REGULATION OF THE FINANCIAL INDUSTRY IS BADLY NEEDED

Note: If you find my posts too long or too dense to read on occasion, please just read the bolded portions. They present the key points I’m making and the most important information I’m sharing.

The financial industry needs strong regulation because it has shown time and time again that without regulation it will rip off consumers and engage in practices that put our economy at-risk. Apparently, greed and hubris are endemic in the financial industry – from the CEOs on down. However, many Members of Congress resist strong regulation because of the campaign money they get from the industry. In addition, some members of the Executive Branch have opposed strong regulation of the financial industry, particularly those who have come through the revolving door from the industry.

Enforcement of existing regulations was quite lax under President Trump’s administration and needs to be strengthened. Furthermore, new regulations are needed to rein in problems that weren’t previously addressed and ones that have newly cropped up. The industry is always inventing new ways to circumvent regulations and developing new, risky, financial transactions. It remains to be seen whether President Biden and the Democratically controlled Congress will implement strong regulation of the financial industry.

Federal regulators asked the financial industry to forego overdraft fees because of the financial hardships of the pandemic. Despite this, the industry collected $4 billion in overdraft fees from consumers during 2020. JPMorgan Chase alone collected almost $1.5 billion in overdraft fees, which contributed to its $29 billion in 2020 profits. Overall, the financial industry collected $17 billion in overdraft fees in 2019. Clearly, regulation is needed of overdraft fees and the circumstances in which they are charged. Both have been the subject of abuse by financial corporations.

To protect consumers from abusive financial industry practices, the Consumer Financial Protection Bureau (CFPB) needs to be powerful and aggressive. It was created in the aftermath of the 2008 financial collapse, which revealed huge fraud by the financial industry in the home mortgage market. The lack of any agency focused specifically on protecting the public from abusive financial practices was a key contributing factor. However, the financial industry has lobbied hard to weaken the CFPB. As a result, both Republicans and Democrats in Congress and many in the Executive Branch, particularly under President Trump, have worked to weaken the CFPB.

As an example of lax enforcement under President Trump, the CFPB recovered just $700 million for consumers in 2020, down from $5.6 billion in 2015. Meanwhile, consumer complaints to the CFPB rose to record levels in 2020. In the four years of the Trump administration, the CFPB recovered an annual average of less than $600 million for consumers, while under President Obama it had recovered an average of $2.1 billion a year, three and a half times as much. Furthermore, under Trump the focus was on small firms rather than the major financial industry corporations. [1]

Fortunately, the Consumer Financial Protection Bureau is being revitalized under President Biden and will:

  • Enforce legal protections for debtors, including renters behind on their rent and student borrowers, while limiting abusive debt collection practices,
  • Strengthen regulation of payday lenders, including requiring them to assess a borrower’s ability to repay a loan,
  • Strengthen regulation of overdraft fees, and
  • Seek systemic change in the industry not just penalties for individual cases.

Wells Fargo is one of the notoriously bad actors in the financial industry. For example, in 2016 it admitted to creating millions of unauthorized accounts for customers to meet high sales and revenue targets. This led to the resignation of CEO John Stumpf, who was replaced by Tim Sloan, the bank’s president and chief operating officer. Sloan, four months earlier, when the fake accounts scandal was well known and had been going on for years, said in an interview that Wells Fargo’s aggressive sales tactics were appropriate and were not going to change. After Sloan took over as CEO, the bogus accounts scandal worsened and Wells Fargo also admitted to fraud in other business areas from car insurance to mortgages, as well as using faked customer signatures to satisfy anti-money laundering rules. Regulators imposed fines and took the dramatic step of prohibiting Wells Fargo from growing its business. [2]

When CEO Sloan left Wells Fargo in March 2019, he had been paid $40 million in his 2 ½ scandal-laden years as CEO and tens of millions of dollars in his previous 30 years at Wells Fargo. Now, he wants to collect another $20 million in deferred compensation. Government regulators could block this compensation under a law allowing them to limit “golden parachute” payments to senior executives who were involved in illegal activity at a financial institution. Whether they will do so remains to be seen.

I urge you to contact your U.S. Representative and Senators and to ask them to support strong regulation of the financial industry and a strong Consumer Financial Protection Bureau. Consumers and our economy need to be protected from the no holds-barred greed and hubris of those in the financial industry. The consistent, repeated fraud and risky practices across the financial industry, including by its largest corporations, requires no less. You can find contact information for your U.S. Representative at  http://www.house.gov/representatives/find/ and for your U.S. Senators at http://www.senate.gov/general/contact_information/senators_cfm.cfm.

Please also contact President Biden and ask him to appoint individuals who will implement strong regulation of the financial industry and to fully support Rohit Chopra, the strong regulator he has nominated to lead the Consumer Financial Protection Bureau. (Confirmation is pending in the Senate.) This is important because Biden has not always supported strong regulation of corporations and the financial industry. He is from Delaware, which is the legal home of many U.S. corporations because of its lax regulation of corporations. You can email President Biden via http://www.whitehouse.gov/contact/submit-questions-and-comments or you can call the White House comment line at 202-456-1111 or the switchboard at 202-456-1414.

[1]      Newmyer, T., 1/28/21, “CFPB muzzled under Trump, prepares to renew tough industry oversight,” The Boston Globe from the Washington Post

[2]      Rucker, P. 3/10/21, “Bank regulator could block disgraced ex-Wells Fargo CEO from $20 million payout,” The American Prospect (https://prospect.org/power/bank-regulator-could-block-disgraced-ex-wells-fargo-ceo-from-payout/)

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