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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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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