The Corporate Observer Blog : Consumer Protection, Corporate Abuse : Class Action Lawyer & Attorney : Steven Berk Law Firm

Sally Adams rides the bus home from her second job as a nighttime clerk and—every day—goes by the bright green “Payday Loans” sign.  She knows such offers have a reputation as scams, but she also has two kids at home, one of whom has come down with a bone-shattering cough, and she can’t afford his medicine.  That green sign becomes more and more tempting every day that she drives by, as her son’s cough lingers in her memory.

What’s more, she gets on the computer and is inundated with yet more advertisements, to the point that she can’t help herself.  “$250-$1000 right now—as soon as tomorrow,” they promise.  What’s more, most don’t specify the effective interest rate anywhere.  Well, so what?  Sally doesn’t quite know what the interest rate is, but she knows that having $1000 in her pocket tomorrow would pay a lot of the bills lying around and buy a lot of medicine.

Two weeks later, when her paycheck rolls in, she owes most of it to Paydayloansharks.com, and she finds herself in an even worse situation than before.  Not only is the $1000 used up on groceries and medicine, but she has no money from her recent paycheck, setting her two weeks further behind.  (But maybe another payday loan would help her bridge the gap—and so the vicious cycle begins.)

Valuable to many and a safety net to millions more, predatory loans are around to stay.  But good news: Our new friends at the Consumer Financial Protection Bureau—for the first time—will be taking a good hard look at what is legalized “loan sharking” and put a national enforcement strategy together for policing these practices.  The Consumer Financial Protection Board is not playing games.  Last week, Director Richard Cordray began to announce its domain.  The rules propose to govern almost two-thirds of debt collection agencies and over 90% of the United States’ credit reporting agencies, two industries which have never faced governmental regulation before. The companies would be subject to stricter guidelines and greater scrutiny.

While it’s been a long task, it seems President Obama found the right person to lead the Bureau.  Cordray is unabashed and blunt, and has wasted no time cracking down on the industries that prey on the members of society with fewer options.  We can only hope that Richard Cordray and his team will get it right; balancing the interests of those who sadly live too close to the edge of poverty (“paycheck to … maybe another … paycheck”) and companies who are willing to make high risk loans.

At a minimum, the CFPB should require disclosures of the risk and the actual interest rate, and provide information on their website about the realities of taking out a payday loan.  That way the Sallies of the world will at least have the requisite information to decide.  Information is power.

Assisted by David T. Martin

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File this one under “no good greed goes unpunished.”

Well, at least this greed won’t.  Today, the Department of Justice will file a series of criminal complaints against former Credit Suisse traders.  The traders are accused of exaggerating the value of asset-backed securities in the days leading up to the financial crisis.  (In fact, some are already planning to plead guilty—there must be some smoking-gun evidence.)

I’m not sure which is more revolting, the amount of the traders’ exaggeration (a cool $2,850,000,000) or the motive behind it.  You see, at Credit Suisse and other Wall Street banks, bonuses are calculated based on the investments attracted by a trader—his “portfolio.”  The bank receives commission on the investment; the trader receives a bonus in some proportion to his portfolio.  These brilliant traders realized that by overstating the value of securities, they could dupe investors into sinking money and reap the benefits come annual bonus time.  “It's genius, Freddy.  Here comes Ferrari number three.”

Pessimistic about human nature yet?  Let’s not go that far—these were just a few bad apples—but could there be a clearer rallying cry for regulation of Wall Street bonuses?  Heck, John Dillinger only robbed banks of a few hundred thousand dollars over the course of his “career,” and they created the FBI to catch him.  I’m no economist, but I’m pretty sure $3 billion today is worth a bit more than $300,000 in the ‘20s.

Look, I’m not proposing we create a new bureau.  In fact, we already have.  Elizabeth Warren proposed it, Richard Cordray leads it, you know…  The Consumer Financial Protection Bureau.  That’s right, who is more suited to regulate and oversee corporate bonuses than the bureau founded to protect consumers?  President Obama was adamant about his commitment to consumer protection during his State of the Union, and an example like these Credit Suisse morons—er, traders—shows how negatively the incentive for bonuses can impact Main Street.

Hopefully Cordray and the CFPB will see the writing on the wall here, but in the meantime, kudos to the DOJ for their diligence.

Assisted by David T. Martin

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Richard Cordray is wasting no time at the Consumer Financial Protection Bureau.  Forget Senate confirmation, Director Cordray has consumers to protect.  With him at the helm, the CFPB finalized its amendment to the rules governing remittances from the United States.

For years, Americans wishing to send money to relatives living abroad have been victimized by predatory and under-regulated companies that charged an arm and a leg—often without disclosing the true rates.  No more.

The Dodd-Frank Bill allowed for the CFPB to establish renewed rules on remittances, and (a few years later) the rules have arrived.  This is no fledgling industry—over $400 billion dollars in remittances are sent each year.  Following the rule changes, on every remittance of more than $15.00 companies will be required to disclose:

• Exchange Rate;
• Fees Charged; and
• Net Money to be Delivered.

