OCC Rules Against Bank in Preemption Issue

On September 24, 2012, the government overseer of large banks, the Office of the Comptroller of the Currency (OCC) exercised its enforcement authority against a bank and ruled that stricter state consumer protection regulations were not preempted by more lenient federal banking regulations. The OCC found that the Urban Trust Bank (UTB) of Florida violated state usury caps in Ohio and Arizona and that these usury caps were not preempted by the National Banking Act.

In recent years consumer protection advocates have criticized the OCC for its lax enforcement of banks; many blame the failure of financial regulatory agencies such as the OCC to adequately enforce consumer protection laws for contributing to the recent financial crisis. Between 1987 and 2009, the OCC brought just four formal enforcement actions under the Equal Credit Opportunity Act, and between 1997 to 2007 it took only nine enforcement actions banks under the Truth in Lending Act. And most shockingly of all, between 2000 and 2008, at a time when subprime mortgages and other mortgage abuses were proliferating, the OCC took just two public enforcement actions against banks for unfair and deceptive mortgage practices.  

Thus the OCC’s recent enforcement action against UTB is important not only for the consumers that were directly affected by the bank's loan product, but also for consumers in general. In part, it may signify a new willingness by the OCC to take its consumer protection responsibilities seriously.    

Among other reforms, the Dodd-Frank Wall Street Reform and Consumer Protection Act made it more difficult for the OCC to declare that stricter state consumer protection regulations are preempted by more lenient federal law. Under Dodd-Frank, the OCC may only preempt laws if (1) they discriminate against national banks; (2) a given law “prevents or significantly interferes with the exercise by [a] national bank of its powers,” as stated in the Barnett Bank case; or (3) the state law is preempted by another federal law. Yet, in its final rule implementing this provision of Dodd-Frank, it was not clear that the OCC was actually going to adopt this statutory preemption test. According to critics, the OCC’s final rule seemed to indicate that the OCC intended to ignore the Dodd-Frank preemption test and simply continue using its old test as embodied in its previous preemption regulations issued in 2004. Specifically, under these regulations, the OCC could preempt a state law if it “obstructs, impairs, or conditions” bank operations. Since the language in the new final regulations mirrored a lot of that in the old regulations, many critics believed that the OCC would continue to side with banks by continuing to broadly apply its preemption authority. The ruling against UTB, however, shows that the OCC might be taking steps to allow stricter state regulations to be enforced.

On September 24, 2012, the OCC found that Florida-based UTB was engaging in “violations of law and regulations and unsafe and unsound banking practice.” The bank was issuing prepaid cards to the payday lender CheckSmart in order to evade state payday and usury laws. The National Consumer Law Center (NCLC) and other supporting advocacy organizations detailed the fraudulent activity in a Letter to OCC on May 3, 2012. This letter urged the OCC to take action in protecting consumers against predatory lending practices. According to this letter, CheckSmart was using Insight prepaid cards to make loans in Arizona and Ohio that exceeded the usury rates in those states of 36% and 28% respectively. The annual interest rate for the CheckSmart credit product was 401%, and the overdraft loan had a 390% annual interest. On August 23, Thomas Curry, Comptroller of the OCC, responded directly to NCLC letter, stating that the OCC “share[s] your concerns” and that the OCC planned to take action. The OCC subsequently released a settlement agreement by and between UTB and the Comptroller of the Currency wherein UTB agreed to correct legal violations and to submit to the OCC an analysis of its prepaid card program that “fully assesses the risks and benefits of this line of business.”

By determining that Arizona’s and Ohio’s state interest rates caps were not preempted, the OCC ruled on the side of advocacy groups and strict consumer protections against predatory lending. While we will need to continue monitoring the OCC’s enforcement actions in order to know if it will continue to follow Dodd-Frank’s preemption provisions, its enforcement action against UTB is a step in the right direction and can be seen as an early sign that the OCC will no longer continue its trend of ruling that every state consumer protection law is preempted by federal law. 

