NEWS: June 8

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CFPB's Cordray threatened with contempt charges by House panel

The House Financial Services Committee is threatening to file contempt charges against Consumer Financial Protection Bureau Director Richard Cordray for allegedly lying about the bureau's investigation into the Wells Fargo scandal.

In a 15-page report released Tuesday by Republican staff, the committee claimed that the CFPB has not produced records showing that it conducted a full investigation of Wells' branch sales practices or that it was aware of problems with phony accounts before the L.A. city attorney took action against the bank.

The report appears aimed at proving that Cordray lied to Congress in April when he testified that the CFPB had conducted an "independent and comprehensive" investigation and that the agency was already tracking Wells' sales practices.

"No records or other information before the committee corroborate this claim," the report stated.

Lying to Congress could be used as a basis for President Trump to fire Cordray "for cause," the legal standard in the Dodd-Frank Act. (A court case challenging that standard, which could allow the president to dismiss a CFPB director at will, is under appeal.)

The CFPB said it was "reviewing the report."

"As we have previously stated, the CFPB learned from whistleblowers about potential problems at Wells Fargo in mid-2013, just two years after opening our doors," a spokesman said in a statement to American Banker. "Director Cordray has provided a public account of the timeline on which our investigation unfolded, and our order publicly details our findings against Wells Fargo."

The report, "Was the Cop on the Beat?," claimed that Cordray had failed to properly respond to the committee's subpoena. As a result, the report said, the panel's chairman, Rep. Jeb Hensarling, R-Texas, should "initiate contempt proceedings against Director Cordray unless the CFPB produces all responsive records." The report also recommended that Hensarling should issue deposition subpoenas to CFPB employees to investigate Cordray. Read more at AMERICAN BANKER


FTC Obtains Court Judgments Against California-based Robocallers Who Placed Billions of Illegal Calls

A federal district court judge in California has approved default judgments against Aaron Michael Jones and nine companies whom the Federal Trade Commission charged earlier this year with running an operation that blasted consumers with billions of illegal telemarketing robocalls. The FTC estimates that in making the illegal robocalls, Jones and the companies he controlled called numbers listed on the Do Not Call (DNC) Registry at a rate of more than 100 million per year.

The court orders announced today permanently ban Jones and the companies from all telemarketing activities, including initiating robocalls, calling numbers on the DNC Registry, and selling data lists containing consumers' phone numbers and other information. The order against Jones also imposes a $2.7 million penalty against him, payable to the Commission.

The FTC's January 2017 complaint charged nine individuals, including Jones and his associate Steven Stansbury, and 10 corporate entities with operating related enterprises that initiated robocalls to consumers without first getting their written permission. According to the complaint, between at least March 2009 and May 2016, the defendants made or helped to make billions of these illegal robocalls, many of which pitched extended auto warranties, search engine optimization services, and home security systems, or generated leads for companies selling such goods and services. Many of those calls were made to numbers included on the DNC Registry.

The nine corporate defendants against whom the court has entered default judgment are: 1) Allorey, Inc.; 2) Audacity LLC; 3) Data World Technologies, Inc.; 4) Dial Soft Technologies, Inc.; 5) Digital Marketing Solutions, Inc.; 6) Savilo Support Services, Inc.; 7) Secure Alliance, Inc.; 8) Velocity Information Corp.; and 9) World Access Media.

California Lawmakers May Allow Consumers to Sue Banks Instead of Arbitration

California lawmakers are making headway on legislation to allow state residents to sue financial institutions for fraud, rather than letting banks force customers to settle disputes in arbitration.

The state Senate passed the bill, spurred by last year's Wells Fargo phantom accounts scandal, on Tuesday. It now goes to the legislature's Assembly, where it is also expected to win approval.

Under the bill, judges could override contract clauses that require customers to settle disputes through arbitration in cases where a bank commits fraud using customers' personal information.

"Instead of allowing victims to have their day in court and permit an independent judge or jury to arrive at a verdict following an open and fair trial, Wells Fargo wrongly pushed customers seeking justice into forced arbitration," California Treasurer John Chiang said in a statement.

Mandatory arbitration clauses inserted into Wells Fargo account-opening agreements have blocked its customers from suing Wells, the third-largest U.S. bank, in court over revelations that the bank opened millions of accounts without customers' knowledge.