The rules also enhance company liability for remittance errors and mandate a 30 minute window for a customer to cancel their remittance at no charge.  Before the rule changes (which do not go into effect until January 2013), many money senders had no idea how much money truly arrived in their relatives' hands in South America, or Asia.  Banks and other remittance-sending companies charged exorbitant rates and devalued the dollar, shortchanging the oft-unwitting customer.  Talk about the American Dream—emigrate to the United States, make enough of a living to send some money back home to your spouse and parents, and have 40% of it stolen by the greedy banks.  What could be more American?

Though we are disappointed that we have to wait a year until the rule changes go into effect—how long does it take to draft a disclosure and retrain a few employees?—this is the result of no small effort.  Organizations like Appleseed, a group dedicated to seeking social justice, have worked hard in support of this rule and are to be commended for the result.

We look forward to additional efforts by the CFPB in furtherance of consumer protection and fairness.  The Bureau continues to seek comments on the final rules at its website.

Assisted by David T. Martin

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The American consumer could not have asked for a better holiday gift to begin the New Year.

As the election nears, President Obama is flexing his muscles.

The campaign slogan way back when of “hope and bipartisanship” could not have been more inspiring—or more idealistic, but governing has been tough, particularly given a Republican attitude of “no compromises, no backing down, no deals.”  While the President has not fared well at hardball—a game he was not born to play—he has signaled a renewed and reinvigorated willingness—fueled by the upcoming election no doubt—to step up from his game of compromise and conciliation.  Knowing Republicans would block the nomination, the President has named named Richard Cordray, a 2011 Corporate Observer All-American, head of the Consumer Financial Protection Board during Congress’ recess.

Thank goodness.  The CFPB has been crippled without a head.  It is a centerpiece of the much-needed Dodd-Frank legislation.  Appointing Mr. Cordray will allow the CFPB to begin the work of regulating a fast moving and dynamic sector that to date has remained one step ahead of regulators.  Mr. Cordray is surely qualified—he clerked for Supreme Court Justices White and Kennedy, served as Attorney General of Ohio, and even won Jeopardy five times.  One of his main initiatives will be to deploy the Volcker Rule, in spirit if not name.  Mr. Cordray has promised to expand the Board’s regulatory activities to the non-bank realm.  Many of these under- or unregulated firms are the root of the greedy risk-taking that helped cause the financial crisis.

There is a long checklist waiting on Mr. Cordray’s desk, but for now, it's about time Mr. President and good luck Director Cordray.  The American consumer could not have asked for a better holiday gift to begin the New Year.

Assisted by David T. Martin

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As a trial lawyer, my world operates on the adversarial system.  In other words, my job is to clobber my opponent.  I have a duty – yes an ethical duty – to “zealously” advocate for my clients’ interest.  Zealously, with ardent passion and enthusiasm and all the skills I can muster.  But that duty must be exercised within the rules governing my profession.  For example, I have a duty of candor to the court that trumps my role as an advocate.  Put simply, even if it is inconsistent with my client’s interest, I must always be honest with the Court.  Similarly, I am required to act professionally and with civility toward my opponent.  So when the bell rings, no low blows or dirty tricks, and when the round is over it is over.

Seems to me politics is similar (or it ought to be).  Democrats clobber Republicans and Republicans in turn clobber Democrats.  They are adversaries.  Okay, I get it.  It has worked that way for over 200 years.  It may not be perfect, but it’s the best we got.  But like my legal duties, there must be some limitations to the “clobbering” among the parties.  Most importantly, the losing party in an election must allow the winning power to govern.  They must respect and follow the system.  Yes, you have to stand when the President enters your chamber to present his State of the Union address.

Importantly and here is my point (finally): If the winning party seeks to have a nominee confirmed, the losing party can’t just say no.  Their review should be limited to a searching and complete review of a nominee's credentials.  But the confirmation process cannot be a partisan free-for-all – where the goal is to amend or overturn legislation – which disrespects the will of the people and effectively overturns the election results.  The winning party is entitled to govern.

That leads us to the case of Mr. Cordray.  In every way, he is qualified to head the CFPB.  Former law clerk for Supreme Court Justices White and Kennedy; former Attorney General for the state of Ohio; heck, he even won Jeopardy five times.  Indeed, Republicans do not disagree about his background.  But they have stated they will vote against any nominee unless the Dodd-Frank legislation is rewritten.  In essence, they are holding his confirmation ransom.  That is just not the way it is supposed to work.

A party wins the election and they must be allowed to govern.  If they fail to do so, vote them out of office in two years or four years, but allow them to fulfill the mandate of the electorate.

As President Obama recently said:

Does anyone here think the problem that led to our financial crisis was too much oversight of mortgage lenders or debt collectors?

We need to give Dodd-Frank and Richard Cordray a chance to govern.