Why Obama has the Right to Appoint Cordray


The Consumer Financial Protection Bureau (CFPB) opened its doors in July of 2011 and after a pro-longed partisan political battle, it finally has a director.  After Republican Senators made it clear they would continue to block Richard Cordray’s nomination, or anyone else’s, until their demands to restructure the CFPB to make it less powerful were met, President Obama, in a speech on Wednesday in Cleveland with former Ohio Attorney General Richard Cordray by his side, publicly confirmed Cordray’s appointment during Congress’ recess.

Although it is very likely that Cordray’s recess confirmation will be challenged, it is clear that President Obama had both the legal authority and moral obligation to make this appointment. Recess appointments are not new, but some legislators are claiming that Cordray’s appointment exceeded the President’s executive powers since Congress was technically in a pro forma session. Both houses of Congress can hold pro forma sessions at which no formal business is expected to be conducted. Such sessions are usually held to fulfill the Constitution’s requirement "that neither chamber can adjourn for more than three days without the consent of the other." Over time pro forma sessions have also been used to prevent the presidents from making recess appointments. Yet, such recess appointments have occurred in the past. In 1903, when the first session of the 58th Congress ended, President Theodore Roosevelt made over 160 recess appointments during a recess that lasted only a fraction of a day. Similarly, President Truman twice made recess appointments during recesses that lasted just a handful of days. Additionally, the 11th Circuit Court of Appeals, the highest court to consider the question of when recess appointments can be made, considered whether a George W. Bush appointee to the 11th Circuit was invalid because it occurred during a very short legislative break and held that the Constitution, on its face, does not establish a minimum time that an authorized break in the Senate must last to give legal force to the President’s appointment power under the Recess Appointments Clause.

            Cordray is also not the first controversial figure to be appointed through a recess appointment. Some familiar names – Thurgood Marshall, Earl Warren, and William Brennan – were all, at one time or another, recess appointments.  In 1961, President John F. Kennedy appointed Thurgood Marshall to the 2nd Circuit Court of Appeals – he was finally confirmed by the Senate the following year by a vote of 54-16. President Dwight Eisenhower appointed three judges to the Supreme Court during recesses; including, Warren, Brennan and Potter Stewart. Nor has President Obama overused his powers. Obama has only made a total of 28 recess appointments, compared to:


Challenging Cordray’s appointment means that once again Congress is not listening to its constituents, nor looking out for their financial well-being. According to a recent AARP and Center for Responsible Lending poll, 74 % of all respondents (including 73% Independents and 68% Republicans) responded affirmatively that they support having a single agency with the mission of protecting consumers from financial companies

Unfortunately even before Cordray’s nomination, some legislators weren’t listening. Forty-four Republican senators sent the President a letter stating that they refused to vote for anyone to become the Director unless they got what they want --- restructuring of the CFPB to make it less powerful. Specifically, they demanded that instead of a single director there should be a board overseeing the CFPB, that the CFPB should be subject to the Congressional appropriations process, and that prudential financial regulators, who oversee the safety and soundness of financial institutions, be given the right to veto any regulations issued by the CFPB.  These are the same restrictions that conservatives had originally wanted in the Dodd-Frank Wall Street Reform and Consumer Protection Act but were unable to get passed. By making its funding contingent on appropriations and putting veto powers on its regulations, the CFPB would essentially have little operating funding and little authority.

After forty-four senators blocked Cordray’s nomination in September and again in December, and not because of his qualifications (in fact, several Senators indicated that Cordray’s qualifications were good), the White House decided to exercise its legal powers and not let Americans’ financial futures hang in the balance. As President Obama stated in his Cleveland speech, “every day that [Cordray] waited to be confirmed was another day when millions of Americans [were] left unprotected. 

Although the CFPB has been working hard since it launched in July, without a director, the CFPB could not "exercise its full power" since it could not enforce laws against “non-bank financial institutions such as pay day lenders” and other members of the predatory fringe financial markets. Now that Cordray has been confirmed, through a perfectly legal recess appointment, the CFPB can fully protect American’s financial futures.



