Our most recent testimony on overdraft fees is here.

A new U.S. PIRG report called Who Slows the Pace of Tax Reforms? profiles a dozen powerful corporations that have signed onto one or more letters from the PACE coalition, a group that stridently opposes international tax reform. The report shows how this “dirty dozen” benefits from lucrative federal contracts, yet do not pay their fair share of taxes and spend heavily to block tax reform. (Here is the release)

Highlights include these facts:
• The corporations profiled are twelve of the 100 largest publicly traded U.S. contractors and they received over $10 billion in government contracts in 2008 alone.
• The “dirty dozen” maintain over 440 subsidiaries in tax haven countries or financial privacy jurisdictions.
• The same dozen corporations spent a collective $37 million for 2008, over $100,000 a day, and over $33 million so far for 2009, on lobbying, while also spending over $6 million (in 2008) in campaign contributions from their political action committees to candidates and parties.

The report is by Nicole Tichon, our tax reform advocate, and Lisa Gilbert, our democracy advocate.

Top House and Senate Democrats have offered new legislation on tax dodges (AP via New York Times). Statement from U.S. PIRG Tax and Budget Reform Advocate Nicole Tichon:
New Tax Reform Legislation is a Good First Step Toward Ending Bank Secrecy That Hurts Taxpayers

“The Foreign Account Tax Compliance Act of 2009 is a step in the right direction to reform a broken system where tax dodging individuals and corporations offload their burden on ordinary taxpayers.

“Holding foreign banks and corporations accountable for their clients can only help the process of ending bank secrecy. However, the bill can certainly be improved by giving the U.S. government even stronger enforcement mechanisms and by taking bold action against offshore shell companies.”

From Senator Chris Dodd, chairman of the Senate Banking Committee:

Today Senate Banking Committee Chairman Chris Dodd (D-CT) will introduce a bill to immediately freeze credit card interest rates, fees and finance charges on existing balances. The Credit Card Accountability, Responsibility, and Disclosure (CARD) Act enacted in May prevents arbitrary interest rate, fee and finance charge increases on a customer’s existing balance. Unfortunately, credit card companies have been jacking up rates in a last ditch effort to squeeze customers before all of the bill’s provisions can take effect.

Sunday's Washington Post will feature a column 5 myths about Wall Street pay days by Professor Roy Smith. Key line:

Myth #1: The Wall Street bonus culture led to the financial crisis. There is absolutely no evidence to support this.

And as Americans for Financial Security points out, the notion that these are completely publicly-accountable firms already is false. Shareholders need greater rights, including a "say on pay:"

See page 37 of our comprehensive AFR financial markets reform platform:

Corporate compensation policies that encourage short-term risk-taking at the expense of long-term corporate health and reward managers regardless of corporate performance have contributed to our current economic crisis. Shareholders should have the opportunity to vote for or against senior executive compensation packages in order to ensure managers have an interest in longterm growth and in helping build real economic prosperity. So-called shareholder “say on pay” is established practice in the United Kingdom, and currently is in place at 74 publicly traded corporations in the United States. “Say on pay” proposals were introduced at over 90 companies in 2008 and received an average support of over 40 percent, receiving majority support at 11 out of 74 annual meetings, as of Nov. 12, 2008. Say on pay legislation was introduced in the 110th Congress by President Osama when he was a Senator from Illinois. Now is the time for the 111th Congress to reconsider say on pay legislation and include it as part of needed reforms to encourage executive accountability.

While Congress has been considering the Consumer Financial Protection Agency, action on unfair overdraft fees has not slowed. Earlier this week, Senate Banking Committee Chairman Chris Dodd (D-CT) (his statement) and Senators and fellow committee members Jeff Merkley (D-OR), Sherrod Brown (D-OH), Chuck Schumer (D-NY) and Jack Reed (D-RI) introduced overdraft fee reform legislation (statement from PIRG and others). Also, Reps. Carolyn Maloney (D-NY) and Barney Frank (D-MA) introduced a new version of their overdraft reforms. Story from syndicated columnist Kathy Kristof. My most recent testimony to Congress, earlier this year. Since banks are allowed by their regulators (no CFPA yet!) to manipulate both the timing that consumer deposits are made available and the order that checks and debits are withdrawn, and have the technology to decline debits at point of sale that would cause an overdraft but no longer choose to use it, consumer groups believe that overdraft practices need stricter regulation. Among our key reforms: no one should be enrolled in so-called overdraft protection automatically, they should have to affirmatively say yes, or opt-in. Even the Federal Reserve has proposed a regulation to address the problem, but it does not go as far as either bill. Oh, the latte: $4 for the latte, plus a $35 average overdraft "protection" fee.

Update: It may be that out of a total of 1537 lobbyists registered, only 58 are consumer advocates, leaving a still astonishing 1,479 industry lobbyists, or a 25-1 ratio.

Bloomberg is reporting in a story Citigroup 34%-Taxpayer Ownership Doesn’t Preclude 46 Lobbyists by Jonathan Salant and Lizzie O'Leary that the banks have registered 1,537 lobbyists to oppose financial reform and consumer groups have just 58. When you are trying to preserve a financial system that failed to protect the public, and claiming that it wasn't your fault, you need to deploy a lot of suits out of plush K St. and Wall St. offices to make your claims. As the headline points out, taxpayers own one-third of Citibank. I can assure you, however, all 46 of their lobbyists are working against the interests of taxpayers and consumers. Our work is tough, against such a phalanx of opponents. I often say, as I did in this story, that, “We’re like Luke Skywalker and they’re like the empire.”

Groups seeking financial reform are holding a Showdown in Chicago from Oct 25-27 to coincide with the American Bankers Association conference. The website has info on logistics.

The same financial institutions that caused the economic crisis and took billions in taxpayer bailouts are back to earning incredible profits. Meanwhile, Americans face shrinking pensions, rising foreclosures and unemployment, state budget cuts, predatory lending, outrageous overdraft fees, and sky-high credit card interest rates.

Yes, dear reader, in Washington, you can even patent your tax avoidance strategies, preventing other taxpayers from benefiting from the law. Who knew? U.S. Tax and Budget Reform Advocate Nicole Tichon has joined a coalition urging passage of reform legislation from Reps. Rick Boucher (D-VA) and Bob Goodlatte (R-VA), H.R. 2584. Excerpt from the coalition letter to the hill is here:

Barriers to compliance caused by these patents may also cause some taxpayers to pay more tax than Congress intended and may cause other taxpayers to pay more tax than others similarly situated. This is simply unfair. Not to mention, tax strategy patents complicate the provision of tax advice by professionals and create a new burdensome level of compliance and cost, ultimately borne by taxpayers. Finally, as you know, issuance of a patent is no guarantee that the underlying strategy is valid under our tax code.

U.S. PIRG Takes on Another Front in the Fight Against Tax Abuses,
Joins Group in Sending Letter to Congress

WASHINGTON, Oct 20 – The U.S. Public Interest Research Group joined a coalition of consumer organizations, taxpayer rights groups and tax planners, including the American Institute of Certified Public Accountants, to send a letter in support of legislation banning patents on complex tax transactions and strategies used to avoid, reduce or defer taxes to the House Judiciary and Ways and Means Committees this Tuesday.

“Our government should not be in the business of rewarding tax lawyers who help clients dodge their taxes,” said Nicole Tichon, Tax and Budget Reform Advocate for U.S. PIRG. “There is no patent protection for finding new ways to steal cars, and there shouldn’t be protection for finding new ways to dodge taxes.”

The legislation, which currently has 27 co-sponsors, was passed in the House last year by a vote of 220 to 175 as part of larger patent reforms.

At the time of the letter’s writing, 82 tax strategy patents had been issued, with 133 pending.

“The on-going serious concerns associated with these types of patents pose a significant threat to taxpayers and their advisors, and we believe that quick legislative action to prohibit them is essential,” the organizations wrote in the letter, which was delivered to Congress today.
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Once again, one of the biggest collectors and sellers of confidential consumer information is paying a fine to the Federal Trade Commission for sloppy data handling. From the FTC release: "This failure left the door open to a data breach in 2008 that compromised the personal information of 13,750 people and put them at risk of identify theft." As powerful interests are wont to do (last week, it was Microsoft), ChoicePoint blamed someone else, a government customer, instead of taking full responsibility, as explained by Brian Krebs in the Washington Post, where he also notes that ChoicePoint flacks turned snippy over his characterization of the settlement. For those of you not keeping score, ChoicePoint was responsible in 2006 for one of the most embarrassing privacy debacles of the modern age: it agreed to a settlement for allegedly selling confidential consumer dossiers to identity thieves of no certain address, even after being notified of fraudulent activity by government agencies and even though the supposedly reputable businesses had disconnected phone numbers. For that mess, it paid $15 million, including restitution to victims; this fine of $275,000 seems like a parking ticket.

Congress is considering a variety of bills on data breaches and information security. Industry lobbyists are scurrying around the capitol demanding broad preemption over state authority to protect privacy and individual rights of action to recover damages as a condition of any new federal laws. Yet, without state data breach laws, we'd have never learned of the first ChoicePoint "breach."

On Thursday, the House Financial Services Committee completed action on an improved but still weak reform proposal, H.R. 3795, the Over-the-Counter Derivatives Markets Act of 2009. It then began heated debate on the discussion draft of HR 3126, the Consumer Financial Protection Agency Act. You can follow all the action here, where amendment language and votes that have occurred on both the derivatives bill and partially-completed CFPA bill are archived and where video links are provided for both the archived parts of the meeting and for the expected continuation of the debate Tuesday beginning at 2pm.

The derivatives bill purports to require these complex, murky instruments to be transparently traded on regulated exchanges. But, as we told the New York Times, the derivatives bill has “broad exceptions that swallow any rule it creates.” As law professor Michael Greenberger of the University of Maryland told Marketplace Radio, "Unfortunately, I think too many devilish hands worked on this, and the exemptions to the general regulatory requirement almost eat the exchange trading requirement away." The bill allows weaker, industry-controlled clearinghouses to handle much of the trading, including to determine whether certain transactions would "clear" on an exchange. As New York Times financial columnist Gretchen Morgenson said in her story Don’t Let Exceptions Kill the Rule:

"Gee, do you think the banks might be a tad hesitant to punt a very lucrative line of business onto less profitable exchanges? Do you think they might have an incentive to say that the most profitable swaps simply aren’t clearable?"

That story in the New York Times also explains the preliminary action on the CFPA bill and an amendment, which was approved, that exempts "98% of the nation's banks" from direct authority of the CFPA. This was a disappointing vote that weakens the agency but three things should be noted:

The House Financial Services Committee began debate today over the Obama-backed Consumer Financial Protection Agency that is opposed by the U.S. Chamber of Commerce and major bank associations. Votes may occur as early as Thursday. Meanwhile, state attorneys general joined advocates around the country in supporting the bill's central reform-- making federal law a floor not ceiling of protection. In Illinois, Attorney General Lisa Madigan, who also met with president Obama Friday, held a news conference (her release and a WGN video) urging Rep. Melissa Bean (D-IL) to drop her gutting amendment that would retain the preemption regime currently in place. Madigan's letter to Bean. Also, Ohio Attorney General Richard Cordray joined Ohio PIRG (story) to urge his delegation to support stronger state laws. Iowa Attorney General Tom Miller also weighed in. The National Governors Association led by California Republican Arnold Schwarzenegger and New Jersey Democrat Jon Corzine also weighed in on behalf of the states.