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Barney Frank, a unique politician and extraordinary American, announced his “early” retirement yesterday.  He took on the mightiest among us with aplomb and good humor.  As they say in New England, he was “wicked smaht.”  Thank you, Barney, for never shying away from protecting consumers.

A member of Congress since 1981, Frank has a long list of accomplishments.  In 2008 Frank supported the passage of the American Housing Rescue & Foreclosure Prevention Act, which sought to protect thousands of homeowners from foreclosure.   He contended that underregulation of markets led to the subprime situation.   Frank also drew admiration from consumer advocates for his instrumental role in the passage of the Credit Cardholders’ Bill of Rights Act of 2008, which establishes fair and transparent practices relating to the extension of credit.  A champion of equal rights, Frank is known particularly for his LGBT platform, “the right to marry the individual of our choice; the right to serve in the military to defend our country; and the right to a job based solely on our own qualifications.”

The Corporate Observer has applauded Barney Frank in the past for his efforts to build confidence in American companies and limit fraudulent schemes before they metastasize.   The whistleblower provision of the Dodd-Frank financial reform bill encourages individuals to stand up against corporate, securities, or government misconduct by offering protection and monetary incentive.  As mentioned in previous posts, the whistleblower incentives will help solve an immense problem plaguing our economy today: unchecked, gambling financial executives that helped bring our economy to the brink of collapse.  Today, consumers are paying the price for corporate America’s greed.  Tomorrow, the SEC, side-by-side with Dodd-Frank whistleblowers, will ensure that we do not make the same mistake twice.

Barney Frank leaves us at a time when Washington needs him more than ever; but power partisan politics finally got the best of him.  He's run an ultra-marathon for consumers and it is time to take a victory lap.  We will miss his quick wit, outspoken courage, unconventional speaking style, and most importantly, his legacy for speaking from the heart—something we don't get enough of in our nation's capitol.

Assisted by Arezu Hadjialiloo

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I am all in for Elizabeth Warren.  Even before the flop.   I may not even look at the cards in my hand.  Why?  One word.  She is formidable.  Yes, there are many to choose from: smart, (the oft-cited Harvard Law Professor sure is smart), tenacious, straightforward, tireless, charming, persuasive, possessing of the common touch, and possessing the skill sets to scare the heck out of any foe – large or small, hence formidable.

“There is nobody in this country who got rich on his own.  Nobody.”

What has become a proclamation; part of a ripple that may become a wave—the OWA (Occupy Wall Street protesters) could do a lot worse.  Warren touched on something: the desire to find a cogent response to a powerful conservative message.  A message that often controls the agenda of public life.

Adding to the texture of her formadibility is a wonderfully homespun back story, such as waiting tables at her aunt’s Mexican restaurant.  And she has also shown a feistyness that one needs in any high-powered election battle.  By now it's nearly famous how she took a little jab at my classmate Scott Brown (BC Law) and her opponent.  Pretending to seem as offhanded and casual as possible, Warren poked fun at opponent Scott Brown’s nude pictures in GQ, which he took in law school and claims it was all and only about the money.  Be fine with me, if he had a record—something, anything.  A pickup truck is not a record of service.  Professor Warren went on to make clear her own college experience.  “I kept my clothes on,” replied Warren when asked how she paid her way through Houston University and Rutgers Law (that is to say: student loans and a part-time job).  Told that Warren “kept her clothes on,” Brown commented, “Thank God.”

The Corporate Observer has covered Elizabeth Warren and her CFPB for the last several years.  The below posts are a small sampling of the Warren coverage TCO has had:

Entering the workforce, as a young lawyer, women were -- as they always had been -- my colleagues and competitors.  But for the first time, I started seeing a distinction between men and women in the workplace.

I was attending a conference at no less than the United States Chamber of Commerce in Washington, DC, just across Lafayette Park from the White House.  I was there to see and hear Professor Elizabeth Warren.  Since 2008, she hasbeen a powerful voice for consumers; no, she has been the most powerful voice for consumers.  And now as she races to get the new Consumer Finance Protection Board (CFPB) up and running, she faces the full court press of corporate, banking and Wall Street interests attempting to derail her.

Click here for full article. 

Professor Warren is straightforward, persuasive and charming.  And this was no friendly audience.
My attendance at today’s event at the Chamber reminded me of the harsh reality that we have two teams in Washington.  Two sides, Democrat and Republican; left and right; conservative and liberal.  Call it what you like. Despite her best efforts atfinding common ground, between those two sides even the mighty Elizabeth Warren will not so easily succeed.

Click here for full article. 

With her brains, charm and experience, Elizabeth Warren will be an advocate for the middle class and consumers.  Not just for Massachusetts but for our entire nation.  When its time, as they say in my hometown of Chicago, “vote early and often” for Elizabeth Warren. For now send her a check, send her two, at www.ElizabethWarren.com.  The country needs her more than ever.  Scott Brown, her opponent, is a nice guy and nice looking, but he hardly has the brains, gravitas and devotion to the needs of consumers embraced by Professor Warren.

