direct consumer complaints about the switch appears to be the impetus for the CFPB's interest in this mishap; it received 830 consumer complaints about RushCard after the switch, compared to a mere 147 complaints about prepaid cards from November 2014 to January 2015. Read more at JD SUPRA
Incite Business

Incite Business: Innovation - Myths that are preventing your organization's success

The practice and discipline of innovation is critical to the sustained success of any organization. In 2013, PwC's report Unleashing the power of innovation surveyed executives from around the world and 64% said that innovation and operational effectiveness were equally important to the success of any company. Yet, there are many companies that don't initiate this practice, or even worse, discourage it from developing at all. Part of the reason for this is due to some myths on how innovation works in an organization. Here are a few of the common myths.

Innovation is only for large companies
While it is true that innovation is critical to help sustain large companies (see how the Fortune 500 has changed over the last 10 years), innovation is just as critical for the survival of smaller companies, if not more so. Small and medium sized companies are even more exposed and at risk to changes in competition, external environments, and technological disruptions. Being aware and constantly ready to change is paramount to sustained success.

Innovation requires a team of like-minded people
It's true that your approach to innovation should have a group of people that are passionate about innovation, however, your group needs to have a nice mix of thinkers. This allows you to get different, valuable perspectives on solutions. It is especially helpful for organizations that have not been innovative to pull in outside resources to get started correctly. This provides added measures for success and brings in a fresh, unbiased perspective to provide alternative views and help move things forward.

Innovation is only good for brand new products and services
Umm, no. It is absolutely true that innovation can create a brand-new product offering, but it is not the only outcome of innovation. Many times, through the process of innovation, new processes will be created or, even better, improved processes are created. You don't have to be a disruptor to claim innovative success. If you can get dramatic improvements in your existing processes, whether it is creating better margins or improving value to your customer, that is a great result.

Innovation takes too long
If you are hoping for a "one and done" approach to innovation, then yes, it may take too long. And yes, your innovation efforts will most-likely fail. If you take the approach that innovation is an ongoing part of your organization and it will never truly end, then the timeframe should not be an issue. The by-products of an innovation approach, if done correctly, will continue to improve the strength of your organization and add real value. It is important to understand that innovation will have its challenges. There will be times where a proposed innovative idea will not work out as expected. It is important at these times to fail fast, glean any data from the process that you can, and move to the next project. Oftentimes these "failures" provide valuable insight that provide real value.

Innovation is not a company-wide initiative
Look at companies that have started innovation initiatives that sputtered, stalled and failed. One of their common traits will be that their organization did not fully accept the innovation initiative. They also probably did not have a senior leader champion their efforts. If there is not complete buy-in from an organization with support from senior leadership, the chances of success are zero. Innovation does not happen in a vacuum.

Innovation interferes with our strategy
If your organization's culture believes this, then it will be a problem. Innovation should be compliment of your strategy, not compete with your strategy. There is a need for organizational discipline when it comes to innovation. You can't change directions on a whim and have the entire organization chase every new idea that comes up. There needs to be an innovation process that allows the organization to move forward and take advantage of innovation, not be distracted or mired down by innovation. This is another area where outside assistance can provide the guidance needed to create a successful innovation program.

In the same 2013 PwC survey, 57% of the executives said having the right culture to foster and support innovation is the most important ingredient for successful innovation at a company. Don't let the common myths of innovation prevent you from taking the important first step. Innovation should be a permanent fixture in your organization to assist in your sustained success. The traits of the team that you assign this important function are critical to its success, along with the full backing of the organization. If you would like to further discuss the make-up of this team and how to start innovation in your organization, contact Incite Business.

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