The Sunlight Foundation has ranked FIRE (Finance, Insurance and Real Estate) campaign donations to members of the House Financial Services Committee. Leader of the "PAC" is Rep. Melissa Bean (D-IL), with $269,800 of FIRE donations in 2009 out of a total of $634,535. Bean is expected to offer the worst gutting amendment to the Consumer Financial Protection Agency Act. The Bean amendment - as it is widely understood although not yet circulated - would eviscerate the bill's reinstatement of the longstanding policy that federal law serve as a floor but state laws could go higher. Under Bean, we would roll back to the recent system of federal preemption of stronger state consumer laws. Somnolent federal regulators that ignored, or aided and abetted, the growth of unfair and abusive practices leading to the crisis, would stay in charge, if you call it that. As I told the AP a few days ago: "That's the system we have now. That's the system that failed." The picture above links to the full picture at Sunlight.

Just saw an incredible piece supporting the Consumer Financial Protection Agency by New York Times columnist Joe Nocera Have Banks No Shame?. It ran Saturday, in case you missed it.

"Whenever you talk to bankers or their lobbyists about the proposed agency, you hear some variation of what I’ve come to think of as the party line. It’s not that they’re against consumer protection, they say. (Heaven forbid!) [...] What’s more — and this is the part that is really unbelievable — they insist that bankers weren’t the cause of the financial crisis.[...]"

"Who do you think was creating all those subprime mortgages that the brokers and originators were peddling? The banks, that’s who. I’ve had mortgage brokers tell me how bank salespeople put enormous pressure on them to ratchet up their sales of, say, option A.R.M., no-doc mortgages —mortgages the banks were offering, through the brokers — so they could make the loans and then bundle them to Wall Street for a hefty fee. Bankers were every bit as complicit in pushing mortgages on customers who lacked the means to pay them back. Even now, banks are engaged in practices that are, at best, dubious, and at worst deceptive. How about, for instance, those rapacious debit card overdraft fees?"

We were among reform advocates who joined President Obama and several victims of financial chicanery at the White House Friday for an event urging swift passage of the Consumer Financial Protection Agency Act. President Obama singled out the U.S. Chamber of Commerce for special scorn in a strongly worded speech (video and full transcript and also, a new White House reform page). Excerpt:

"In a financial system that's never been more complicated, it has never been more important to have a watchdog function like the one we've proposed. And yet, predictably, a lot of the banks and big financial firms don't like the idea of a consumer agency very much. In fact, the U.S. Chamber of Commerce is spending millions on an ad campaign to kill it. You might have seen some of these ads -- the ones that claim that local butchers and other small businesses somehow will be harmed by this agency. This is, of course, completely false --..."

Nice video interview A Heroine of "Capitalism" by Lois Romano of the Washington Post with professor Elizabeth Warren, Chair of the Congressional Oversight Panel. It's a play on Elizabeth's star turn in the new Michael Moore movie, "Capitalism: A Love Story." In the interview, Romano and Warren discuss the question: "Where did the TARP money go?" That's a darn good question that U.S. PIRG's Nicole Tichon is also trying to answer.

Great editorial How the banking lobby tries to undermine loan reform supporting the proposed Consumer Financial Protection Agency in Wednesday's USA Today. Excerpt: "One thing the industry doesn't have going for it are the facts." The proposed CFPA is a priority consumer reform for U.S. PIRG and other leading civil rights, labor, consumer and community organizations allied together as Americans for Financial Reform. A vote is expected next week in House Financial Services. Among the key issues: Whether we reinstate the states as laboratories of democracy and put state attorneys general back onto the corporate crime beat, or whether the banks and U.S. Chamber of Commerce succeed in gutting the bill's critical provision re-establishing federal laws as a floor not a ceiling of protection.

In Washington, the Big Lie works. You make a claim that is so outrageous, no one will think you are making it up. In this case, the U.S. Chamber is claiming (The Hill) that unless we encourage offshore tax cheats by widening a loophole that encourages companies to set up a chair on the beach of a tax haven country and call it your headquarters, we will be in violation of our treaties and other trade agreements. Meanwhile, U.S. PIRG's tax reform advocate Nicole Tichon continues her efforts to get the special interest loophole that could cost taxpayers billions out of a spending bill (previous blog has details.) Only in Washington.

In a letter today to a Senate Appropriations Subcommittee, U.S. PIRG called for elimination of a corporate tax loophole slipped into the language of the 2010 Senate’s Appropriations bill for Financial Services and General Government that would benefit companies that do business in the U.S. but set up a shell company outside the country to avoid taxes. From the letter from U.S. PIRG tax expert Nicole Tichon:

Inverted companies are those who base their operations in the U.S. and establish a nominal presence in a foreign country for the purposes of avoiding U.S. taxes. Laws to close these tax haven loopholes have garnered bipartisan support and produced common-sense directives. Dismantling them allows profitable companies to legally skip out on their taxes and shifts that tax burden to taxpayers and responsible businesses already facing tough times in this economy.

When corporations first invert and then have the ability seek public contracts, taxpayers suffer a triple injury. First because the American companies at least nominally move overseas and transfer their tax burden to taxpayers. Secondly, taxpayer dollars would go overseas to pay public contracts paid to these reincorporated companies. And third, we lose when their American “subsidiaries” are able to strip their income down to a point where their U.S. tax is zero.

For Immediate Release Statement of Nicole Tichon
U.S. PIRG Tax & Budget Reform Advocate

U.S. Senate Must Remove Corporate Loophole from Appropriations Bill

WASHINGTON, Oct. 6 – If action is not taken immediately, a big corporate loophole will be slipped into the rules governing how and to whom U.S. government agencies contract out their work, the U.S. Public Interest Research Group (U.S. PIRG) discovered this week.

Each year, Congress must renew its commitment to prohibiting government agencies from awarding contracts to inverted corporations. (Inverted corporations are those that were once U.S.-based, that reincorporate in another country, but conduct very little substantial business in their new foreign base. For more information see U.S. PIRG’s Tax Shell Game.) This restriction began as part of the Homeland Security Act of 2002 and has been renewed by subsequent appropriations bills.

But this year, a loophole has been slipped into the language of the 2010 Senate’s Appropriations bill for Financial Services and General Government that would severely limit the scope of this law.

In Section 740 (d) of the 2010 bill, a sweeping exception is made to the current law, opening the door wide to inverted or “shell” corporations ­who do business in the U.S. but don’t pay U.S. taxes, costing taxpayers billions of dollars a year.

In reference to prohibitions against granting public contracts to inverted companies, the bill reads: “The prohibition… shall not apply to the extent that it is inconsistent with the United States obligations under an international agreement.”

“This bill undermines a bipartisan, commonsense law, undoing the good that’s been done,” explained Nicole Tichon, Tax and Budget Reform Advocate for U.S. PIRG. “The taxpayers, who’ve been carrying the financial rescue on their backs, will take on even more burden if this loophole becomes law.”

On Tuesday, Tichon and U.S. PIRG took immediate action, sending a letter to the Senate Appropriations Subcommittee on Financial Services and General Government leadership outlining its key concerns, which include the potential for any inverted company in a country with which the U.S. has any kind of “international agreement” to be exempt from the restriction on contracting with the U.S. government.

“Though ‘agreement’ is a nebulous term, it is presumed to mean the World Trade Organization’s Government Procurement Agreement, but could be interpreted as wide as Trade Agreements, Trade and Investment Agreements or even Tax Treaties,” Tichon’s letter reads.

“The original law does not provide for any preferential treatment of any particular country. The original law in no way impacts true foreign companies. Instead, it keeps contracts and tax dollars out of the hands of companies that have renounced their U.S. citizenship to avoid paying their fair share of taxes,” the letter continues. (Download the letter for full details.)

Tichon added, “The existing law provides for one of the few checks taxpayers have against blatant corporate greed and one of the few checks businesses that pay taxes have to help level the playing field.”

The bill has not yet been taken up on the floor of the U.S. Senate, but will be considered in the coming weeks.

###

U.S. PIRG, the federation of state Public Interest Research Groups,
is a non-profit, non-partisan public interest advocacy organization.

For more information on U.S. PIRG’s campaign to Close Corporate Tax Loopholes, click here.

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From a news release hot off the presses of the Consumer Federation of America:

Announced changes to overdraft programs at the nation’s largest banks will not protect American consumers from exorbitantly expensive short-term loans or extend federal consumer protections to the most expensive loans banks make. “None of the largest banks reduced their overdraft fees, which average $35 per overdraft, or dropped sustained overdraft fees tacked on if consumers cannot repay in just days,” noted Jean Ann Fox, director of financial services for Consumer Federation of America.

Brave New Films has a new Youtube video worth watching. From the promo:

Netting $2.5 billion in profits last year wasn't enough for WellPoint, the nation's largest insurance company. Now, WellPoint's affiliate, Anthem Blue Cross and Blue Shield, is suing the state of Maine for refusing to guarantee it a profit margin in the midst of a painful recession. As if Mainers didn't have enough to worry about just struggling to put food on the table, WellPoint is intent on forcing them to cough up 18.5% higher premiums on their insurance policies.

Over at The Nation, publisher Katrina vanden Heuvel has posted an editorial The Fight For Financial Reforms promoting the Consumer Financial Protection Agency and other reforms. Also, Nation reporter Greg Kaufmann has a review of last week's CFPA hearing, called Do They Take Us for Schmucks? Meanwhile colleague Susan Weinstock of the Consumer Federation of America has a pro-CFPA op-ed in the Capitol Hill tabloid Roll Call: Public Demands Disclosure. But Roll Call also finds space for special-interest lobbyist Mike Oxley, former chair of the Financial Services Committee, to oppose the CFPA and a variety of other reforms. Most non-industry lobbyists would agree with me that Oxley actually opposed the core reforms in the most famous bill that bears his name, the Sarbanes-Oxley Corporate Reform Act, passed in the wake of the Enron debacle. Once former telecom giant WorldCom joined Enron on the breadline, however, both Oxley and former President Bush had no choice but to embrace it and seek its passage. Let's hope we don't have to have another economic collapse to get Oxley and others to recognize that yes, our financial system did collapse last year and, yes, the banks and the regulators both deserve blame (it wasn't some other guy) and that we need real reform. Instead, we have every K St lobbyist in town, from Oxley on down, looking for a contract to convince Congress that, no, the entire economy didn't collapse last year and even if they remember that it did, it certainly wasn't the banks' fault and let's not over-reach on the reforms. Only in Washington.

A drug maker is using free speech claims in an attempt to invalidate prohibitions on off-label marketing to doctors. Currently, doctors can prescribe a drug for anything, but firms cannot pitch untested, unapproved uses to them. The incentive to do so, however, is there because a drug for a rare disease, with a limited market, makes a lot more money if sold for other more common diseases. Experts believe that a bad outcome could invalidate the entire scheme of FDA drug safety regulation. From today's New York Times story Botox Maker’s Suit Cites Free Speech by Natasha Singer:

“This is the broadest attack on the constitutionality of F.D.A. restrictions on speech brought by an individual drug company. It’s a precedent-setting case,” said Jeffrey N. Gibbs, a lawyer in Washington who specializes in food and drug law. “They are seeking relief which would invalidate all of the F.D.A. regulations which restrict the promotion of drugs.”