The Consumer Financial Protection Bureau: Hard at Work So You Know Before You Owe

The Consumer Financial Protection Bureau (CFPB) has been hard at work despite some lawmakers’ efforts to block the confirmation of Richard Cordray, President Obama’s nomination as director of the CFPB. The CFPB has rolled out a series of Know Before You Owe topics in order to best hear consumer complaints, answer concerns, and make appropriate policy changes. First the CFPB recently published a report on consumer credit card complaint data

The report summarizes information collected from the first three months of the CFPB’s Consumer Response office’s complaint system. When the CFPB officially launched in July of this year, its Consumer Response office’s first focus was on credit card inquiries and complaints. Consumers were encouraged to submit inquiries and complaints to the CFPB in a variety of consumer-friendly manners, including by mail, fax, telephone and the CFPB’s website. The CFPB’s call centers, for example, provide services for the hearing- and speech-impaired and can assist consumers in 191 different languages. Through these mechanisms the CFPB received over 5,000 comments on credit card issues. The data collected will inform the CFPB’s future enforcement, rulemaking, research, and consumer education efforts. 

Although the majority of the comments resulted in the CFPB providing general feedback and informational resources; the CFPB also sent 84% of these concerns directly to credit card issuers to resolve and/or and respond to consumers. Thus far, credit card issuers have reported full or partial resolution of 74% of them. There were a wide range of complaint topics, however, the top five concerns related to:

  1. billing disputes (13.4%);
  2. APR or interest rates (11%);
  3. identity theft/fraud/embezzlement (10.8%);
  4. other (8.9%); and
  5. closing/cancelling an account (4.8%).

As part of the Dodd-Frank Wall Street Reform and Consumer Protection Act the CFPB was given authority to enforce the CARD Act. The CARD Act, which was signed into law by President Obama in May 2009, was designed to be a “credit card bill of rights” intended to end interest rate hikes, hidden fees, and other abusive practices in the credit card industry 

The CFPB also recently held a conference marking the one-year anniversary of the enactment of the CARD Act that included presentations and reports on the credit card industry’s progress in complying with the Act. This progress, however, is mixed. Overdraft fees have virtually disappeared in the credit card industry. Similarly, prior to the CARD Act, approximately 15 percent of credit card accounts were re-priced over the course of a year; today that number is under 2 percent. Yet, while only one of the nine major credit card issuers has a usual practice of periodically reviewing the APR on existing accounts and raising interest rates for new purchases, five others have increased, or plan to increase, interest rates on new purchases for customers who are delinquent on past balances. 

On another front, the CFPB is currently seeking consumer comments on mortgage application forms. Presently the forms to apply for a mortgage are very complicated. The CFPB has created a prototype of a simpler credit card agreement that clearly spells out the terms for the consumer. Use of the form is not mandatory; however, the CFPB hopes that financial institutions will adopt it. The public is being encouraged to visit the mortgage section of the CFPB’s website and compare two versions of a mortgage disclosure form the CFPB has developed that describes loan terms and closing costs. Consumers can choose which one is easier to read and that they prefer. Consumers can also compare the proposed form to their mortgage company’s current forms.

Clearly, the CFPB is working hard to protect consumers from predatory lending and deceptive practices, as well as actively hearing and responding to public comments. We only wish that the Senate would be as responsive and listen to the public’s desire to have Cordray’s nomination confirmed so that the CFPB can continue and expand this good work.

Learn more about the findings of the surveys included in the CARD Act: One Year Later conference.

Learn more about the Cordray nomination proceeding.


Congressional Hearing or Hostage Negotiations: Cordray's Nomination for Director of the Consumer Financial Protection Bureau

WalletPartisan politics are alive and well in Washington. The fate of the Consumer Financial Protection Bureau (CFPB) is being held hostage by 44 Republican senators who won't budge until they get their way.  

The CFPB was established by the Dodd-Frank Wall Street Reform Act to provide oversight of and enforce laws about the consumer financial market. Although President Obama nominated former Ohio Attornery General Richard Cordray to be the CFPB’s Director of the CFPB earlier this summer, the agency officially opened its doors July 21, 2011, without a confirmed director. Yet, without a director the CFPB cannot fully protect consumers since, by statute, it cannot enforce laws against “non-bank financial intuitions such as pay day lenders” and other members of the predatory fringe financial markets until a director has been confirmed.