Click here for full article.

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It’s official.  I was not dreaming.  Professor Warren will run for the Senate from Massachusetts.  Although its only Day 1, she has the full support and endorsement of the Corporate Observer.

For too long consumers and the middle class have shouldered the cost of corporate malfeasance.  Most recently, it was the corporate greed that caused the meltdown of 2008.  Who picked up the tab?  The American consumer, of course.  Why?  Big business controls the agenda.  Led by the U.S. Chamber of Commerce and a slew of well-heeled lobbyists, they have the resources and guile to divert blame.

With her brains, charm and experience, Elizabeth Warren will be an advocate for the middle class and consumers.  (See our recent posts explaining her contributions to consumers).  Not just for Massachusetts but for our entire nation.  When its time, as they say in my hometown of Chicago, “vote early and often” for Elizabeth Warren.  For now send her a check, send her two, at www.ElizabethWarren.com.  The country needs her more than ever.  Scott Brown, her opponent, is a nice guy and nice looking, but he hardly has the brains, gravitas and devotion to the needs of consumers embraced by Professor Warren.

An Elizabeth Warren only comes along once a century or so, she is the true heir to the Senate Seat of Edward Moore “Ted” Kennedy.

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Richard Cordray has some big shoes to fill.

Is this former 5-time "Jeopardy!" champion ready to follow rock star Elizabeth Warren as the first director of the Consumer Financial Protection Bureau?  Consumers can only wait and hope for the best. 

I could spend my few hundred words lamenting what could have been; indeed, what should have been: the nomination and battle to confirm Elizabeth Warren as director.  But it was not meant to be.  She scared the living daylights out of the banks and financial services industry.  They cried a river to their Republican friends (OK, they paid for those friends) who vowed to defeat her nomination, and they were likely to prevail.  Given the circumstances, I think I would have favored a recess appointment of Professor Warren, but I have faith in the President and his team, and hope they are doing right by the American consumer, the true backbone of our economic system.

We wish Mr. Cordray great success.  First, he must kneel to the loyal opposition to assure his nomination, but assuming he does so with enough sincerity to be confirmed, he must be prepared to be bold and decisive from day one.  Sadly, the momentum for reform and the protection of consumers has long since passed in Washington.  Let’s hope Mr. Cordray can reverse that slide and begin his tenure with strong action and a thoughtful plan for being the consumer’s top cop.

Finally, let’s not say goodbye to Elizabeth Warren as she rides off to her ivory tower.  Instead, au revoire.  Until we see you again, as...  hmmmmm...  Treasury Secretary?  Or Associate Justice of the U.S. Supreme Court?

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When a member of a Senate or House Committee has the floor at a hearing, picture a large television monitor (think the size of the screen in the Dallas Cowboys’ new stadium) airing commercials of the member’s top 5 political contributors.  Big HD screen with stereo sound.  It’s a win-win.  The political contributors get some nice promotional placements and watchdog groups get a quick view of what might be a motivating factor in the member’s questioning and at times (too often) grandstanding for the cameras.  In sum, everyone’s allegiances are in the open for all to see.

An example.  The Honorable Congressman Patrick McHenry (R-NC) yesterday accused Professor Elizabeth Warren of lying about an agreement to be available for questioning only in the morning.  Surely his rant was merely a proxy for his pent-up anger about Professor Warren’s claimed “unfettered” power at the new Consumer Finance Protection Board.  But nonetheless, it was pretty uncivil and unbecoming of anyone—let alone a member of the United States Congress.  To believe the Congressman, Professor Warren was responsible for the Great Depression, the Chicago Cubs failing to win the World Series in over a century of trying and if left to her own devices as head of the CFPB, we will see her single handedly destroy American Capitalism.

As the Congressman blathers on, the public (who pays his salary) should be allowed, in living color, to learn more about the Congressman’s two largest, and most reliable contributors: Wells Fargo and Bank of America.  Yep.  Two banks with combined assets of $3,521,084,250,000[1] (that’s over $10,000 per American).

While he is blasting away at Elizabeth Warren we might as well get a visual of his patrons.  Add to those behemoths a list of insurance companies, credit and finance companies, and accountants and you get a good idea of where Mr. McHenry is coming from and where he wants to take us.  Can he really be taken seriously when he is beholden to the industry Professor Warren hopes to reform?

Coming next: Handsome golf shirts and hats for members of Congress emblazoned with corporate logos.

[1] http://www.ffiec.gov/nicpubweb/nicweb/top50form.aspx

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This weekend TCO features our second insightful guest post from our partner in Austin, Texas, Gouri Bhat.  Please enjoy.