“Allowing physicians to use drugs off-label, but at the same time prohibiting drug companies from proactively sharing relevant and truthful information with physicians regarding the risks and benefits and techniques for off-label uses does not serve the public health or patient care,” Douglas S. Ingram, the executive vice president of Allergan, said in a phone call with analysts Friday.

Off-label marketing is prohibited partly because a nonapproved use of a drug often lacks the kind of safety and efficacy data required for an approved use of a drug. “If you could get a drug approved for one narrow use and then market it for everything else, there would be no incentive or motivation for a company to prepare data to ensure that it meets the standard for safety and efficacy,” said Marc J. Scheineson, a lawyer specializing in food and drug regulation at Alston & Bird in Washington.

Daffy's Elixir Salutis for "colic and griping," Dr. Bateman's Pectoral Drops, and John Hooper's Female Pills were some of the first English patent medicines to arrive in North America with the first settlers. The medicines were sold by postmasters, goldsmiths, grocers, tailors and other local merchants. By the mid-19th century the manufacture of these products had become a major industry in America. Generally high in alcoholic content, the remedies were popular with people who found alcohol therapeutic. Many concoctions were fortified with morphine, opium, or cocaine. Sadly, some of these products were labeled for infants and children. Parents seeking relief for their babies from colic often gave these opiate remedies with fatal results. The remedies claimed to cure or prevent nearly every ailment known to man, including venereal diseases, tuberculosis, indigestion or dyspepsia, arthritis, baldness, and even cancer. "Female complaints" were often the target of such remedies, offering hope for women to find relief from monthly discomforts. Bust developers and manhood restorers were also promoted.

Bank of America CEO Ken Lewis, whose acquisition of failed investment bank Merrill Lynch plunged the firm deep into TARP and taxpayer wallets' to remain afloat, announced his resignation (New York Times) last night. The Merrill case may continue to trouble the firm, as New York Attorney General Andrew Cuomo and U.S. District Judge Jed Rakoff, now joined by Ohio Attorney General Richard Cordray, continue to question the apparent sweetheart settlement made between the SEC and BofA over whether the acquisition's costs were properly disclosed to shareholders.

Because Lewis and other would-be masters of the universe liked to be seen as Wall Street glitterati when they were on top, stories about their falls to earth will inevitably focus on high-dollar Wall Street deal-making. But, I encourage reporters and columnists to take a look at BofA as it looks to the average consumer:

Only a strong Consumer Financial Protection Agency can guarantee that Bank of America and other big banks will be fair to consumers and workers and won't be bad for America.

A report released today by economist Dean Baker and the non-partisan Center for Economic and Policy Research finds that

"the government has essentially formalized the idea that major banks are “too big to fail” (TBTF)....In other words, the TBTF banks can borrow money at much lower rates than small banks whose cost of funds is determined based on their credit worthiness...."

“TBTF could amount to a substantial subsidy which should be a serious concern to policy makers,” Baker continued. “It implies nothing short of a redistribution of money from taxpayers to the very banks that were bailed out last year.”

Chairman Barney Frank (D-MA) and his Financial Services committee hold their latest hearing (all witness testimony and live video link) on the Consumer Financial Protection Agency this morning. One of the key issues will be whether business-oriented conservative Democrats on the committee succeed in eviscerating the bill by winning an amendment to remove its provision restoring federal law as a floor not a ceiling, which would eliminate the last 10 years of aggressive preemption rulings by federal bank regulators and once again allow states to respond to problems quickly. As I told the Associated Press (via Albany Times-Union) yesterday: "That's the system we have now. That's the system that failed." As New York Bank Superintendent Richard Neiman (also a member of the Elizabeth Warren-led Congressional Oversight Panel on the TARP) said in a letter in today's Wall Street Journal:

national banks fueled the broader credit crisis through their origination, wholesale funding, investment, and securitization activities. But perhaps their most insidious contribution to the housing crisis involved dubious credit-card practices that drove many struggling consumers into unsustainable subprime mortgages for debt consolidation.

Neiman also pointed out that allowing the states to pass stronger laws doesn't mean they will, unless national standards turned out to be inadequate. We agree. And we like what White House press secretary Bob Gibbs said yesterday -- that Obama would consider a veto of the consumer agency bill if it isn't strong enough. Several of the witnesses today are members of the PIRG-backed Americans for Financial Reform.

Seventy-four law professors from across the country have sent Congressional leaders a joint letter urging enactment of a strong Consumer Financial Protection Agency that does not limit the efforts of state legislators and state attorneys general to protect their citizens. The effort was coordinated by Norm Silber of Hofstra and Jeff Sovern of St. Johns (Jeff's blog entry at Consumer Law and Policy blog.) The professors' news release. Here is their explanation of why the wrongheaded preemptive efforts of the current regulators should be reversed, as the Obama-backed proposal would accomplish:

In our view, whatever merit arguments in favor of preemption have are outweighed by the value of having states operate as laboratories, trying different approaches to lending problems, particularly in dealing with the relatively young problems of predatory lending. It is important that Congress not take a simplistic approach favoring only federal development of consumer protection laws in financial products and services; and that Congress not limit the role of the states to enforcement of state and federal law. State legislatures and courts need to be able to continue to develop consumer protection law. Many of the types of non-bank financial products that will be within the jurisdiction of the CFPA have been regulated up until now only by the states, and their good work should not be undermined. In addition, problems are much more likely to grow larger if they can be addressed only at the federal level and not also by states where they first appear.

In case you missed the hullabaloo this week, today's Washington Post story Firm Aggressively Campaigned for Device reprises the sordid ReGen story-- here's a summary for those who missed it: two former high FDA and hill staffers go to work for medical device firm, facilitate massive campaign contributions to former Senate boss Bob Menendez (D-NJ) and three of his NJ delegation colleagues, use influence and access lubricated by said donations to meet with former FDA chief Andy Eschenbach, who rolls over and approves apparently worthless and possibly side-effect-riddled knee repair device previously rejected three times by his expert scientists. Post story says FDA report finds "ReGen executives had unusual access to von Eschenbach and that approval came after he met several times with members of the New Jersey congressional delegation."

Well, I don't actually know how unusual it is. You could probably change the names and agencies and decisions and find similar stories every day in Washington. Campaign money is corrosive and the revolving door hits taxpayers and consumers more than it hits the suits marching through it on their way between lucrative lobbying and government posts. I actually find the most interesting part of the story to be this coda:

Von Eschenbach, who now helps companies navigate FDA regulation at a consulting firm created last year by his former FDA chief of staff, was traveling Friday and unable to respond to questions, his assistant said.

If you work on financial reform, you had a busy week-- keeping up was like drinking from a fire hose.

More stuff after the jump.

UPDATE Wednesday: The big banks Chase and Bank of America have responded to Dodd by announcing changes to their overdraft policies (Washington Post and New York Times). Obviously, the banks are hoping to block a law. Laws protect consumers better than press releases do, so we urge Senator Dodd to keep pushing for a law. A few quick notes--

Original: Late last week, Senate Banking Chairman Chris Dodd (D-CT) announced that he planned to tackle unfair bank overdraft fees. It's a welcome move. We outlined the problem in testimony earlier this year in the House, where Rep. Carolyn Maloney (D-NY) has labored single-handedly on the issue, which pits big banks, small banks, and some credit unions against reform. Together, analysts predict that the industry will earn some $38 billion on the fees this year, which have grown dramatically on debit overdraft income, not bounced check income. The banks are truly addicted to fees.

A few blogs go into the details.

As the Washington Post noted, House Chairman Barney Frank's (D-MA) view (shared by consumer advocates, including U.S. PIRG) is that establishing a Consumer Financial Protection Agency should be our first priority, beacuase it could regulate overdrafts (and other unfair practices) better than Congress could, but...

Frank said new [overdraft] rules clearly were necessary, but if Congress voted to create a new consumer protection agency, it could write the rules. If the banking industry succeeds in its opposition to the new agency, he said, he would favor a strong overdraft bill.

"Banks should understand that they can't have it both ways," Frank said. "If that should falter, then we will pass a tough overdraft bill."

Over more than a century of jurisprudence, the courts have unwisely granted more and more Constitutional rights to corporations (background). Usually these expanded rights come at the expense of the rights of natural people. And most of the time, corporations take on the rights, but reject any responsibilities. U.S. PIRG serves as a friend of the court (our amicus brief) in Citizens United vs. FEC, the case re-heard (transcript) in an extraordinary September oral argument last week by the Supreme Court and which, in the worst of all worlds, would lead to allowing unlimited direct corporate expenditures in campaigns. You've seen professional soccer players and NASCAR drivers covered in corporate logos -- do you want your Senators dressed that way, also? Do you want corporations dumping millions of dollars of profits -- maybe from failing to clean up pollution or predatory lending -- directly into elections and further diluting the impact of your own and your neighbor's smaller contributions? Find out more about our democracy campaigns and take action by writing a letter-to-the-editor.

"Bank customer service" should become the new Webster's definition of oxymoron. The business model has morphed from "what can we do to help you?" to "How can we hurt you today?" Well, Ann Minch got tired of Bank of America's responses to her legitimate complaints about having her credit card rate jacked, so she's gone Hollywood. She stars in a new self-produced Youtube video that's generating a lot of buzz on the net -- 96,000 views as of Monday, says Arthur Delaney over at Huffington Post. The effort should help point out the need for a Consumer Financial Protection Agency. A CFPA would boldly go where no bank regulator has gone before -- to the aid of the consumer. That's why all the banks, and even the shrill U.S. Chamber, are mounting deceptive, misleading lobby campaigns to kill the proposal. Chairman Barney Frank (D-MA) of the House Financial Services Committee has announced additional hearings and a markup schedule for the CFPA and other reform bills. My previous CFPA blog.

FOR IMMEDIATE RELEASE

U.S. PIRG: Congress Saved Wall Street, Time to Save the Rest of Us

Statement of U.S. PIRG Consumer Program Director Ed Mierzwinski on Anniversary of Financial Meltdown

“One year ago this week, after Lehman Brothers failed, the Bush administration and Congress began massive taxpayer-backed efforts to save Wall Street. Hundreds of billions of dollars later, taxpayers have saved Wall Street but Congress hasn’t changed Wall Street’s regulation or culture to prevent future meltdowns.

“Put simply, that means Congress hasn’t saved the rest of us.

“While Wall Street bankers still pay themselves massive bonuses even when they fail, and while consumers still face unfair financial practices, Congress has dithered under a withering lobbying campaign from the big banks who claim that it wasn’t their fault and that reform isn’t necessary. It’s time for Congress to reject business as usual and enact real financial reform, starting with passage of the Consumer Financial Protection Agency.”
- # # # # -

U.S. District Judge Jed Rakoff today rejected Bank of America's $33 million settlement with the SEC over $3.6 billion in Merrill Lynch bonuses that were not disclosed to investors before the firms merged last December. According to the New York Times and Courthouse News Service and other sources, Rakoff said that BofA "materially lied" and that the settlement was "pointless," a "contrivance" and “does not comport with the most elementary notions of justice and morality.”"

Update: This should be posted at Financialstability.gov soon, but the Wall Street Journal has a link to the latest regulatory reform report. Also, the NY Times has a great editorial urging financial reform now.

