Press Releases

WEEK IN REVIEW


 

Washington, May 20, 2016 -

Examining the CFPB’s Newest Rule to Hurt Consumers

It would be difficult to find a consumer willing to pay more and wait longer only to receive a worse result.  But that’s what passes for consumer protection at the CFPB with its proposed rule to outlaw arbitration.

On Wednesday, the Subcommittee on Financial Institutions and Consumer Credit held a hearing to review the Bureau’s proposed rule requiring financial companies to scrap arbitration contracts.  Witnesses testified that the result would be more class actions, higher costs for consumers and reduced access to credit and new products or services.

During the hearing, Subcommittee Chairman Randy Neugebauer (R-TX) noted that compared to class actions, “arbitration produces a significantly higher recovery for individual consumers and has a shorter resolution timeline for recovery…I fear a single, unelected bureaucrat has directed agency action that is arbitrary and capricious.”

One of the witnesses testified that class action suits can take up to two years to yield an average settlement of only $32, according to The Hill’s coverage of the hearing.

In its coverage of the hearing, the American Banker reported that other witnesses argued the Bureau’s proposed rule would help plaintiffs lawyers far more than consumers.  “We’re running the system just to transfer money from defendants to class action lawyers,” said Jason Johnston, a professor at the University of Virginia School of Law.

Professor Johnson testified his research shows “attorney fees are rarely less than 75 percent of the total amount paid to the class and often are equal to three or four times that amount paid to the class. This finding indicates that class action settlements are an extremely costly and inefficient way of getting money to class members. To see how inefficient, one needs only to ask the question: ‘Who would pay their lawyer three times the amount that they themselves actually recovered?’”

Democrats Flip-Flop on ‘Paying Banks Not to Lend’

The Federal Reserve may be distorting investment decisions and weakening the economy’s performance by paying its member banks above-market interest on reserves, several witnesses told the Monetary Policy and Trade Subcommittee at a hearing on Tuesday.

Such distortions may be diverting capital even further away from its most productive uses, thus widening the economy’s output gap, and putting the orderly conduct of monetary policy at risk.

“We will not fully realize robust economic growth until the Fed improves the conduct of its monetary policy,” said Subcommittee Chairman Bill Huizenga (R-MI).  “Six years have passed since the recession ended and U.S. economic opportunity remains well short of its potential. The Fed must be accountable to the people’s representatives as well as to the hardworking taxpayers themselves.”

The Fed Oversight Reform and Modernization (FORM) Act – passed by the House in November – would provide for a rules-based approach to monetary policy and help households and businesses to make better economic decisions.

Democrats at the hearing “abruptly reversed course,” according to the American Banker, and now support the Fed’s ability to pay interest on banks’ excess reserves.  Just three months ago, the Washington Examiner noted, several Democrats joined Republicans on the committee “in raising alarms” about the Fed’s plan to effectively pay banks not to lend and saying the Fed was effectively “subsidizing the banks.”

“While Democrats on Tuesday changed their tune, Republicans did not,” the American Banker reported.

Subcommittee Investigates How Administration Steered Half a Billion Dollars From Victims to Liberal Groups

The Department of Justice and the Department of Housing and Urban Development are subverting Congress by funneling bank settlement funds to third parties, including liberal activist groups, members of the Oversight and Investigations Subcommittee said at a hearing on Thursday.

“Since last year, this committee has been investigating the Obama Administration’s use of bank settlement agreements as a slush fund to support liberal activist groups. Today’s hearing examines this practice and its impact on Congress’s power of the purse,” Subcommittee Chairman Sean Duffy (R-WI) said.

By allowing liberal activists groups to receive and then distribute these settlement funds, the Administration basically created a slush fund for its political cronies that is not subject to congressional oversight.  Not only did settlement funds go to groups that were not harmed, the Administration incented banks to pay non-victim third parties at the expense of offering assistance to the individual homeowners that were allegedly harmed by the banks’ actions.

One of the hearing’s witnesses – Ambassador C. Boyden Gray – argued, “The question is—or at least should be—whether the agency is using settlements as a way of directing funds to projects Congress has not funded or more funds to projects for which Congress has provided limited funding…[I]t strikes me as deeply troubling from the perspective of the Appropriations Clause and Congress’ power of the purse.”

Subcommittee Discusses Legislative Proposals to Enhance Capital Formation and Regulator Accountability

The Subcommittee on Capital Markets and Government Sponsored Enterprises on Tuesday met to review three proposals designed to enhance capital formation, transparency and regulatory accountability. 

“Despite the big promises that have come with granting vast and in some cases unlimited authority to the federal bureaucracy, most Americans aren’t buying the argument that a bigger Washington leads to a bigger paycheck – or even to a paycheck at all,” Subcommittee Chairman Scott Garrett (R-NJ) said. “Fortunately, our subcommittee has for five years tried an alternative approach which seeks to empower entrepreneurs, investors, and small businesses – not bureaucrats.”

The subcommittee heard testimony on:

Member Spotlights

Rep. Tom Emmer | Emmer Celebrates Small Business Week

“The current Administration has grown government, raised taxes and imposed policies that have caused many small businesses to struggle unnecessarily. It’s crucial that in the 114th congress and the years ahead we work to reform these policies and show entrepreneurs across this country that America is open for business.”

Rep. French Hill | Congressman Calls for Regulatory Transparency at CFPB

Rep. French Hill (R-AR) said Monday the CFPB needs to do a lot more to ensure the industry understands the new TRID-compliance “Know Before Your Owe” rules before they take effect.

Weekend Must Reads

Wall Street Journal |Washington’s Arbitration Deception

 The Consumer Financial Protection Bureau claims it has discovered what’s wrong with American finance: not enough lawsuits. So it has proposed a new rule to encourage more class-action cases to be filed against banks and other financial firms.

Investor’s Business Daily |Will Gov’t Regulation Kill The Housing Market — Again?

Seemingly everyone applauds the recent surge in home prices as a positive sign for the economy. But, in fact, it isn’t. If anything, it’s a sign the federal government still hasn’t learned its lesson about excessive regulation.

Richmond Times-Dispatch |Dodd-Frank's still hurting America's small businesses

This summer, the Dodd-Frank financial legislation, the longest and most complicated bill in American history at over 22,000 pages and 27,000 regulations, marks its sixth anniversary. I’ve seen first hand its negative impacts in preventing small businesses from accessing the capital they need to form and expand.

In the News

The Hill |House panel questions legitimacy of CFPB arbitration rule

Bloomberg |Trump’s Dodd-Frank Plan Will Be Early Test of Republican Unity

The Hill |An opportunity to fix crowdfunding before it falters

Financial Times |US crowdfunding launch faces fight over rules

Washington Free Beacon | Republicans to Unveil Alternative Legislation to Repeal and Replace Dodd-Frank Act

Market Watch | Living will leak sign of bigger info security problems at FDIC, Fed

The Hill | Congress puts the Fed under a microscope

Washington Examiner | GOP: Bank settlements steered half a billion dollars to liberal groups

Washington Examiner |Key House Democrats warm to Fed payments to banks

DS News | Proposal Aims to Change CFPB’s Mission

Wall Street Journal | Lawmakers Try New Tactic to Ease Rules for Private-Equity Funds

On the Horizon

Tuesday, May 24, 2016 at 10:00 A.M.

Task Force to Investigate Terrorism Financing

“Stopping Terror Finance: A Coordinated Government Effort”

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