Last Tuesday, during Cordray’s nomination hearing, the ranking Republican on the Senate Banking panel, Senator Richard Shelby, called the hearing "premature," saying that the panel shouldn't be considering any nominee until Democrats take their demands for accountability more seriously. Republicans are blocking Cordray's nomination not because of his credentials, but rather as part of a power play with the White House. Even before Cordray’s nomination, 44 Republican senators sent the President a letter stating that they refused to vote for anyone to become the Director unless they get what they want --- restructuring of the CFPB to make it less powerful.

Illinois Senator Mark Kirk is among the 44 senators opposing Cordray's nomination. Kirk was also one of only six senators who supported legislation to repeal the Dodd-Frank Act in its entirety, as well as  bills to create a board structure for the CFPB instead of a single-director structure. Obviously Kirk is neither listening to his constituents nor looking out for their financial well-being. According to a recent AARP and Center for Responsible Lending poll, 74 % of all respondents (including 73% Independents and 68% Republicans) responded affirmatively that they support having a single agency with the mission of protecting consumers from financial companies.

Richard Cordray is caught in the middle of these outlandish political tactics. As a result, the American people are not getting the protection from financial markets that they should be getting and that the Dodd-Frank Act requires. As Representative Barney Frank, a Massachusetts Democrat who was one of the chief authors of the law that created the bureau, explained, Republican opposition is the legislative equivalent of an “arsonist having set a fire and objecting to a building’s inhabitants using the fire exit.”

During the confirmation hearing Senator Bob Corker, a Tennessee Republican, said that his big opposition to the CFPB is that there's no way to challenge a decision by the consumer bureau, unless a particular rule "threatens the stability of the financial system." Under current law the bureau can be overturned by a two-thirds vote of a panel of financial regulators if any of its regulations threaten the stability of the financial system, which Corker called a "high hurdle." When asked by Senator Corker if Cordray thought that veto power over the bureau's decisions was a high hurdle, Cordray replied "It is a high hurdle, but not an inappropriate one." Consumer advocates agree.

The Shriver Center, along with Woodstock Institute and Illinois PIRG, issued a joint statement prior to the hearing explaining that a strong, independent agency is needed because banking regulators were more concerned about the health of financial firms than about consumer abuses, such as subprime mortgages, in the years leading up to the housing market crash. As the groups stated: “If Senate Republicans fail to vote for Cordray … it will prove that they still favor a flawed financial system over ordinary Americans … and [is] another indication that they are willing to resort to extortion … to get their way even to the detriment of a fair financial system and the still fragile economic recovery.”

It’s beyond time that politicians stop focusing on their agendas and start keeping their constituents’ needs in sight instead.


Banks Make Huge Profits On Food Stamps

SNAP benefits cardOver the past 20 years, electronic deposit and electronic benefit transfers (EBT) have replaced paper checks for the delivery of public assistance benefits. EBT systems deliver government benefits by allowing recipients to use a plastic card to access their benefits through ATMs and point of sale (POS) devices located in select retail outlets.

One reason that EBT systems have become so popular is that states have found that they can save millions of dollars by "outsourcing" the provision of these benefits to big financial firms. In fact, JP Morgan is the largest processor of food stamp benefits in the United States.

JP Morgan has contracted to provide food stamp debit cards in 26 states and the District of Columbia. JP Morgan is paid for each case that it handles, so that means that the more Americans that go on food stamps, the more profits JP Morgan makes. Considering the fact that the number of Americans on food stamps has exploded from 26 million in 2007 to 43 million today, one can only imagine how much JP Morgan's profits in this area have soared.

J.P. Morgan also provides unemployment insurance benefit debit cards in seven states which is ironic since it, along with other big Wall Street banks, was a major contributor to the financial collapse that lead to tens of thousands of Americans becoming unemployed. 

It seems grossly unjust that the very Wall Street financial institutions that caused the recession and received bailouts from the U.S. government and tax dollars during the financial crisis are now making money off the recession and their victims again – low income families and taxpayers. Moreover, one of the programs that was on the chopping block during the debt debate was the food stamp program. In other words, Congress was prepared to cut food assistance to families, but did not even bother examining whether big banks’ profits from administering food stamp program benefits should be cut.