Original post: Tuesday marks the day last year that Lehman Brothers failed and was not bailed out. Following its failure, Treasury Secretary Paulson, Fed chairman Bernanke and Tim Geithner, then New York Fed head, huddled with the remaining Wall Street titans over long September weekends to bail out the rest of Wall Street. What about the rest of us?

Well, since then, while the massive taxpayer and Fed infusions of cash have apparently staunched the economy's bleeding although not re-started it, not much has changed to prevent another financial crisis. Wall Street bankers living under the taxpayer TARP continue to pay themselves massive bonuses while Congress dithers under a withering assault from the bank lobby that claims it wasn't their fault -- it was some other guys who did it.

On Monday, President Obama speaks on the urgent need for financial reform at historic Federal Hall, which happens to be on Wall Street. We'll see if Congress listens. We're expecting critical votes on the Consumer Financial Protection Agency and other reforms soon. Opposing the CFPA has the shrill attention of the entire business community, simply because it will work to reduce risk and to hold them accountable. The system we've had in place did not work. It needs to change.

Gretchen Morgenson of the New York Times has a nice "Quis Custodiet Ipsos Custodes" piece on the need for reform: Her piece is called But Who Is Watching Regulators? and posits:

"Here’s a novel thought. Instead of creating more regulations to try to prevent this kind of mess from recurring, why not figure out how to hold regulators accountable when they perform as poorly as they did in recent years?"

Unlike the current regulatory system, which has failed because it was too close to the banks themselves, the CFPA will be accountable both to the Congress and the taxpayer. It is time for Congress to stop playing games with taxpayer and consumer wallets and enact real reforms. We look forward to the President's speech.

Recently, the non-profit Project on Government Oversight (pogo.org) broke the story of the latest military contractor scandal-- the ArmorGroup (a Wackenhut subsidiary) scandal in Kabul involving grotesque hazing rituals for new embassy guards (warning -- the naked pool party photos available at POGO are graphic and X-rated). But as a recent POGO statement points out, the real issue is the weak response that the State Department has made to the recurring and continuing violations of the contract. The New York Times has a followup-- Company Kept Kabul Security Contract Despite Record:

In fact, the deficiencies became so severe that they threatened the security of the compound, the documents show, and State Department officials withheld payments to ArmorGroup as a way to compel it to comply with the terms of its agreement. On a few occasions, government officials warned the company that if it did not correct the most egregious problems it would lose the five-year, $189 million deal.

In May, the President signed PIRG-backed legislation on weapons acquisition reforms. In 2008, additional PIRG-backed legislation was enacted to prevent military contractors from using offshore tax dodges to avoid paying Medicare and Social Security to their employees. Obviously, more needs to be done to hold these firms accountable to taxpayers.

As I noted a few days ago, the U.S. Chamber has launched a multi-million dollar campaign against the proposed Consumer Financial Protection Agency. I took a quick look at its stuff. The website is Stop the CFPA. Its print ad claims that your local butcher will be the the primary regulatory target of the "government bureaucracy with sweeping authority."

Who knew? Your local butcher's activities are such a threat to an economy in ruins due to corporate malfeasance and regulator incompetence that President Obama has launched a campaign to wrap him in red tape?

This is simply a case of the U.S. Chamber raising money by running a classic misdirection con -- hoping people will worry about their butcher and forget about AIG, Wall Street titans and their million dollar payoffs for failing and then hiding under the taxpayer TARP, Angelo Mozilo and Countrywide, Bernie Madoff, greedy credit card companies pillaging the pockets of good customers, and the rest of the rubble of our economy.

Nice try, guys, but a non-starter. Gotta love their fact sheet lede, though: "The U.S. Chamber Supports Stronger Consumer Protection. The Consumer Financial Protection Agency (CFPA), however, is bad for consumers and bad for the economy."

We've joined Consumers Union and the National Consumer Law Center in a letter urging Chase to reconsider its punitive practice of more than doubling credit card minimum payments of some customers who borrowed money in good faith on their credit cards, and now have had the rules changed in the middle of the game. Consumers Union attorney Lauren Bowne's blog entry is here.

Reflecting continuing public interest in the growing bank dependency on overdraft charges, especially from debit transactions at point-of-sale, the New York Times has a front page story today by Andrew Martin and Ron Lieber-- Overspending on Debit Cards Is a Boon for Banks.

"Although regulators have warned of abuses since at least 2001, they have done little to curb the explosive growth of overdraft fees. But as a consumer outcry grows, the practice is under attack, and regulators plan to introduce new protections before year’s end. The proposals do not seek to ban overdraft fees altogether. Rather, regulators and lawmakers say they hope to curb abuses and make the fees more fair."

Our allies at the Consumer Federation of America have released a survey (PDF) finding that the public strongly supports the proposed Consumer Financial Protection Agency. More after the jump:

A year after the Lehman Brothers bankruptcy froze credit markets and sent the stock market into a nosedive, consumers overwhelmingly want government action to increase consumer protections for financial products and services, according to a new national poll released today by the Consumer Federation of America (CFA). In a country where skepticism about the role of government is high, more than half of those polled (57 percent) support the creation of a new federal agency to protect consumers who purchase banking and other financial products and services. Those most adversely affected by many unfair and deceptive financial practices -- young adults under 35 years (70 percent), African-Americans (79 percent), Hispanic-Americans (70 percent), and low-income persons (69 percent) -- expressed the strongest support for a new consumer protection agency.

The U.S. Chamber of Commerce has decided to claim your "local butcher" will be put out of business by the presumably ham-handed, mad-cow led proposed Consumer Financial Protection Agency. According to today's Wall Street Journal story by Brody Mullins, the Chamber has launched a two million dollar ad campaign against the agency. The Journal notes that "there won't be any mention of banks or Wall Street or insurance companies," just of your local butcher, whose apparent informal credit arrangements with customers will be the primary enforcement target of the latest mis-guided Washington bureaucracy.

Wait, aren't banks, Wall Street and insurance companies the guys whose greed butchered the economy? Sounds like the Chamber's putting together a hatchet job. You don't have to make this stuff up, it writes itself. Only in Washington.

Meanwhile, on a positive note, Jessica Holzer of Dow Jones quotes a recent article by FDIC chief Sheila Bair:

"It has now become clear that abrogating sound state laws, particularly regarding consumer protection, created an opportunity for regulatory arbitrage that frankly resulted in a 'race-to-the-bottom' mentality," Bair wrote in the September issue of Financial Stability Review, a French central bank publication.

The FTC has announced a crackdown on those hideous robocallers, including the "your car warranty has expired" or "good news on your credit card debt, guys" scammers who cost consumers money, as well as time, by calling cell phone numbers as well as landlines, since consumers pay for incoming cell minutes. Also, Ssome people actually "push one" or call back and get roped into the scam. Don't do it.

The new requirement is part of amendments to the agency’s Telemarketing Sales Rule (TSR) that were announced a year ago. After September 1, sellers and telemarketers who transmit prerecorded messages to consumers who have not agreed in writing to accept such messages will face penalties of up to $16,000 per call. The rule amendments going into effect on September 1 do not prohibit calls that deliver purely “informational” recorded messages – those that notify recipients, for example, that their flight has been cancelled, an appliance they ordered will be delivered at a certain time, or that their child’s school opening is delayed. [...] After September 1, consumers who receive prerecorded telemarketing calls but have not agreed to get them should file a complaint with the Commission, either on the ftc.gov Web site or by calling 1-877-FTC-HELP.

Wired Magazine has posted a copy of the 14 page indictment against hacker-turned-informant-who-still-kept-hacking Albert Gonzalez and his associates Hacker 1 and Hacker 2 for stealing 130 million credit and debit card numbers:

UNITED STATES OF AMERICA v. ALBERT GONZALEZ, a/k/a “segvec,” a/k/a “soupnazi,” a/k/a “j4guar17,” HACKER 1, and HACKER 2 [... both] living in or near Russia

"knowingly and with intent to defraud accessing computers in interstate commerce and exceeding authorized access to such computers, and by means of such conduct furthering the intended fraud and obtaining anything of value, namely credit and debit card numbers and corresponding Card Data..."

On Thursday, the first pieces of the Credit Card Accountability, Responsibility and Disclosure Act kick in. While the bulk of the law's prohibitions against unfair and deceitful trickery don't take effect until February, three important pieces start Thursday.

Federal Reserve release explaining the new rules. Nationally-syndicated columnist Michelle Singletary of the Washington Post. The Toledo Blade.

Here is an excerpt from the statement of Nicole Tichon, U.S. PIRG Federal Tax and Budget Reform Analyst on a reported UBS Tax Case Settlement. In that case, the U.S. has demanded the identities of U.S. taxpayers who may be hiding money in offshore accounts at the Swiss bank UBS to avoid taxes.

When banks help to hide billions of dollars for tax dodgers, the rest of the taxpayers must ultimately pick up the tab. Regardless of the powerful and well-funded lobby against reforms, this case sends a clear message to Congress and the President that this issue will not go away on its own. Their goal should be to increase transparency, rather than having to battle this out on a case by case basis in the courts.

Tax lawyers said they expect UBS to disclose thousands of accounts. UBS, based in Zurich, agreed on Feb. 18 to pay $780 million to defer prosecution for aiding tax evasion and also gave data to the Internal Revenue Service on 250 clients. Since then, three UBS clients have pleaded guilty in the U.S. to hiding their bank assets from the IRS.

Statement of Nicole Tichon, Federal Tax and Budget Reform Analyst for the US Public Interest Research Group on UBS Tax Case Settlement

“The settlement of the case between UBS and U.S regulators represents an initial step in bringing the issue of offshore tax secrecy to light. More importantly, it shows the need to address sham transactions, tax avoidance and tax evasion on a permanent basis. When banks help to hide billions of dollars for tax dodgers, the rest of the taxpayers must ultimately pick up the tab.

“Regardless of the powerful and well-funded lobby against reforms, this case sends a clear message to Congress and the President that this issue will not go away on its own. Their goal should be to increase transparency, rather than having to battle this out on a case by case basis in the courts.

“U.S. PIRG will continue to work for international tax reforms to end practices that hurt taxpayers, ship jobs overseas and support the culture of secrecy that contributed to the recent economic downturn. This investigation should embolden Congress to act and put other countries and banks on notice.”

# # #

U.S. PIRG, the federation of state Public Interest Research Groups, is a non-profit, non-partisan public interest advocacy organization. For more information on U.S. PIRG’s campaign to Close Corporate Tax Loopholes click here.

Kudos to consumer champion Hank Klein of Arkansans Against Abusive Payday Lending. In a press conference today, held with an assistant state attorney general and others, the group he founded and tirelessly volunteered with today declared that Payday lending is history in Arkansas.

First American, the final payday lender to cease operations in Arkansas, closed its last store on July 31. [...] The formal end of payday lending in Arkansas occurs nine months after the Arkansas Supreme Court ruled that a 1999 payday lending industry drafted law violated the Arkansas Constitution, and 17 months after Arkansas Attorney General Dustin McDaniel initiated a decisive crackdown on the industry.

At a time when our country is struggling with the most serious set of problems since the Great Depression, I'm extremely excited about using this dynamic new medium to give you my unfiltered views on the economy, health care, global warming and the environment, foreign policy and a hundred other critical issues.

Over at the American Banker (pd. subs. MAY be req'd) Maria Aspan reports some good news for consumers:

American Express Co. and Discover Financial Services are eliminating overlimit fees on consumer credit cards, in one of the first concrete examples of how a new law will restrict issuers' abilities to turn a profit.