Arbitration clauses, which have become standard practice since a 2011 U.S. Supreme Court decision, require consumers to agree not to sue in the future as a condition of purchasing products or services. Republicans and others say that class actions, where people band together to share resources in a single lawsuit, only benefit lawyers who reap high fees and does not right substantial wrongs. Companies also say the lawsuits suck up time and money, compared to arbitrations that speed smoothly toward resolution. Read more at INSURANCE JOURNAL

Incite Business

Access to Credit and Financial Health: Evaluating the Impact of Debt Collection
Authors: Julia Fonseca, Katherine Strair and Basit Zafar

Despite the prevalence of debt collection and the intense regulatory activity surrounding this industry, little is known about how these practices impact consumers. This paper conducts an empirical analysis of the effect of debt collection on consumer credit and on indicators of financial health, employing individual credit record data and a difference-in-differences research design that compares outcomes for consumers in states that increased the restrictiveness of legislation with those for consumers in the remaining states. We find consistent evidence that restricting collection activities leads to a decrease in access to credit and a deterioration in indicators of financial health. Moreover, our estimated treatment varies considerably with the borrower's age and baseline credit score, with effects concentrated primarily among borrowers with the lowest credit scores. 

Dreher Tomkies LLP

Sorry House GOP, predatory lending oversight has bipartisan support

The House of Representatives will vote Thursday on the Financial CHOICE Act, Rep. Jeb Hensarling's (R-Texas) attempt to repeal and replace the Dodd-Frank Act. According to its sponsors, the CHOICE Act will "create hope and opportunity" for consumers by, among other things, "holding Wall Street accountable."

But tucked down toward the bottom of the nearly 600-page bill is a provision that is plainly designed to make sure the very worst players of Wall Street - payday lenders, and the banks that may soon partner with them - will be free to cheat consumers at will. Section 733 of the act would, with the stroke of a pen, eliminate the Consumer Financial Protection Bureau's authority to regulate payday loans.

It's well-established that the payday lenders prosper when borrowers are unable to pay their loans back right away. The industry's business is built on trapping vulnerable consumers in a cycle of debt in which they must keep taking out new loans just to pay off the old ones.

According to the bureau's research, more than four of every five short-term loans are re-borrowed within a month; and the majority of short-term loans are borrowed by consumers who take out a least 10 loans in a row. According to the Center for Responsible Lending, this so-called "loan churning" accounts for two-thirds of industry profits.

It's unsurprising then that the vast majority of Americans - Republicans and Democrats alike - dislike payday lenders. According to a 2016 national survey conducted by GBA Strategies, just 3 percent of registered voters have a favorable opinion of payday lenders, and they vote accordingly.

In the 2016 election, the same South Dakota voters who voted for President Trump (and elected Republicans to every statewide office) overwhelmingly approved a ballot measure capping interest rates on payday loans at 36 percent. These voters also snubbed an industry-backed bill that deceptively claimed it would cap rates at 18 percent, but, in reality, would have amended the state constitution to create a loophole allowing lenders to charge whatever rates they wanted so long as borrowers "agreed" to the higher rate. Read more at THE HILL

CFSA Save The Date

U.S. House to vote on bill that would eliminate proposed predatory loan protections

The U.S. House of Representatives is expected to vote this week on a bill that would stop the Consumer Financial Protection Bureau's (CFPB) years-long effort to rein in predatory lenders who profit by trapping the poor in an endless cycle of debt.

Last June, the CFPB proposed rules that would for the first time impose national standards on an industry that drains nearly $8 billion in fees each year from the most financially vulnerable Americans.

The proposed rules are modest in scope - requiring payday and car title lenders to assess a borrower's ability to pay - but they represent a first step in stopping the industry's worst abuses.

The CFPB has also enforced existing laws that prohibit some predatory practices, such as overcharging borrowers, using illegal debt collection tactics, and pressuring borrowers into debt traps.

The bill before the House would entirely eliminate the Bureau's authority to regulate this industry. The provision is part of the larger Financial CHOICE Act, which is intended to gut the 2010 Dodd-Frank law that was enacted to reform Wall Street abuses in response to the 2008 financial crisis.

The Dodd-Frank law created the CFPB and gave it the authority to protect consumers from unfair, deceptive or abusive financial products and services.

Predatory loans are devastating to low-income communities. Millions of economically disadvantaged people fall deeper and deeper into a nightmare of debt after taking out payday and car title loans to pay for food, rent, utility bills or other basic needs. 


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