As part of the recent Wall Street reform, the Consumer Financial Protection Bureau (CFPB) was created by the Dodd-Frank Wall Street Reform and Consumer Protection Act. The CFPB, which became operational on July 21st, is now the sole federal agency focused on consumer protections. Among its responsibilities is supervision and enforcement with respect to the laws over providers of consumer financial products and services. As such, one of its early efforts should be to review the practice of continuing to allow financial institutions to profit off the very consumers they helped to defraud and deplete their assets in the first place.

To learn more about the CFPB visit its website.

To learn more about issues surrounding the electronic payment of public benefits you can view the Shriver Center’s webinar, The Next Frontier: in Public Assistance: Electronic Payment Cards.


Shriver Center Commends Congress on the Passage of Financial Reform Legislation

Wall StreetOn June 30, the Senate passed the Wall Street Reform and Consumer Protection Act, which is designed to address the regulatory weaknesses blamed for the 2008 financial crisis and to protect consumers from future abuses by the financial services industry. The bill, popularly known as the Dodd-Frank bill, has finally made its way to President Obama’s desk after a year of debate, passing into law one of the largest financial reform overhauls in history since the Great Depression.

Ambitious in its scope, the 2,300 page bill will transform the way banks, credit rating agencies, and other financial institutions operate. Some of the major overhauls include: 

  • Creating a financial oversight council that will monitor bank holding companies with assets over $50 billion, as well as non-bank financial companies the council deems a systemic risk to financial stability.
  • Giving the Treasury Department authority to appoint the Federal Deposit Insurance Corporation (FDIC) as receiver of any financial company to deal with “too big to fail” entities.
  • Merging the Office of Thrift Supervision (OTS) into the Office of the Comptroller of Currency (OCC).
  • Requiring large hedge and private equity funds to register with the Securities and Exchange Commission (SEC), thus including them within federal oversight for the first time.
  • Creating the Federal Insurance Office, which will monitor all aspects of the insurance industry and identify regulatory gaps that could lead to systemic risk for the industry and consumers.
  • Changing the capitalization requirements of bank holding companies, including the establishment of counter-cyclical capital and leverage requirements so that the amount of capital required to be maintained by a company increases in times of economic expansion and decreases in times of economic contraction.
  • Enacting rules to ban proprietary trading, holding or obtaining an interest in a hedge fund or private equity fund.
  • Subjecting derivative markets to federal regulation and oversight for the first time.
  • Requiring that every public company provide for non-binding shareholder votes on executive compensation.
  • Authorizing the Treasury Department to establish progress standards for financial institutions that make an effort to provide alternatives to payday loans.
  • Reducing the amount of the Troubled Asset Relief Program (TARP) from $700 billion to $475 billion.
  • Enacting mortgage and anti-predatory lending reforms, including good-faith determination of a consumer’s ability to repay a loan, prohibition on steering incentives, limitations on high-cost mortgages, and appraisal requirements.

The centerpiece of the bill is the establishment of the new, independent Consumer Financial Protection Bureau (CFPB) with only one job: protecting consumers who buy financial products at banks and non-bank lenders, from mortgage companies to payday lenders.

The CFPB will have the authority to write and enforce consumer protection rules for banks and non-bank financial firms to ensure consumers are protected from unfair or abusive practices. Additionally, the CFPB will have the ability to examine banks and credit unions with greater than $10 billion in assets, all mortgage-related business (e.g., lenders, servicers, mortgage bankers) and large non-bank financial businesses (e.g., payday lenders, debt collectors and consumer reporting agencies).

This legislation is a victory for the Obama Administration and advocates for reform across the country, including the Shriver Center, who have been pushing for oversight since before the collapse of the housing market. Despite heavy lobbying from financial institutions against oversight and regulation, this bill demonstrates a commitment to protect Main Street from Wall Street abuses.These fundamental changes to the financial regulatory system, critical to protect Americans' financial well-being, will become law when the president signs the bill today. The Shriver Center applauds Congress and will continue working to help implement the new legislation. 