"American Express Co. and Discover Financial Services are eliminating overlimit fees on consumer credit cards, in one of the first concrete examples of how a new law will restrict issuers' abilities to gouge consumers unfairly, in this case by allowing them to go over their limit, collecting interest and charging a recurring OTL fee until their card is below the previous limit that the bank chose to ignore to collect a fee, plus interest."

The story And You Thought a Prescription Was Private by Milt Freudenheim in today's New York Times will probably shock a lot of people. But the fact is, despite major improvements made by the American Recovery and Reinvestment Act (ARRA) of 2009 to the Health Insurance Portability and Accountability Act (HIPAA) of 1996, neither your prescription privacy nor your medical privacy more broadly are yet fully guaranteed. When the ARRA changes take full effect, you'll be better, but not fully, protected. The story explains how "de-identified" information can be "re-identified;" how hackers and voyeurs can gain access to your records, and also some of the "therapeutic" and other exceptions to supposed limits on marketing. It also explains important efforts by states to rein in drug marketing and protect privacy.

The World Privacy Forum has prepared a detailed Patient’s Guide to HIPAA: How to Use the Law to Guard your Health Privacy, written by Bob Gellman, one of the experts cited in the NYT. The WPF also explains why consumer-controlled Personal Health Records (PHRs) may sometimes be covered by HIPAA, but not if provided for you by a non-covered entity, such as a website. In that case you may only be protected by the website's privacy policy. Other good resources are PatientPrivacyRights.org and the EPIC medical privacy page. Also, check out this New York Times blog page of reader comments largely opposing direct to consumer advertising of drugs.

Update from the Illinois AG's page: The Wells Fargo high cost lending complaint. High cost lending doc. Chart: High cost loans in Chicago area. Map (7 mB): High cost loans in Chicago locations.

Original post: If the national banks had nothing to do with the mortgage meltdown, as they and their regulator (OCC) apologists say, why has one of the nation's most respected state attorneys general, Lisa Madigan of Illinois, sued one of the biggest national banks, Wells Fargo? She charges that Wells and its various subsidiaries

"illegally discriminated against African American and Latino homeowners by selling them high-cost subprime mortgage loans while white borrowers with similar incomes received lower cost loans. “As a result of its discriminatory and illegal mortgage lending practices, Wells Fargo transformed our cities’ predominantly African-American and Latino neighborhoods into ground zero for subprime lending,” said Madigan."

Over at Business Week, check out Old Banks, New Lending Tricks:

...some of the world's biggest banks are peddling a new generation of dicey products to corporations, consumers, and investors.

"In the past two years lawmakers in 15 states have capped interest rates on short-term loans or kicked out payday lenders altogether. The state of Ohio, for example, has imposed a 28% interest rate limit. But ...nationally chartered banks don't have to follow local rules. ... Cleveland-based Fifth Third, which has 400 branches in [Ohio] ... introduced its Early Access Loan, with an annual interest rate of 120%. "These banks are skirting state laws," says Kathleen Day of advocacy group Center for Responsible Lending."

Update: I hadn't noticed, but reporter Stephanie Clifford had posted a great sidebar to the story discussed below, on her blog. Here it is: An Interview With David Vladeck of the F.T.C.: Excerpt:

"Q: I’m not sure “icky” is a legal term. A: I use that because our chief economist uses that term. I don’t. I talk about dignity."

Original post: For several years, U.S. PIRG and the Center for Digital Democracy have filed detailed petitions to the Federal Trade Commission explaining that certain emerging online advertising practices amount to behavioral tracking intended to result in consumer manipulation -- and that the practices could not be solved by "privacy disclosures." Now, as Stephanie Clifford of the New York Times reports, new FTC Director of Consumer Protection David Vladeck has Fresh Views at Agency Overseeing Online Ads:

Privacy policies have become useless, the commission’s standards for the cases it reviews are too narrow, and some online tracking is “Orwellian,” Mr. Vladeck said.

Now, Mr. Vladeck indicated, the commission would begin considering not just whether companies caused monetary harm, but whether they violated consumers’ dignity. “There’s a huge dignity interest wrapped up in having somebody looking at your financial records when they have no business doing that,” he said.

At another level, though, when Vladeck talks about dignity, he is recognizing what two young lawyers, Samuel Warren and Louis Brandeis, postulated (after Cooley) in the Harvard Law Review over 100 years ago as the "right to be let alone." Later, as a Supreme Court Justice, Brandeis, in a famous dissent in what was I think the court's first electronic privacy case (Olmstead, wiretapping) later expanded that to say:

[privacy is] "the right to be let alone—the most comprehensive of rights and the right most valued by civilized men.”

As she often does, Kathy Chu of USA Today has used facts to nail another major bank fee story. In Courtesy overdraft fees hit credit union customers, too she documents that the nation's biggest government-employee credit unions are gouging members (not customers, member-owners!) with costly overdraft fees. Some credit union spokespeople make some desperate quotes in the story, but you cannot defend "courtesy overdraft."

Credit unions are member-owned, but all too often follow the lead of the banks when it comes to opposing remedial legislation. On Capitol Hill, they are currently marching in lockstep with the banks in opposition to the Consumer Financial Protection Agency. Oh, their letters to the hill say they're for it, but go on to say "only under our own terms, of course" -- first exempt us, then gut the CFPA's powers and, finally preempt the states.

Chu does point out that some credit unions, such as massive Navy Federal, don't do it. But too many do. And while I will always tell consumers, "Bank at a credit union, not at a bank," what I told Kathy Chu about these government credit unions applies to a majority of credit unions--

"Government credit unions should serve as a model for what's right rather than a poster child for what's wrong."

Well, this speaks for itself. We like this, and look forward to more.

SEC RELEASE: The Securities and Exchange Commission today charged Bank of America Corporation for misleading investors about billions of dollars in bonuses that were being paid to Merrill Lynch & Co. executives at the time of its acquisition of the firm. Bank of America agreed to settle the SEC's charges and pay a penalty of $33 million.[...]

"Companies must give shareholders all material information about corporate transactions they are asked to approve," said Robert Khuzami, Director of the SEC's Division of Enforcement. "Failing to disclose that a struggling company will pay out billions of dollars in performance bonuses obviously violates that duty and warrants the significant financial penalty imposed by today's settlement."

David Rosenfeld, Associate Director of the SEC's New York Regional Office, said, "As Merrill was on the brink of bankruptcy and posting record losses, Bank of America agreed to allow Merrill to pay its executives billions of dollars in bonuses. Shareholders were not told about this agreement at the time they voted on the merger."

Update: The House has approved the executive compensation bill 237-185 -- the public interest position is yes. Our coalition letter of support.

In a report released yesterday, New York Attorney General Andrew Cuomo released a report on Wall Street bonuses "No Rhyme or Reason: The 'Heads I Win, Tails You Lose' Bank Bonus Culture". Today, the House will vote on PIRG-backed executive pay reforms which are a good first step toward reining in taxpayer abuses, addressing the failures exposed by the financial crisis, and enhancing long-term shareowner value. PIRG's Wall Street bailout pages. Associated Press:

The House turns to the legislation one day after New York Attorney General Andrew Cuomo concluded in a report that the nation's biggest banks, including Bank of America Corp., Merrill Lynch & Co., JPMorgan Chase & Co. and Goldman Sachs Group Inc., awarded nearly 4,800 million-dollar-plus bonuses in 2008. Citigroup, which is now one-third owned by the government as a result of the bailout, gave 738 of its employees bonuses of at least $1 million, even after it lost $18.7 billion during the year, Cuomo's office said.

An analysis of the 2008 bonuses and earnings at the original nine TARP recipients illustrates the point. Two firms, Citigroup and Merrill Lynch suffered massive losses of more than $27 billion at each firm. Nevertheless, Citigroup paid out $5.33 billion in bonuses and Merrill paid $3.6 billion in bonuses. Together, they lost $54 billion, paid out nearly $9 billion in bonuses and then received TA~ bailouts totaling $55 billion.

For three other firms - Goldman Sachs, Morgan Stanley, and JP. Morgan Chase - 2008 bonus payments were substantially greater than the banks' net income. Goldman earned $2.3 billion, paid out $4.8 billion in bonuses, and received $10 billion in TARP funding. Morgan Stanley earned $1.7 billion, paid $4.475 billion in bonuses, and received $10 billion in TARP funding. JP. Morgan Chase earned $5.6 billion, paid $8.69 bil1ion in bonuses, and received $25 billion in TARP funding. Combined, these three firms earned $9.6 billion, paid bonuses of nearly $18 billion, and received TARP taxpayer funds worth $45 bil1ion.

Washington State Attorney General Rob McKenna (his release, ConsumerMan Herb Weisbaum's KOMO TV story) has filed a lawsuit (excerpt) against Rent-A-Center, the largest rent-to-own company in the nation. RAC is accused of abusive collection tactics.

Rental chain’s customers say collection practices include trying to break down a door, calling customers “ghetto trash”...“While companies certainly have the right to collect on outstanding debts, state law, along with the most basic standards of common courtesy, dictate how companies may collect on those debts,” said Attorney General Rob McKenna. “Attempting to kick doors down, calling the debtor’s friends and relatives, and scaring their children aren’t included in those basic standards.”

The charges are serious and eerily similar to those outlined in a major front page Wall Street Journal expose in 1993 by Alix Freedman, “Peddling Dreams: A Marketing Giant Uses Its Sales Prowess to Profit on Poverty." After that story hit, RAC hired a former U.S. Senator, Warren Rudman (R-NH) to do a "white paper" showing, as I recall, that rent to own is good, that the practices described were not representative of the company's policies and that the actions depicted were solely attributable to a few rogue store managers. Well, I didn't believe the Rudman report then and I don't believe it now. Not much has changed in rent to own except that, since 1993, the industry has increased its so-far unsuccessful efforts to preempt stronger state laws with a weak federal one (previous blog). Consumers should understand this: the predatory rent-to-own industry promises the dream of ownership, then takes it away with impossible contracts and unfair practices.

Especially in a bad economy, job seekers shouldn't be rejected because of errors on their credit reports or because they were victims of identity theft. We just did a press conference with Rep. Steve Cohen (D-TN) in support of his bill to ban the use of credit reports for employment, except in limited circumstances. Also participating were co-sponsor Luis Gutierrez (D-IL), Hilary Shelton of the NAACP, Audrey Wiggins of the Lawyers Committee for Civil Rights Under Law, Ruth Susswein of Consumer Action and Deidre Swesnik of the National Fair Housing Alliance. Many other consumer and civil rights groups, including the National Consumer Law Center, also support the bill. As I said (pdf of my full release):

Rep. Steve Cohen’s Equal Employment for All Act (HR 3149) is the right way to go. Let’s not deny jobs on factors that have nothing to do with potential work performance, especially when those factors could be mistaken and consumers face a nightmare on credit street trying to get the mistakes fixed.”

U.S. PIRG Statement Supporting
“Equal Employment for All Act of 2009,” HR 3149, by Rep. Steve Cohen (D-TN)

By Edmund Mierzwinski, Consumer Program Director
News Conference, Wednesday, 29 July 2009

“PIRG’s “Mistakes Do Happen” reports on credit bureau errors have documented that one-quarter to one-third of credit bureau reports contain errors serious enough to deny credit or employment. Then, there’s the Kafkaesque complaint dispute process. And, many industry observers call our error findings conservative.