To the list of evil things that banks will do when left to their own unregulated devices, we must add one more: they deliberately steer African-Americans and Latinos toward predatory home loans, leading inexorably to waves of foreclosures that can decimate communities of color.  The practice is known as “reverse redlining” and usually involves targeting residents within certain geographic boundaries based on race or ethnicity, and then offering them credit on more onerous terms that are unfair in comparison to what others are offered.

Legal claims of reverse redlining have enjoyed a renaissance after the 2008 collapse of the subprime housing market and the financial almost-apocalypse it spawned.  Two of the most interesting reverse redlining cases working their way through the courts were brought by municipalities—the City of Baltimore and the City Memphis—against Wells Fargo Bank.  The lawsuits allege, in novel fashion, that the targeting of African-American borrowers for deceptive and predatory mortgages resulted in greater numbers of foreclosures and vacant properties, which in turn created greater costs for the local governments, now contending with falling property tax revenues and the heightened need for foreclosure-related city services.  After initial setbacks, both lawsuits surmounted a major hurdle in recent weeks when federal judges in Maryland and Tennessee allowed the cases to proceed, each finding that the plaintiffs had made the connection between Wells Fargo’s practices toward African-American borrowers and the injuries suffered by the municipalities.  See the judges' decisions here and here.

The celebrated rise in homeownership in the U.S. in the decade before the 2008 collapse can be largely attributed to increasing numbers of African-American and Latino homeowners who purchased property through the subprime market.  This was no mere coincidence.  The subprime housing market preys on communities with a dearth of lending alternatives, borrowing experience and access to clear information.  Communities of color fit the bill in many parts of the country, and the mortgage industry figured this out.  Sadly, the very conditions that allowed reverse redlining to take root and thrive—lack of clear information for consumers and lack of accountability in mortgage origination—may never be remedied if Republican efforts to hogtie the new Consumer Financial Protection Bureau succeed.

Guest post by Gouri Bhat

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If we can’t have Elizabeth Warren, we must have Paul Volcker.  At 6’7” he towers physically over just about everyone in the room.   I can just see him summoning the relatively diminutive Jamie Dimon of JPMorgan Chase (5’10" on a good day) to his office and giving him a good tongue lashing about any number of questionable offers and practices that the banking behemoth foists on consumers.  (For good measure, he can bring in Brian Moynihan of Bank of America and grill him on why his bank quietly knew of and supported a score of Ponzi scheme operators popularly known as mini-Madoffs, but who were not so “mini” to the consumers who lost their life savings to a bank culture that put profits ahead of compliance.)

Beyond his physical stature, he has the intellect and experience that places him at a level above the current Warren wannabes.  For starters he can trot out his rule -- the Volker rule (prohibiting banks from speculative and proprietary trading) and impose it by force of will and administrative rule or something.  Heck, just the threat of Volker thinking about imposing that rule will keep the banks and mortgage lenders on the straight and narrow (or at least closer to the straight and narrow).

Finally, at the heart of his wisdom is a moral compass that cannot be bought or compromised.  Eighty three years young, he is not looking for a job in “industry” or to be feted by Wall Street chiefs at black tie dinners.  He will not suffer fools lightly or be bamboozled by high-priced consultants and convoluted explanations about how failures to disclose financial risks to consumers is somehow a good thing.  He will take his position seriously and no doubt be an important thorn in the side of an industry (financial services) that has put profit and gain above all else.  And lastly, he will be quick to remind that industry that it was the consumer (and the government) that saved their behinds.

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Reports over the weekend claim Professor Warren went to the Hill (as in Capitol Hill) to find the votes she needed for her nomination to be the first head of the Consumer Finance Protection Board ("CFPB").  She came up well short of the mark.  Wall Street fears her more than inflation and will easily have the votes to block her nomination from ever reaching the Senate floor for a vote. (Sad, but the subject of another story.)

So now speculation begins on her “replacement”.  Reports over the past week claim the White House has discussed—or has in fact offered—the position to the following government officials: former Michigan Governor Jennifer Granholm, Illinois Attorney General Lisa Madigan, Massachussetts Attorney General Martha Coakley, Chairwoman of the FDIC Sheila Bair and Federal Reserve Governor Sarah Raskin.  Notice anything?  Hmmm.  Yep.  They are all women.  To be fair, I left out a few names but there is no doubt the short list is dominated by women.

The interesting question is why?  A few attempts at an answer:

First try.  For all intents and purposes a woman heads the CFPB now, and so in the strange ways of Washington a woman must be her replacement.  Think Supreme Court.  When Sandra Day O’Connor retired, her “replacement” from the beginning was presumptively going to be a woman. And so began the ill-fated effort to confirm Harriet Miers.  Why Harriet Miers?  Well she was no Sandra Day O’Connor, but she was a woman.

