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In just a couple of days, the Consumer Financial Protection Bureau will celebrate its first birthday, and it's an achievement worth celebrating. Indeed, as we saw yesterday, the agency -- created by President Obama, spearheaded by Elizabeth Warren, and led by Richard Cordray -- is already doing important work on behalf of American consumers.
The nation's consumer watchdog on Wednesday delivered its first enforcement action against the financial industry, fining Capital One for pressuring and misleading more than two million credit card customers.
Capital One, one of the nation's biggest banks and credit card lenders, agreed to pay $210 million to resolve a pair of regulatory cases, the latest legal setback for the financial industry.
The Consumer Financial Protection Bureau, Wall Street's newest regulator, accused Capital One of "deceptive marketing tactics." The credit card company -- which is known for its catchy television ads, asking "what's in your wallet" -- received a regulatory rebuke for misleading card customers into buying unnecessary products like payment protection and credit monitoring, according to the consumer agency.
As part of the settlement, Capital One won't admit wrongdoing, but it will pay between $140 million and $150 million in restitution to 2 million Capital One customers, putting that money right into the pockets of those who fell victim to deceptive marketing.
CFPB Director Cordray announced, "We are putting companies on notice that these deceptive practices are against the law and will not be tolerated."
Having a watchdog protect American consumers against industry abuses and excesses may, regrettably, not last. Congressional Republicans, honoring the wishes of financial industry lobbyists, are eager to eliminate the CFPB, and if Mitt Romney is elected president, has promised to destroy the agency. (Two months ago, the Romney campaign told the Wall Street Journal that gutting the Consumer Financial Protection Bureau would be a key element of the Romney economic agenda.)
But in the meantime, the CFPB is a BFD.
In fact, my former colleagues at the Washington Monthly have a fascinating item in their new issue from John Gravois, making the case that the Consumer Financial Protection Bureau is an under-appreciated success story. Ed Kilgore summarized:
Well-designed, well-staffed, and very aggressive in its start-up efforts, the CFPB aims at changing the dynamics of the financial industry -- or at second best, exposing and therefore reducing its predatory tendencies -- by thoroughly understanding its use of behavioral economics, data-mining, and other "twenty-first century" strategies that have wreaked havoc on consumers and ultimately the U.S. economy.
The CFPB has a brilliant staff, sophisticated tools, and a noble mission. Happy Birthday, CFPB -- and when I say "many happy returns," I mean it.
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Cue the right wing talking point in 3...2...1...and go.
"Obama's onslaught of regulations are killing the economy!"
To which I say - looks to me like the Obama Administration just injected almost $150 million back into the economy, without costing taxpayers a dime.
Capital one has assets of a third of a trillion dollars.
They hardly noticed this pinprick, and they admit they did nothing wrong. Let's divide out the restitution. Oh I get it. Each person gets $70.
Well woop dee fricking do. Will Capital One think twice next time, or is the occasional fine like this simply another cost of doing business you only have to pay if you were sloppy enough to get caught?
Yes Jon,
Better to do absolutely nothing.
This agency is useless.
Let's stop trying to regulate and level that playing field.
/sarcasm off/
This is no problem for Republicans to take care of. A McConnell filibuster-less Senate will simply get rid of all these pesky Socialist programs.
Yes, clearly, an agency that can't just expropriate all of a bank's assets or drag its executives out into the street and summarily execute them is so powerless and toothless that we shouldn't even bother with it.
The restitution assessed against Capitol One represent a refund of the amounts actually taken out of the customers' wallets by the misconduct charged. Granted a mere nine digits worth of pain won't do more than irritate a behemoth like Capitol One, but it does tell them that aren't going to be allowed to keep money they steal from people anymore, which kind of removes the incentive to steal larger amounts in the future.
Oh, I see. Is it you guys' point that there is no need to:
Instead, is it your idea that it is sufficient deterrent to keep slapping them on the wrists in hope their wrists might get sore?
the 25 mil to the CFPB, where does that go? To help staff up for future cases?
I heard the breaking news on my TeeVee this morning!
But, -curiously- there was no mention in the piece of either Elizabeth Warren, or the CFPB.
Perhaps just an oversight by the producer of the show; I am sure it will be corrected later today. . .
The question here is how much Capital One made through these practices. If they have had a $210m penalty levied against them, but made $500m, then there is no incentive to stop such practices.
I see the comments about 'no incentive to stop the practices'...two things. 1) We got the money and 2) we PUBLICIZED it. If people actually care about this issue they will stop doing business with CITIBANK which will DEFINITELY get their attention.
Mego - The publicity is an issue, but the experience in other nations where fines have been handed down for these practices (Britain especially) is that the effect is to make people think "the banks rip us off" not "this specific bank ripped us off" - so it doesn't negatively affect business.
However, at least in Britain the sums repaid to customers for these kinds of things are in the hundreds or even thousands per customer - costing the banks several billion pounds. Even then, the banks made a profit on the scheme. The fact is, $70-75 dollars per customer is a joke - some customers would pay that in fees on their various cards in a month.