In my ongoing review of credit reporting practices since the 1970 Fair Credit Reporting Act I have yet to determine why Congress allowed credit reports to be used for employment purposes in the first place.

With so many mistakes in reports, and such a tough job market out there, it makes even less sense.

Rep. Steve Cohen’s Equal Employment for All Act is the right way to go. Let’s not deny jobs on factors that have nothing to do with potential work performance, especially when those factors could be mistaken and consumers face a nightmare on credit street trying to get the mistakes fixed.”

-30-

Chairman Barney Frank (D-MA) of the House Financial Services Committee has announced that committee consideration of the Obama financial reform plan's centerpiece Consumer Financial Protection Agency will be delayed from next week until September. (The Hill newspaper; Wall Street Journal.) Previous blog-- big banks want "to kill" it. More from Huffington Post today on Elizabeth Warren's efforts to promote the needed agency.

... to believe that the financial industry is for any reform at all that affects their failed industry. The head of the Financial Services Roundtable, Steve Bartlett, in today's New York Times story Lobbies Adopt Tone of Accord With President:

“We have sort of a dual goal,” Mr. Bartlett said. “One is to support comprehensive reform, and the other is to kill the consumer financial protection commission.”

I've always thought that the guys running Goldman Sachs were really smart -- Clearly, I overestimated them. [...] Goldman, flush with cash and profits, is squabbling with the Treasury about how much it should pay taxpayers to buy back the stock-purchase warrants it gave the government as part of the TARP deal last fall.

Sloan goes on to say, it wasn't just the TARP money directly to Goldman, it was also the AIG TARP bailout pass-through to Goldman and making Goldman a bank holding company, thereby opening the Fed's taps, and, as Sloan goes on to say, Goldman was helped even more than that:

Rather, I'm talking about the way that U.S. and foreign governments -- in other words, taxpayers -- saved the world's financial system, saving Goldman in the process.

How do we know whether Goldman and others also received billions more from the Federal Reserve, with no strings attached, right after they paid back their TARP funds? We don’t. As a matter of fact, we don’t know the names of virtually any of the big banks that got more than $2.2 trillion in taxpayer assistance from the Fed, because Chairman Ben Bernanke won’t tell us. He’s more interested in protecting bankers than taxpayers. That is wrong. The Federal Reserve has got to understand that this money does not belong to it; the money belongs to the American people.

In today's New York Times, the editorial Sharks Circle in Congress warns that it isn't just the bank sharks opposing the bill that the president has to worry about.

But there are other sharks in the water. The administration must also fend off federal regulators, who far too often have placed the bankers’ interests first and consumer protection second and want to preserve the status quo.[...]Federal regulators did more than fail to protect consumers from predatory mortgages and usurious credit card rates. They also made the financial suffering worse by invalidating state fair-lending laws that might have shielded millions of people.

Update: Pam Martens has an extensive story on arbitration in CounterPunch: Judicial Apartheid: Heralded by the Supreme Court as Fair, Vast Private Judicial System Exposed as Fraud.

In a major victory for aggrieved consumers, the arbitration mill known as the National Arbitration Forum has capitulated and settled with the Minnesota Attorney General. In a story first broken today by Business Week and reported also by the Associated Press and Minnesota Star Tribune, Minnesota Attorney General Lori Swanson has brought the arbitration mill known as the National Arbitration Forum to heel. According to her lawsuit last week, the firm had contracted with credit card companies, debt collectors and others in deceptive ways to abuse consumers, some of whom may not have even owed debts, according to previous studies. From Business Week:

After coming under increasing fire for bias towards major credit-card companies, the nation’s largest arbitration firm involved in adjudicating delinquent credit-card debt has agreed to pull out of the business, Minnesota Attorney General Lori Swanson disclosed on Sunday, July 19.

At a news conference this afternoon in St. Paul, Swanson said that National Arbitration Forum was owned by a New York hedge fund that also ran a debt collection agency and that the company was involved in more than 200,000 arbitration proceedings each year.

"The playing field is tilted against the consumer toward the company," Swanson said.

According to Swanson's office, the company's sales pitch to credit card companies included these lines: "The customer does not know what to expect from arbitration and is more wiling to pay. They ask you to explain what arbitration is, then basically hand you the money."

Professor Elizabeth Warren, who first proposed the idea of the Consumer Financial Protection Agency, has made a new Youtube video on the need for the agency. Over at Business Week, she also has an oped explaining why Consumers Need a Credit Watchdog. We were both interviewed for a CNN story yesterday -- I haven't found the video but the story is available: New consumer protection agency meets resistance. Excerpt:

However, the proposed agency is running into some resistance from the financial services industry. According to one of the industry's top lobbyists, stopping the agency is "our No. 1 priority."

Yesterday's two hearings on the Consumer Financial Protection Agency went well. Joined by several other witnesses who are also members of Americans for Financial Reform at a House Financial Services full committee hearing (previous blog links to event), we pushed back hard against the claims of industry witnesses the day before. My AFR colleagues were Travis Plunkett of CFA, Janet Murguía of National Council of La Raza, Nancy Zirkin of Leadership Conference on Civil Rights, and John Taylor of National Community Reinvestment Coalition (all testimony and video archive). In the afternoon, the FSC subcommittee on the Fed also held a hearing on the reform package, featuring AFR colleagues Lauren Saunders of the National Consumer Law Center and Jim Carr of the National Community Reinvestment Coalition, along with Professor Patricia McCoy of UConn Law School, one of the nation's leading experts on bank agency law. Brady Dennis of the Washington Post has a good recap of the week's events and the growing clash over the whether the world's biggest economic collapse since 1929 warrants real reform. Over at Business Week, Professor Elizabeth Warren, the CFPA's chief proponent, has an oped explaining why Consumers Need a Credit Watchdog.

Meanwhile, as Goldman has recorded a return to massive profitability and massive bonuses (LA Times) due to a TARP assist, WashPo biz columnist Steven Pearlstein has yet another trenchant analysis of Wall Street pay: "The real problem with Wall Street pay is that these firms simply make too much money relative to the economic value they create." In the good news department, the WSJ reports (pd. subs. may be req'd) that at another FSC hearing today on the reform package, the securities lobby known as SIFMA will back heightened fiduciary duty requirements on broker-dealers. It's an important investor protection reform also in the Obama package. After they testify, we'll comment on whether they really and truly back it. Our release on yesterday's hearing.

We testify today at a hearing of the House Financial Services Committee on the Obama financial regulatory reform plan (my own testimony). Yesterday, a phalanx of bank lobbyists testified as well. Apparently, there wasn't enough room at the table, because bank lawyer-lobbyist Ollie Ireland is joining consumer and community advocates as yet another industry witness today. While the hearings are on the full Obama plan -- safety and soundness, derivatives reform, the Fed, investor protection, etc. -- the banks have aimed the full might of their campaign-cash fueled lobby against the plan centerpiece: establishing a PIRG-backed Consumer Financial Protection Agency. Chairman Barney Frank (D-MA) has announced a committee vote on the agency for the end of the month. My colleague Travis Plunkett of the Consumer Federation of America, who joins me today as a witness, represented consumer groups and Americans for Financial Reform Tuesday at a Senate Banking Committee hearing on the consumer agency. The Washington Post on banker opposition at yesterday's House hearing, the Politico on the fight over reform and Bob Herbert's column Chutzpah on Steroids in the New York Times. Excerpt from Herbert:

What is up with the banks and the rest of the financial industry? The people running this system remind me of gangsters who manage to walk out of the courthouse with a suspended sentence and can’t wait to get back to their nefarious activities.[...]Now the industry is fighting against creation of an agency that would protect taxpayers and ordinary consumers from a similarly devastating onslaught in the future. And at the same time they are scrambling to raise credit card interest rates and all manner of exploitive fees to build a brand new superstructure of questionable profits on the backs of the taxpayers who came to their rescue.

Every day, I get a new complaint or read a new story (Nancy Trejos in the Washington Post) about yet another credit card company practice designed to extract fees or larger payments from consumers, many of whom had never been late or over the limit to any creditor. Perhaps the most draconian is Chase raising its minimum payment for many customers from 2% to 5%, with no negotiation apparently allowed. (Eileen Ambrose reports on Chase in the Baltimore Sun.) Could Chase have done this gradually, in a stepped or tiered manner, over time? Sure. But they don't have to care, they're a bank. Some of these tactics may be justified by the souring economy, but how many are just plain unfair? How many are attempts to extend unfair practices until many are prohibited when the new credit card law takes effect next year? Over at his Red Tape Chronicles, MSNBC's Bob Sullivan has a long post with well over 1200 comments, some from people who say "why debt?" but many from outraged consumers. Columnist Henry Unger at the Atlanta Constitution has posts from his enraged readers. Over at the U.S. Senate, Chuck Schumer (D-NY) has asked the Fed to put a lid on rate increases (Hartford Courant).

In her story today, Banks' 'courtesy' loans at soaring rates irk consumers, Kathy Chu of USA Today uses leaked internal industry memos and consultant white papers to explain the way banks and credit unions have become addicted to overdraft fee revenue and how feeding their addiction requires deceiving their customers and manipulating their transactions to increase fee income. It's a great story with lots of detail, including this:

Scott Talbott, chief lobbyist for the Financial Services Roundtable, representing large banks, says it's "unfortunate that low- and moderate-income Americans find themselves (using) overdraft services more often."

As I first read in the Knowledge Ecology International blog, Pope Benedict's new Encyclical Letter has some bold language on growing economic "inequalities."

"In rich countries, new sectors of society are succumbing to poverty and new forms of poverty are emerging. In poorer areas some groups enjoy a sort of “superdevelopment” of a wasteful and consumerist kind which forms an unacceptable contrast with the ongoing situations of dehumanizing deprivation."

On the part of rich countries there is excessive zeal for protecting knowledge through an unduly rigid assertion of the right to intellectual property, especially in the field of health care.

As first reported by Amol Sharma of the Wall Street Journal (pd. sub. may be req'd), the US Department of Justice is investigating AT&T and Verizon -- the not-so-Baby Bells, now known as "telcos" -- as well as airline alliances, the drug industry's "pay-to-delay-generics" deals and Google. Over at Public Knowledge, Harold Feld has an excellent blog explaining the welcome implications of the new leadership at DOJ antitrust re-examining and updating some tired old economic "orthodoxy" that served big firms well, but competition and the public interest, not so much. From Harold's blog, referring to the telco investigation:

The concept of network effect not even formally defined until 1985 [...] has increasingly shaped economic study as networks have become ubiquitous and the power of network effects and switching costs to lock in customers and enhance market power have increased exponentially. [...] Empirical evidence all points to the ability to raise prices and shut out competitors with market share significantly lower than that considered highly concentrated by HHI [a measure of market power developed before 1985 and heavily relied on by DOJ] standards. But whereas the previous generation dismissed such contradictions with approved University of Chicago orthodoxy with the same vigor as the Catholic Church suppressing Copernicus in favor of Ptolemy, the new generation applies a different framework.