Second try.  Although in its infancy—heck it’s not even out of the womb—the CFPB will be known as an agency suitable for a woman to hold the reigns.  Yes, it is the most important new government agency since the Securities and Exchange Commission’s birth in the wake of the stock market’s crash of 1929 and the Great Depression.  But by design, or implicit discrimination, this one can be handled by a “lady”.  It’s not Treasury or Defense, neither or which has ever been led by a woman.  Those positions are reserved for those macho men who understand high finance and bombs and tanks. (I know little Tim Geithner is no Anderson Silva but you get the picture). It’s on par instead with HHS and Education, where women seem to be slotted regularly in both Democratic and Republican Administrations (Kathleen Sebelius (Obama), Margaret Spellings (Bush), Donna Shalala (Clinton)... you get the point).

Protecting consumers—what a quaint notion.  Sort of like baking cookies and balancing the family check book.  This implicit relegation to second-tier status must be nipped in the bud.  Whether a man or more likely a woman “replaces” Elizabeth Warren, the attitude must be there is a new sheriff in town (think Javier Bardem and No Country for Old Men) and those macho men like Jamie Dimon, Brian Moynihan and Lloyd Blankfein better take notice.

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Professor Warren is straightforward, persuasive and charming. And this was no friendly audience.

I had the good fortune of hearing Elizabeth Warren speak this morning in Washington, DC at the US Chamber of Commerce’s Center for Capital Markets Competitiveness.  The Center’s byline is “Ensuring Competiveness in a Post-Regulatory Reform Environment”.  I had never seen Professor Warren before in person.  First impression: She was smaller than I thought.  Heck, with all that publicity that has been swirling around her for the past two years, I thought she’d be ten feet tall -- or at least as tall as six foot, eight inch Baylor basketball star Brittney Griner.  Nope, she’s rather slight and academic.  Second impression: She is really good; straightforward, persuasive and... well… charming.

And this was no friendly audience.  Professor Warren followed Congressman Spencer Bachus of Alabama to the lectern.  He is the Chairman of the House Financial Services Committee.  The Congressman rather derisively referred to Professor Warren as “a nice lady”.  He then went on to suggest she and her agency -- the CFPB -- were omnipotent and would destroy competitive markets, while imposing a Maoist (that’s no typo) style of “total regulation” on the capital markets.

Professor Warren did not take the bait.  Instead she decided to stake out a place on the high road, a place she seemed both familiar and comfortable traveling.  To that end, she simply ignored Congressman Bachus’s efforts to mischaracterize her position and attack her character and gender.  She emphasized instead that her decision to reach out to the Chamber and speak at this particular conference was in furtherance of finding “common ground”.  Nice.

That common ground began with the notion that all sides favored one thing: Competition.  Everything is done to promote competition.  To make sure competition is robust and fair, Professor Warren explained that a strong, consistent set of rules were essential.  No one benefits from market chaos where some participants are able to break the law.  As an example, she said, “let’s take the perspective of a baseball player who chooses not to take steroids.”  Regulation is simply that -- a set of rules that all market participants must follow.

Professor Warren’s remarks were grounded in common sense and we wish her luck.  Her main objective for the CFPB, which we applaud, is achieving some level of fairness and transparency for consumers in the purchase of financial products, from credit cards to home mortgages.  But the room was filled with skeptics who wanted none of it.  They believe all regulation is evil and only harms business.

My attendance at today’s event at the Chamber reminded me of the harsh reality that we have two teams in Washington.  Two sides, Democrat and Republican; left and right; conservative and liberal.  Call it what you like.  Despite her best efforts at finding common ground, between those two sides even the mighty Elizabeth Warren will not so easily succeed.

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Far from being penalized, even slapped on the writs, big banks are saving tremendously to the tune of billions by refusing to service distressed properties and loans.

Big banks rolled up their sleeves from say 2000 to 2008 and made home loans like crazy.  They were motivated not by their love of middle class homeowners, but rather safe and large profits.  They could make loans, securitize them and package them to hungry bond investors.  The ability to securitize these loans separated risk from underwriting.  I’ve heard that before, but what does it mean?  Here is an example.

Banker Zach says: “Mr. Jones, I really don’t care if you pay back this loan on overpriced property in Swampland, Florida that you cannot afford.  Lost your job, not my problem.  Land underwater, not my problem.  I’m packaging that loan with thousands of others and selling it all to Mr. Smith.  He might worry about your ability to repay, I don’t.  Next customer please.”

“Steve, this is old news, what do I need to know now?”  Yes, okay, back to my blog post.  Far from being penalized, even slapped on the writs, big banks—specifically Bank of America, JPMorgan, Citigroup, Wells Fargo, and Goldman Sachs—are enjoying the time of their lives.  They are saving tremendously to the tune of billions by refusing to service distressed properties and loans.  “Walk away fellas and don’t look back."  Instead, they are using some of that money wisely to lobby Congress and it’s working.

As it often does, Congress misses the point.  Based on pressure from the banking industry (read: lobbyists) they are devoting attention and resources to taking wild punches and scrutinizing the nascent Consumer Finance Protection Board, and of course our hero Elizabeth Warren.  I’m reminded of Nero.  While Rome burns, the regulators are running in circles fending off attack after attack on their authority from an industry whose hands are dirty.  And Congress is playing the violin.  No one has time to put out the fire.