In addition the bank has got away with a no-fault settlement. This is NOT a win for consumers, it is a huge let-off for the bank.
And another thing... Did the CFPB tell the public the details of the grift? Or did the defenders of the public's right to know just not let them know? If one bank is doing it there is likely another and we need to know what to look out for when opening or modifying an account or we'll be taken. Pin-prick consequences will not stop banks from profitable practices of any kind in a business world that has service contracts that lock you in to contractual indenturement.
Azreal,
In Britain, they banks had to pay back what they had taken from the customers. and they were forced to pay the interest they would have charged on the customer, if they didnt pay (going upto 29% for credit card users) So it is doubtful that the banks profited. True, the US method of charging a fine does not seem fair on the customers who paid the banks thousands of dollars
Ash - You have to remember that the banks don't simply take people's money and sit on it, that money is used to make more money.
Every independent estimate made of the profit from the amounts in question has the banks massively in the black on this one.
I understand that not everyone is well informed about this kind of stuff or is a wiz when it comes to financial and credit matters, but if someone does not understand something like this on a credit card then maybe they should not have a credit card. If they do get duped into "services" like this, they may also be buying other things that they don't need or can't afford with said credit card and most likely be over-extended on what they owe. Yes it is good to have the availabilty of credit and/or credit cards, but I just think if you fall for this relatively small "fee" then you are probably the type of person that can be suckered into a predatory home mortgage.
Fines after the fact may not stop the practice. A good portion of the people will not hear about or understand this ruling/fine and many more will be "tricked" into these services. I think some kind of mandatory disclosure up front stating what the service is and whether it is really necessary (or available elsewhere cheaper or for free) is the way to go - like the recent new "disclosure" of how many months (or years) it would take to pay off your balance if you only paid the minimum. For many folks it really does have to be spelled out for them.
As long as financial contracts are so complex with wording decided between lobbyists and legislators, any mandatory disclosure will not overcome confusion by the reader over contracts that have them in contractual servitude and designed at the consumer's expense with fines large corps can absorb where contractual fines and fees owed by the consumer cannot be absorbed so easily.
What is so complex? You apply for a credit card and they tell you the interest they will charge. All these additional features come with a charge. Why is it so difficult to say no. If you don't understand finance, don't get involved with it. When are we going to stop rewarding ignorance.
I couldn't have said it better Tom. The unfortunate yet seemingly necessary part of our modern life is the concept of having instructions/regulations put in place to protect the group of people that have the lowest understanding of in some cases, rather obvious results or consequences - like "coffee in container may be hot" or "do not put body parts near the blades of the mower when in use". Granted some of those instructions are also because of the lawsuit happy mentality of the general public, but in the end we all have to see such silly things like "if you only pay the minumum payment on this $7500 balance, it will take you 32 years to pay it off". You would think that even that would be obvious when you get the bill the next month (after making that minimum payment) and it looks like the balance is almost the same. :)
Tom: The contract, whether for credit or any service, such as cable, and the corresponding law is complex and difficult to follow for most Americans. It was not written for the consumer without approval from the more business friendly legislators to assure advantage to the business making the contract. I have written financial programs from a blank page in a number of states, including compliance filings with all the statistical support required, and hashing out details with the regulators Most people don't understand the finance details of such programs that might have them make different decisions. The contract could be in a foreign language so as to further confuse people and you could still stand by your caveat-emptor of a statement "stop rewarding ignorance".
Sorry bluesmoke, still in agreement with Tom. I am an accountant and yes, even I get a little punch-drunk when I see some of the fine print. BUT, if I don't follow it....I do not get into ANY agreement. And if more folks did not sign things they do not understand , I guarantee that some firm in an industry will "simplify" and get people to sign up. How we got to this point is a bit depressing where firms do purposely try to confuse their customers. Maybe it is time for the public to just stop doing business with firms like that. And more importantly on the other hand, it is time for people to get off their asses and get a little common sense and education about a product and service that they want (which is usually the case ...a want and not a need).
So in other words, if you don't have enough money to hire a lawyer to preside over your getting credit... you shouldn't get credit.
(These banks would've never made so much money had that been the case.)
Oh for cryin' out loud. Even in Britain, nobody gets a windfall--i.e. nobody gets back more than they were cheated out of. The restitution amount Capitol One is paying is what it is because that's how much the affected customers paid.
Happy birthday, and keep fighting the good fight!
Rachel: listened to your discussion on Obama "crony capitalism". You obviously missed Wash Post fact check the other day: they awarded Romney 4 Pinnochios the other day. suggest you check it out.
"...the agency -- created by President Obama, spearheaded by Elizabeth Warren, and led by Richard Cordray -- is already doing important work on behalf of American consumers."
As such, it would seem the Happy Birthday should go directly to President Obama since he created it.... these sophisticated tools are really something... just today I got a form e-male about this from Waron's staff... (or is it really Obama's staff - I'm not sure how these tools work).