Susan Ritacca coauthored this article.


"Let's Make a Deal" Reruns

Remember the show, Let’s Make a Deal, with Monty Hall? Well, it's back--sort of. For more than a year, Congress has been saying that it’s close to making a deal on legislation to overhaul America’s health care and financial systems. 

The original Let’s Make a Deal show was based on the show’s host, Monty Hall, offering deals to members of the audience. The contestants usually had to weigh the possibility of an offer being for a valuable prize, or an undesirable item. In its simplest format, a contestant was given a prize of medium value (such as a television set), and the host offered the contestant the opportunity to trade for another prize. However, the offered prize was unknown. It might be concealed on the stage behind one of three curtains, or behind "boxes" onstage, or within smaller boxes brought out to the audience.

Congress seems to have brought this classic TV game show back. “We’re close to a deal,” on health care legislation. “We’re close to a deal,” on financial reform legislation. 

Health Care Reform

The need across the country for health insurance reform has not abated. Americans agree that the nation's health insurance system is broken, but Congress still hasn’t sent a bill to President Obama to fix it. The current deal on the table is for the House to pass the Senate’s bill and then for both chambers to pass a budget reconciliation bill that resolves their differences. The proposed deal would ban insurance companies forever from denying coverage to children with preexisting conditions and from dropping coverage when an individual becomes sick. Insurance companies would no longer be able to randomly hike premiums or to impose lifetime or annual limits on the amount of care someone can receive. All new insurance plans would be required to offer free preventive care so that illnesses may be caught early. Young adults will be able to stay on their parents’ insurance policies until they are 26 years old. Uninsured individuals and small business owners would have the same kind of choice of private health insurance that members of Congress get for themselves. And individuals who do not have insurance coverage through a large group could be part of a bargaining pool that negotiates lower rates. Also, if an individual is ineligible for Medicaid but still can’t afford the insurance offered through the pool, she or he would receive a tax credit to assist with this cost. Finally, this deal would provide a new, independent appeals process if a claim has been unfairly denied.

It’s time for Congress to take the deal and make health insurance available and affordable for all.

Financial Regulation Reform

After the catastrophic financial crisis, President Obama called for the creation of an independent Consumer Financial Protection Agency, which would have as its sole mission the protection of consumers. It would create and enforce clear rules to ensure fairness of credit card terms and conditions, overdraft loan programs, payday and car title loans, and mortgages. In the fall, the House of Representatives passed legislation creating such a new Consumer Financial Protection Agency, which would provide the type of consumer protections that should have been in place all along. The Senate, however, has been debating the issue for months.

Specifically, Senate Republicans and the financial-services industry have opposed the creation of such an entity. Instead they would prefer that the Federal Reserve continue to be responsible for consumer protection as part of its regulation of nationally chartered banks. The central bank has always been responsible for the health of the nation's largest banks and the safety of American borrowers; however, its failures in both roles have been well documented. For years, the Federal Reserve primarily focused on monetary policy over bank supervision and often made consumer protection an afterthought. As a result, millions of American families have been left unprotected and financially unstable.

Additionally, the Federal Reserve only regulates banks, which would mean that the so-called shadow banking system of payday lenders, debt collectors, and loan originators and servicers would remain unregulated. The power of these entities has been demonstrated by the huge role they had in the current economic crisis. Allowing them to continue their predatory practices without being regulated would not be a deal on reform but rather a continuation of the status quo. Lawmakers have repeatedly said that they are close to a deal on this very divisive issue. Yet, proposals to let the Federal Reserve remain the primary regulator of consumer protection laws, is not a deal, it’s just the status quo. 

Well Monty, Where’s the Deal?

Congress seems to be weighing the possibility of whether reforming health care and financial systems will ultimately be valuable prizes, or undesirable items. Yet, rather than holding onto its existing undesirable prizes, Congress should choose Door #1, quality, affordable health insurance reform NOW and a dedicated agency to monitor and rein in the reckless behavior of financial institutions. 

Well Congress, where’s the deal?