Enough is enough.  Congress must deal with substance and not engage in a sideshow that only benefits the perpetrators of the root problem: Bank of America, JPMorgan, Citigroup, Wells Fargo, and Goldman Sachs.

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First and foremost, happy new year to our Corporate Observer readers.  Here’s to a great 2011.  We have some quick links to kick off the year.

Elizabeth Warren has apparently begun the hunt for a head of the Consumer Financial Protection Bureau.  While it is unfortunate that Ms. Warren herself will apparently not lead the CFPB, hopefully she will find someone that shares her vision and eagerness.  She has conferred with “business and consumer groups,” but ultimately the decision must be hers.

The Washington Post reported on a disturbing wave of public sector employees heading to greener pastures in the private sector.  The White House, the SEC, and Federal Reserve Board Members, to name a few, have seen employees flee to financial and legal firms; there they can expect higher pay and benefit from contacts in the public sector.  This is a concerning trend for a government that has recently emphasized regulation and consumer protection – if they lose their best employees, how to they expect to live up to the high standards set for the coming years?

Lastly, we have updated our current cases at Berk Law, and if you feel inclined to take a look you can see them here.

Assisted by David Martin

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Verizon has agreed to pay $58 million in rebates and $25 million in penalty fees for incorrectly charging fees to customers.  The $25 million dollars is the largest amount ever paid to the FCC under a consent decree.

Elizabeth Warren blogged about her plans to make the Consumer Financial Protection Bureau as effective as possible.  Her focus is on using technology to make for more effective, timely discoveries of lapses like the mortgage robo-signing fiasco that was recently uncovered.

The Washington Post has an in-depth look on Ms. Warren’s efforts on the technology front.  It allows insight into Ms. Warren’s priorities via quotes from her Thursday speech at the University of Cal Berkeley.

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William Goldman at the New York Times writes that the Elizabeth Warren’s brainchild, the Consumer Financial Protection Bureau, is based on the ill-founded belief that consumers are not at fault for their poor investments. I agree that consumers must be more diligent, but to place the blame for sleazy contract terms and other fraudulent behavior solely on the backs of consumers is ludicrous and unfair. The CFPB is essential to our sustained recovery from the financial crisis, which occurred in large part due to under-regulation.

Jim Puzzanghera of the LA Times reports on the concern that the CFPB has much work to do. Without a Senate-confirmed director many fear its efforts will begin to stall. Certainly the Bureau needs a director, but isn’t it enough for now to let Elizabeth Warren run the preliminary operations? It was her idea, after all.

The Supreme Court’s term begins today, as it does on the first Monday in October each year. Let us hope the recent infusion of youth among the Justices will help lead the Court to more forward-thinking decisions.

Assisted by David Martin

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Rahm Emanuel is retiring to run for Mayor of Chicago. Who will fill his Shoes? Pete Rouse. Click here to read the Washington Post’s primer on President Obama’s new chief of staff, Pete “the fixer” Rouse.

Hey, we can’t all agree all the time, right? Here’s an interesting op-ed in today’s New York Times expressing concern over Elizabeth Warren and the new Consumer Financial Protection Bureau. We’re inclined to disagree with the author, but if the practice of law has taught us anything, it’s always a good exercise to look at both sides of an argument.

More on the Consumer Financial Protection Bureau:

Overhauling the most complex financial system in the history of man is no easy task. Today’s New York Times outlines some of the difficulties that lie ahead and the patience that is required in the effort for true, effective reform. Click Here for the article.

Two brothers are walking across America to express their discontent with SCOTUS’ landmark Citizens United ruling last year. The ruling allows companies to contribute to political campaigns as if they were private individuals. The ruling is grounded in first amendment freedom of speech protections, but does it go a bit too far? The Monahan brothers certainly think so:

Click Here

Assisted by Zach Kady

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Last Tuesday, we linked to Elizabeth Warren’s White House Blog post regarding her new position and the Consumer Financial Protection Bureau.  The New York Times has set up a forum for user comments, which are always welcome here at the Corporate Observer as well.

Stanley Chais passed away on Sunday.  The SEC had accused Chais of feeding roughly $1 billion of investor funds into Bernie Madoff’s Ponzi scheme, according to the Wall Street Journal’s Law Blog.

Len Blavatnik, a Russian-born billionaire who lost tens of millions because of JPMorgan’s investment in mortgage-backed securities, has sued the bank.  As the New York Times reports, he is not “someone for whom one’s heart instinctively bleeds.”  However, his goal – paving the way for banks to be held accountable for such criminally negligent behavior – is inspiring.  If only the courts would see it the same way.

Assisted by David Martin

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But it’s a fool’s errand to sue the SEC, a federal agency rightly immune from private lawsuits.  What’s next, suing President Johnson posthumously for not ending the war in Vietnam sooner?  Or how about Alan Greenspan for looking the other way (or tacitly supporting) the explosion of sub-prime debt in the 1990s?  Where would it end?