Back when the Clintons proposed health care reform in 1993, the health insurance industry helped crush it with a PR campaign based on a massive TV ad campaign featuring a special-interest oriented actor-couple attempting to pass as average consumers and whining about the government. Unfortunately, because the industry had so much money, they did pass as average consumers. The ploy worked in killing the health care plan. Now, after several days of reading whining comments from bank lobbyists about the proposed new Consumer Financial Protection Agency, it appears that the banks -- another industry that has failed us but still has a lot of money, that money buoyed by its taxpayer contributions from the TARP -- is thinking about bringing back Harry and Louise to kill the proposed Consumer Financial Protection Agency. First, here's a typical whining comment, this one from Scott Talbott of the Financial Services Roundtable (Washington Post):

"If you argue against the agency, then you could be incorrectly painted as arguing against consumer protection," said Scott Talbot, senior vice president of government affairs at the Financial Services Roundtable.

Financial industry and other business groups are considering running "Harry and Louise"-style ads to sway public opinion against the Obama administration's proposed Consumer Financial Products Agency. The original Harry and Louise television spot, financed by the insurance industry, helped defeat the Clinton health plan in the early 1990s. In the commercial, a middle-class married couple laments they are worse off under the new health-care regime, describing it as a bureaucratic nightmare.

UPDATE: Excerpt from CQ Midday Update: Despite industry objections, the proposal to create the agency – in one form or another – will almost certainly make its way into the final overhaul bill in both chambers. Barney Frank , D-Mass., and Sen. Christopher J. Dodd ., D-Conn., the chairmen of the banking committees in the House and Senate, have both announced their support for the idea. “It’s going to happen,” Frank said last week. “You all keep writing about it like this is some kind of issue. It’s not. It’s going to happen.”

We're reading it now. Here is the 152 page CFPA draft and here is an amendment to the FTC Act. More at financialstability.gov

UPDATE: Reuters on the launch.

As reported by the Associated Press and the LA Times, we will be participating in a campaign that SEIU is launching today to help whistle-blower workers protest their incentive-based participation in programs designed to put consumers into the worst accounts, extra accounts and over-priced loans and mortgages. From Daniel Wagner's AP story:

"One of the core parts of the economic collapse is a business model that encourages too much risk or short-term profit over long-term stability," said Stephen Lerner, who runs the financial reform project for the Service Employees International Union, which is coordinating the effort. Lerner said employees under pressure to sell high-fee products ended up targeting vulnerable populations, including students and the elderly.

Gabby Ornelas, a former teller at the giant Bank of America Corp., remembers the training sessions. And she remembers her marching orders: "Sell, sell, sell." Ornelas was instructed to use her Spanish language skills and Latina heritage to sign up customers for as many kinds of banking services as possible, she said -- services that led to lucrative fees for the bank and financial entanglement for many customers. [...] Ornelas and three other former BofA tellers, all Latina women, said they and their co-workers were repeatedly instructed to seek potential new Spanish-speaking customers outside the bank. Some were instructed to go to embassies where recent emigres often wait in queue for visa and passport services.

Although BofA denies wrongdoing, it recently paid $35 million to settle a class-action suit in California that alleged it deliberately ranked customer debits by order of size rather than by the time of day they occurred in order to maximize overdraft charges. [...] "Bank of America has moved to the top of the charts for fees being charged to consumers by big banks," said Jean Ann Fox, director of financial services for the Consumer Federation of America.

We expect to see legislative language from the Treasury Department implementing President Obama's proposal for a Consumer Financial Protection Agency (CFPA) sent to the hill, probably Monday. Following Wednesday's House Financial Services hearing on the proposed CFPA (watch video, download testimony), the fight is just getting started. Industry groups have staked out their position: they strongly oppose an agency to protect consumers. They like the current system. But that system failed, the last I checked. But the bankers like it because they dominate its captured regulators. As the American Bankers Association's Ed Yingling testified as he sat right next to me: "We believe that a separate consumer regulator should not be enacted…." Further, the U.S. Chamber of Commerce will oppose a standalone agency "that cannibalizes regulatory expertise, adding yet another regulatory layer." (AP) The Chamber has also launched a $100 million campaign against “mounting government regulations:” (National Journal). Even the Wall Street lobby group (Securities Industry and Financial Markets Association-SIFMA) whose members’ excesses and greed exacerbated the collapse has a new campaign on ‘Populist Overreaction’ (Bloomberg).

The New York Times, in its editorial today On the Road to Regulation, points out that a key test of the new CFPA legislation will be whether it gives consumers the right to enforce the banking laws, too.

"Lawmakers will also have to ensure that the administration’s very good idea (link to previous editorial) for a consumer financial-products safety commission translates into a truly robust agency. One sign that is happening would be for the law to include a right for consumers to sue firms that violate certain doctrines established by the new agency."

After the jump, I have a lot more commentary plus links to news stories on what will be a critical reform battle between the banking lobby that failed our economy and the people and groups trying to ensure that it won't happen again.

That Times editorial On the Road to Regulation goes on to critique other parts of the Obama reform proposal, including its failure to democratize the Fed. Our coalition, Americans for Financial Reform, has made similar critiques. We look forward to working with the White House and the Congress to broaden and strengthen the proposals. We expect that the financial industry, whose excesses and greed led to the world's biggest economic collapse since 1929, will use its network of political connections and continued massive campaign contributions to oppose sensible improvements to and even attempt to weaken the Obama plan. As we told Business Week for their aptly titled story this weekend Financial Regulation: Industry Objections Increasing--Obama's plan for financial reform has sparked a growing chorus of protest from banks, hedge funds, and other interests, part of the industry's strategy is to "blame it on the other guy—they're hoping to water down reform, deflect criticism of their industry." Another way to look at what they are doing is this: invoking the Bart Simpson (video) defense: "I didn't do it, no one saw me do it, there's no way you can prove anything! Of course, the banks did do it, everyone saw them do it, and we can prove it." But, on Capitol Hill, "blame the other guy" works well to confuse and delay needed reforms.

There is plenty of coverage of the fight over the CFPA. Kevin Hall for the McClatchey papers Debate joined over new Consumer Financial Protection Agency:

In sometimes-testy exchanges, [Professor Elizabeth] Warren fought off suggestions by several Republican lawmakers that a new entity isn't needed, just new powers for existing regulators. "Congressman, that sounds like a good plan but that's what we have been doing for the last 70 years, and it hasn't worked very well," Warren responded.

Financial services companies are coming up with cash nobody knew they had to fight the proposal, which would put hidden credit card fees on a par with faulty bike helmets and flammable pajamas.

Denial, noun: An unconscious defense mechanism characterized by refusal to acknowledge painful realities, thoughts or feelings. The banking industry wasted no time declaring its opposition to President Barack Obama's recent proposal for a regulatory agency that would protect consumers from rapacious lending practices.

U.S. banks are fighting the Obama administration plan to create a consumer agency for financial services as they seek to protect fees, such as credit-card penalties that have almost doubled to $19 billion in five years.

Rep. Scott Garrett (R-N.J.) called the proposal an example of an "Orwellian, heavy-handed, government-knows-best mentality," and [Rep. Jeb] Hensarling [R-TX] said the new regulators would rule as "un-elected philosopher kings" over the financial services industry. Edward L. Yingling, president of the American Bankers Assn., also opposed the plan.

The chairman of the House Financial Services Committee, Barney Frank, scoffed yesterday at assertions that a new consumer protection agency would morph into “some out-of-control entity. There is no pattern of overregulation I can see in the consumer area, and I don’t see one here,’’

“Wall Street’s largest trade group has started a campaign to counter the “populist” backlash against bankers, enlisting two former aides to Treasury Secretary Henry Paulson to spearhead the effort.”

The best part of the plan is the creation of a Consumer Financial Protection Agency that would limit or forbid many of the worst bank practices still allowed under law. That includes excessive and surprise overdraft fees and outrageous credit card interest rates.

Over the past decade, federal bank regulators looked the other way as responsible loans were crowded out of the market by aggressively marketed financial products carrying hidden costs and fees. Tricky products, whose most “innovative” feature was their ability to obscure their true cost, led a race to the bottom that stifled innovation of any benefit to consumers. The aggressive marketing of these products caused an enormous loss of wealth across the middle class and sparked the current economic crisis.

Bank of America this year raised the maximum number of times customers can get hit with overdraft fees from five a day to 10. On top of that, it began charging a one-time fee of $35 if the account remains in the negative for more than five days. The bank also raised the monthly fee on My Access checking accounts to $8.95 from $5.95.

She added that in some cases, the bank changes have favored consumers. For instance, she said, the bank reduced the overdraft fee to $10 an item if overdrafts in a day total $5 or less.

Finally, this Huffington Post blog reports on an excellent exchange of views between Rep. Donald Manzullo (R-IL) and me, and fellow witnesses Elizabeth Warren and Ellen Seidman, during Wednesday's hearing. I think most Congressional witnesses would join me in saying that we enjoy engaging with the members. It's a lot more interesting than when a member uses most of his or her 5 minutes in a long statement with no real question involved.

Kudos to Florida's Republican governor Charlie Crist who, unlike his legislature, stood up to the powerful insurance lobby and just vetoed an outrageous legislative giveaway to the biggest property insurance companies. Here is Florida PIRG legislative advocate Brad Ashwell's statement praising the veto. (Previous blog has link to Brad's op-ed explaining the issue.) Florida Sun-Sentinel:

Although the legislation (HB 1171) was called the "consumer choice" bill, it actually would have allowed about 40 of the largest property insurers to start charging virtually any price they want for policies with hurricane coverage, and to bypass regulations the state imposes on other companies.

Thanks to Maria Lewytzkyj and her Examiner.com blog entry Economic Crisis 2009 for some coverage of the Consumer Financial Product Safety Commission you know I mean-- Consumer Financial Protection Agency -- the new name. She quotes Peter Eavis of the Wall Street Journal Heard on the Street column (pd. subs. may be req'd.):

[that bank opponents are gearing up against the CFPA because] many banks earn “fat profit margins from products where borrowers aren’t made clearly aware of a loan’s potential costs. And some bank marketing is designed to attract borrowers likely to pay high fees for being behind on payments or over-limit.” He also suggests that banks will fight against the oversight and anything that will put them at a disadvantage to large foreign financial companies.

Over at the White House blog, you can watch a video of President Obama talking about why he intends to fight for passage of the Consumer Financial Protection Agency. The video was filmed during his regular Saturday radio address. The President challenged the special interest opponents of reform to a fair debate (AP via Yahoo):

"I welcome a debate about how we can make sure our regulations work for businesses and consumers," Obama said. "But what I will not accept — what I will vigorously oppose — are those who do not argue in good faith." By that, Obama said, he meant those who defend the status quo at any cost. He didn't name any people or organizations, but said special interests are already mobilizing to fight change. He called that typical Washington. "These are the interests that have benefited from a system which allowed ordinary Americans to be exploited," Obama said. The president said he would stand up for his plans, saying: "While I'm not spoiling for a fight, I'm ready for one. The most important thing we can do to put this era of irresponsibility in the past is to take responsibility now."

"These interests argue against reform even as millions of people are facing the consequences of this crisis in their own lives. These interests defend business-as-usual even though we know that it was business-as-usual that allowed this crisis to take place."

The administration, in testimony before the House and Senate by Treasury Secretary Tim Geithner and perhaps a statement by President Obama, will announce the next phase of Wall Street reforms Wednesday. Among other actions, we expect that the administration will embrace a strong Financial Product Safety Commission to regulate all consumer financial products, but the devil is in the details.

Some interesting traffic on the announcement: Over at his blog, The Baseline Scenario, MIT professor Simon Johnson has a piece Today’s Foundation, Tomorrow’s Crisis: The Geithner-Summers Proposals ripping yesterday's Washington Post oped floating the framework for Wednesday's proposals. The oped, A New Financial Foundation , was written by NEC Chair Larry Summers and Geithner. Meanwhile, in his Newsweek story The Insurgents: The Secret Battle To Save Capitalism reporter Michael Hirsh describes efforts by Sens. Maria Cantwell (D-WA), Bernie Sanders (I-VT) and other Senators -- joined by Nobelists Paul Krugman and Joe Stiglitz -- to put greater pressure on the President and his team to do the right thing. The Senators are concerned that the president's team leaders -- Geithner, Summers and Gary Gensler -- had all been part of the deregulatory efforts of the 90s that led to today's crisis.

The Washington Post, in a story on Senate Banking Chairman Chris Dodd's (D-CT) endorsement of the PIRG-backed Financial Product Safety Commission, has this coda:

...regulators and industry representatives have quietly started to make the case that a new agency would be even less effective at protecting consumers and that strengthening the role of the existing agencies is a better approach.

You see, actually, consumers don't need their own regulator to protect them, we have the market; banks don't need pay caps; risk doesn't need to be controlled; customized and innovative products shouldn't be under the thumb of the regulators; we don't all need skin in the game; it was the government's fault, not ours; etc., etc.

We'll need the American people's continued vigilance to help us keep this nonsense at a low hum. Previous blog: Dean of financial columnists, Jane Bryant Quinn, on the Financial Product Safety Commission.

Faced with the smoking gun of an inventory of 2 million Sarge, Barbie and other imported toys with their brands on them -- all in violation of a 30 year old federal lead paint ban -- Mattel and its subsidiary Fisher Price have agreed to a $2.3 million settlement with the CPSC that they broke the law. But the companies continue to refuse to admit that finding 2 million toys -- produced in several lots and a variety of types -- constitutes a "knowing" violation. It's the third highest settlement by the CPSC ever and a good start for the post-Nord era.

The Arizona Star has the latest of a series of excellent watchdog, government and newspaper exposes describing the ongoing and longstanding failure of nursing homes to treat the most frail senior citizens like human beings. The story Arizona fails to protect nursing home residents details horrific conditions in many homes, which it attributes primarily to lax state and local enforcement and to the use of forced arbitration clauses (also see the Arbitration Fairness Now website) to prevent litigation against the firms. Other stories have also pointed out that massive multi-state nursing home behemoths use a web of shell corporations to make it harder to hold owners accountable.

The new credit card law signed Friday in the Rose Garden by the President includes some hidden gems. I understand Sen. Carl Levin (D-MI), chairman of the Permanent Subcommittee on Investigations, deserves credit for Section 205 of the law, which brings freecreditreport.com under clear FTC rulemaking authority. The provision will require, in nine months, that any radio or TV ad for this over-priced subscription credit monitoring product or similar product will have to include the following words: "This is not the free credit report provided for by Federal law."

Under the Bush administration FTC, Experian paid some nickels and dimes in civil penalties for deceptively marketing freecreditreport.com (previous blog), but a poorly written consent decree allowed it to continue to extract millions of dollars from the pockets of hardworking American consumers who thought they were getting the free credit report provided by law, which is available from each of three bureaus at the government-mandated site annualcreditreport.com. Instead, freecreditreport.com used the threat of IDENTITY THEFT! or a LOW CREDIT SCORE! to seduce consumers into signing up for an over-priced credit monitoring service with a very shabby short-term opt-out-- if you didn't cancel in a week or ten days, you found out you'd signed up for a $12-15/month product you didn't need. The FTC rulemaking on this must strive to limit the deceptive use of the word "free" in circumstances other than the marketing of credit reports. More on free reports and also Senator Levin after the jump.

Consumers in several states are also entitled to a separate, second additional annual free credit report under state law, by calling each of the three bureaus (Experian, Trans Union and Equifax) directly. Those states are Colorado, Georgia, Massachusetts, Maryland, Maine, New Jersey and Vermont. Here is a good FTC page explaining your free credit report rights, and for those who don't like putting personal data on the Internet, explaining how to get reports under federal law by mail or phone.

The bureaus hate the state laws, so you'll have to listen carefully to their voicemail pick lists to find out how to order your free reports if you live in one of those free report states. Be persistent and complain to your state Attorney General if you think that it is warranted.

Senator Levin also deserves credit for his early hearings featuring consumer victims. Those hearings helped tell the story of unfair credit card company practices. Who could forget the testimony of Wesley Wannemacher, who went just $100 over a $3000 limit, paid Chase Bank that full principal back plus over $3000 more in interest and fees, and still owed Chase $4000 more? (Previous blog.)

A lot of the reporting this week has picked up on industry threats to raise fees and interest on "good" customers and convenience users. Some of that reporting has been lame. It's accepted industry PR spin as facts and missed a lot. First, of course, why did Congress pass a law? Because the banks were acting like corporate criminals. The new law makes illegal unfair practices that cheated people and tricked many "good" customers into becoming "bad" late pays through no fault of their own, which resulted in them paying higher fees and interest to feed the industry's profit maw. Losing income from cheating some people doesn't justify gouging others. Congress will be watching. Second, some of the lost cheating income will be offset by changes in practices, not increases in fees. Banks, for example, may send out fewer solicitations and issue fewer rewards.

Fortunately, there is plenty of thoughtful reporting and blogging out there. Check out today's syndicated column Revealing the Hidden Cost Of Credit Cards by the Washington Post's Michelle Singletary and Credit Card Reform Was a Long Time Coming by Jeff Gelles of the Philly Inquirer. Also see Debb Thorne's blog entry over at Credit Slips.

No, we don't just work on credit card reform! We work to protect taxpayers, too (among other things). On Friday, in addition to the credit card bill, the President also signed PIRG-backed legislation to reform the Pentagon weapons purchasing system (PIRG statement). Also, yesterday's New York Times has a story Turning the Infrastructure Into Profits about the growing international interest in investing in public infrastructure, from roads and bridges to sewage plants. The story also points out that many consultants and developers and their frontmen are taking advantage of government "budgetary constraints" to push, for example, lucrative (to them) toll road privatization deals. As the story notes, U.S. PIRG has been concerned that in most deals we've seen, the risks still accrue to the public, while the private sector takes all the cash.

At the end of last year, there were 15 roads in 10 states in private hands, according to a recent report by the Public Interest Research Group Education Fund, and an additional 79 roads in 25 states are under consideration for some form of privatization.

Grimm analyzes the failed deal opposed by most Floridians and then closes:

But would-be bidders couldn't finagle a loan for the up-front cash. It says something about the state of the global credit market when big-time corporations can't borrow $500 million to consummate highway robbery.

If only I had known. It could have been me cheating Floridians out of their toll road. I could be peddling the naming rights (think Land Shark Alley), jamming billboards along the berm, charging roadside fishermen hooking fees and cutting a deal with the Seminoles to install drive-through slot machines along the Alley.

Think of the phat lifestyle I could have squeezed out of a public highway. And, as the lease holder, I'd naturally expect first dibs on road kill.

Over at Work Forward, the blog of the National Community Tax Coalition, Mike Evangelist reports that predatory payday lenders are paying bloggers to promote online payday lending. Arthur Delaney first broke the story as Army Of Paid Bloggers Suddenly Promoting Online Payday Loans over at HuffPo.

State attorneys general have long led the fight against payday lenders and are leading new actions against the variant making loans online that are harder to track and harder to hold accountable. For the scoop on payday loans, go to the Consumer Federation of America's paydayloaninfo.org. In HuffPo, Arthur notes that the FTC is considering rules to require paid "bloggers" to disclose that they are shills, not journalists. Good idea.

After the House passed the Credit Card Bill of Rights today on a 361-64 vote, it is on its way to the President. The House separated a controversial unrelated "guns in national parks" provision before it voted; only 279 members voted for the gun provision, then the two were combined to ensure that the bill that went to the President was identical the Senate-passed (90-5) bill. Last night, CNN's Anderson Cooper had me on his show AC360 talking about the bill.

Here's a Fox story based on a Wall Street Journal story Banks Use Life Insurance to Fund Bonuses (pd. subs. may be req'd.) on how big banks are using a tax and accounting dodge to boost already excessive executive bonuses. Businesses are often required by their creditors to take out what was once called "key man" insurance against the death of a principal. This devolved into something called "janitor's" or "dead peasant" insurance, where companies figured out how to take out insurance on all their employees. The catch: the beneficiary is the company, not the low-level employee's family, although some banks are offering some small part of the payout to get employees to sign up and help their bosses make enough money for the house in the Hamptons and the boat. As the WSJ reports:

Banks are using a little-known tactic to help pay bonuses, deferred pay and pensions they owe executives: They're holding life-insurance policies on hundreds of thousands of their workers, with themselves as the beneficiaries. Banks took out much of this life insurance during the mortgage bubble, when executives' pay -- and the IOUs for their deferred compensation -- surged, and banking regulators affirmed the use of life insurance as a way to finance executive pay and benefits.[...]

I'm scheduled to appear on CNN Anderson Cooper Show, aka AC360, tonight around 10:20ish re credit cards. Meanwhile, the Washington Post website is reporting tonight (lead story) that NEC head Larry Summers and Treasury Secretary Tim Geithner are working late at the Treasury and having "dinner" -- probably pizza? --talking about the Financial Product Safety Commission first proposed by Professor Elizabeth Warren. We support it.

Despite the impetus provided by President Obama's New Mexico town hall meeting on credit card reform today, the Senate was unable to finish action on the Credit Card Act (previous blog). A procedural vote that should clear the decks for final passage the same day will take place early Tuesday. At his remarks in New Mexico, the president said "Enough is enough" and that he wants a bill on his desk by Memorial Day. From President Obama:

But these practices, they've only grown worse in the midst of this recession, when hardworking Americans can afford them least. Now fees silently appear. Payment deadlines suddenly move. Millions of cardholders have seen their interest rates jump in the past six months. You should not have to worry that when you sign up for a credit card, you're signing away all your rights. You shouldn't need a magnifying glass or a law degree to read the fine print that sometimes don't even appear to be written in English -- or Spanish. (Applause.) And frankly, when you're trying to navigate your way through this economy, you shouldn't feel like you're getting ripped off by "any time, any reason" rate hikes, and payment deadlines that seem to move around every month. That happen to anybody? You think you're supposed to pay it this day, and suddenly -- and it's never on the end of the month where you're paying all the rest of your bills, right? It's like on the 19th. (Laughter.) All kinds of harsh penalties and fees that you never knew about.

The Michigan Supreme Court has ruled for consumers in a case between PIRG in Michigan (PIRGIM news release) and the Detroit Edison Company. The court's decision rejected the power monopolist's request for a $65 annual million rate increase over 40 years, ultimately saving Michiganders $2.6 Billion in foregone increased rates. The Michigan Environmental Council and the Attorney General fought the case as co-appellants alongside PIRGIM.

“This decision is an important win for Michigan ratepayers,” said Kara Rumsey, Public Interest Advocate for the Public Interest Research Group in Michigan (PIRGIM). “Detroit Edison cannot be allowed to pass hundreds of millions of dollars in unreasonable and unjustified costs on to consumers. At a time when many Michiganders are struggling to pay their bills, utility companies must be held to their responsibility to provide electric and gas service at reasonable rates.”