The Litwin Foundation recently sued the SEC for negligence in failing to detect Bernie Madoff’s Ponzi scheme earlier than it did.  The Foundation, which supports important medical research into Crohn’s disease and Alzheimer’s, alleges the negligence cost it $19 million.  Unfortunately, this is not the first time that investors in Madoff’s scheme have seen fit to sue the SEC for lack of oversight.  But if they really want to know who to blame, these groups need only look in the mirror.  In the first instance, it was their lack of diligence, not the SEC’s, which allowed years of Ponzi fraud to occur.

The blame-the-other-guy-in-the-room attitude will only lead us down the very same road we are trying to escape, especially if the “other guy in the room” is the government agency in charge of oversight.  Should the SEC have done a better job?  Absolutely.  Could Madoff have been caught earlier, saving investors millions of dollars that they will never recover?  Likely.  But it’s a fool’s errand to sue the SEC, a federal agency rightly immune from private lawsuits.  What’s next, suing President Johnson posthumously for not ending the war in Vietnam sooner?  Or how about Alan Greenspan for looking the other way (or tacitly supporting) the explosion of sub-prime debt in the 1990s?  Where would it end?

If the Litwin Foundation is spending charitable assets in the form of attorney’s fees they should be investigated by their State Attorney General and fined.  Filing frivolous lawsuits is not a proper use of charitable funds.  Enhanced diligence must come from us as individuals and from groups like the Litwin Foundation that are supposed to invest money wisely so it has more to provide to its noble causes.

The lesson from Madoff’s scheme should be twofold.

Lesson One: Investors need to realize that a substantial amount of individual diligence must go into every decision.  Just like free lunches, there is no such thing as a “risk-free investment.”  It is the duty of every investor to investigate her own financial opportunities and if necessary, bring any suspect behavior to the attention of the authorities.

Lesson Two: The SEC and other financial regulators cannot operate successfully under the system and attitudes that we had five years ago.  Elizabeth Warren’s Consumer Financial Protection Bureau is a major step forward, but we must continue to empower overseers and encourage enforcement from outside Wall Street and from those working within.

Until we complete the alteration to our rules and our attitudes, the blame game will continue while investors pay the price.

Assisted by David Martin

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I am debuting a new feature at The Corporate Observer: articles and blog posts that may be of interest to readers.  I hope you enjoy.

• Elizabeth Warren wrote a short piece at the White House Blog saying that she’s ready to “pull up [her] socks and get to work.”  Consumers should be as enthusiastic about her appointment as she seems to be.
• Speaking of Ms. Warren, here is an article that she wrote back in 2007 declaring the need for what she termed a “Financial Product Safety Commission.”  This manifest of sorts was a driving force in her selection for her role with the Consumer Financial Protection Bureau.
• The SEC set up a website for comments regarding the regulations they will soon establish with regard to the Dodd-Frank Bill.  Chime in and take advantage of the opportunity to voice any concerns or suggestions you may have with new provisions and their enforcement mechanism.

Assisted by David Martin

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Updating Wednesday’s post, the Wall Street Journal reports that Elizabeth Warren has been named “assistant to the president and special advisor to Treasury Secretary Timothy Geithner.”  This does not make her head of the Consumer Financial Protection Bureau – that position is still unfilled – but it gives her authority to appoint officials and direct some of the operations of the Bureau.  Consumers can celebrate this moment, when the CFPB can finally move towards strategic enforcement.  Eventually, Congress will confirm a director, but in the meantime Ms. Warren will give the Bureau much-needed and immediate direction.

Assisted by David Martin

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The time is now.  [Warren's] immediate appointment would allow the CFPB to begin planning and doing its important job of policing on behalf of consumers, while also serving as a referendum on Warren’s ability to lead the bureau.  What is lost in that scenario?

Let Elizabeth Warren do her (future) job now.

It has been widely reported that Harvard law professor Elizabeth Warren is considered the frontrunner to head the important new Consumer Financial Protection Bureau.  Given the climate of hyper-partisanship in our nation’s capitol, hearings on her confirmation are, as they say, “likely to be bitter and drawn out.”  That's exactly what the White House may fear.  The American Banker reported yesterday that the White House is considering naming Elizabeth Warren interim head of the Consumer Financial Protection Bureau.  Giving her the ‘interim’ title would eliminate the requirement for a nomination/confirmation process, which could then be performed at a later date.

Naming Warren the interim head is a no-lose scenario.  The time is now.  Her immediate appointment would allow the CFPB to begin planning and doing its important job of policing on behalf of consumers, while also serving as a referendum on Warren’s ability to lead the bureau.  What is lost in that scenario?

The Wall Street Journal reports the White House’s decision could be as soon as the end of the week.  The sooner the better.  Consumers need Elizabeth Warren.

Assisted by David Martin

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