Curious Cat Investing and Economics Blog » Elizabeth Warren

Capital One Bank Agrees to Refund $150 Million to 2 Million Customers and Pay $60 Million in Fines

John Hunter — Wed, 18 Jul 2012 23:42:20 +0000

Sadly, Congress refused to allow the person that should have headed to the Consumer Financial Protection Bureau (CFPB) to do so: Elizabeth Warren. If we are lucky she will be joining congress as the new senator from Massachusetts to reduce the amount of big donnor favoritism that prevails there now. That attitude will still prevail, she will just be one voice standing against the many bought and paid for politicians we keep sending back to Washington (there are a couple now, but they are vastly outnumbered).

Even with congressional attempts to stop the CFPB from being able to enforce laws against their big donnors, the CFPB has announced their first public enforcement action: an order requiring Capital One Bank to refund approximately $140 million to two million customers and pay an additional $25 million penalty. This is a good, small step that is helping creating a rule of law instead of a rule of those capturing regulators and giving lots of cash to politicians. But it is a very small step. The system is still mainly about captured regulators and giving lots of cash to politicians.

This action results from a CFPB examination that identified deceptive marketing tactics used by Capital One’s vendors to pressure or mislead consumers into paying for add-on products such as payment protection and credit monitoring when they activated their credit cards.

“Today’s action puts $140 million back in the pockets of two million Capital One customers who were pressured or misled into buying credit card products they didn’t understand, didn’t want, or in some cases, couldn’t even use,” said CFPB Director Richard Cordray. “We are putting companies on notice that these deceptive practices are against the law and will not be tolerated.”

Consumers with low credit scores or low credit limits were offered these products by Capital One’s call-center vendors when they called to have their new credit cards activated. As part of the high-pressure tactics Capital One representatives used to sell these add-on products, consumers were:

Misled about the benefits of the products: Consumers were sometimes led to believe that the product would improve their credit scores and help them increase the credit limit on their Capital One credit card.
Deceived about the nature of the products: Consumers were not always told that buying the products was optional. In other cases, consumers were wrongly told they were required to purchase the product in order to receive full information about it, but that they could cancel the product if they were not satisfied. Many of these consumers later had difficulty canceling when they called to do so.
Misinformed about cost of the products: Consumers were sometimes led to believe that they would be enrolling in a free product rather than making a purchase.
Enrolled without their consent: Some call center vendors processed the add-on product purchases without the consumer’s consent. Consumers were then automatically billed for the product and often had trouble cancelling the product when they called to do so.

One of the less obvious costs of a poor credit rating these days is large companies see you as someone to take advantage of. They often target those with poor credit for extremely lousy deals that they wouldn’t try to sell to those with good credit. The presumption, I would imagine, is someone able to maintain a good credit rating is much less likely fall for our lousy deals.

Enforcement Action
Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFPB has the authority to issue Consent Orders and take action against institutions engaging in unfair, deceptive, or abusive practices. To ensure that all affected consumers are repaid and that consumers are no longer subject to these misleading and high-pressure tactics, Capital One has agreed to:

End deceptive marketing: Capital One has ceased all marketing of these products, and will not resume doing so until Capital One submits a compliance plan, acceptable to the Bureau, which helps ensure these unlawful acts do not occur in the future.
Complete repayment, plus interest, to two million consumers: Capital One will pay approximately $140 million to all of the estimated two million consumers who feel victim to this scheme.
$25 million penalty: Capital One will make a $25 million penalty payment to the CFPB’s Civil Penalty Fund.

Today’s action is being taken in coordination with the Office of the Comptroller of the Currency (OCC), which is separately ordering restitution of approximately $10 million from Capital One. The OCC’s order has restitution for additional consumers harmed by unfair billing practices taking place between May 2002 and June 2011 in violation of Section 5 of the Federal Trade Commission (FTC) Act. For the combined activity, the OCC is assessing a $35 million civil money penalty against Capital One.

Sadly we have been (and continue to be) forced to suffer through an massive imbalance in power. Large financial companies, through large cash payments to politicians and capturing regulators, have been able to create a system where widespread illegal actions go unchecked. The CFPB has been able to make some progress, even while those in congress try to prevent such enforcement against those giving them cash. You might think the politicians would care more about protecting those who will vote from organizations trying to rip them off, but the evidence shows you would be wrong. If we start voting for people that have that attitude it will be a very good day for the USA.

Anti-Market Policies from Our Talking Head and Political Class

John Hunter — Thu, 13 Oct 2011 12:51:52 +0000

It is very simple. Adam Smith understood it and commented on it. If you allow businesses to have control of the market they will take benefits they don’t deserve at the expense of society. And many business will seek every opportunity to collude with other businesses to stop the free market from reducing their profits and instead instituting anti-competitive practices. Unless you stop this you don’t get the benefits of free market capitalism. Free markets (where perfect competition exists, meaning no player can control the market) distribute the gains to society by allowing those that provide services in an open market efficiently and effectively to profit.

Those that conflate freedom in every form and free markets don’t understand that free markets are a tool to and end (economic well being for a society) not a good in and of themselves. Politically many of these people just believe in everyone having freedom to do whatever they want. Promoting that political viewpoint is fine.

When we allow them to discredit free market capitalism by equating anti-market policies as being free market capitalism we risk losing a great benefit to society. People, see the policies that encourage allowing a few to collude and take “monopoly rents” and to disrupt markets, and to have politicians create strong special interest policies at the expense of society are bad (pretty much anyone, conservative liberal, anything other than those not interested in economics see this).

When people get the message that collusion, anti-competitive markets, political special interest driven policies… are what free market capitalism is we risk losing even more of the benefits free markets provide (than we are losing now). That so few seem to care about the benefit capitalism can provide that they willingly (I suppose some are so foolish they don’t understand, but that can’t be the majority) sacrifice capitalism to pay off political backers by supporting anti-market policies.

Allowing businesses to buy off politicians (and large swaths of the “news media” talking heads that spout illogical nonsense) to give them the right to tap monopoly profits based on un-free markets (where they use market power to extract monopoly rents) is extremely foolish. Yet the USA has allowed this to go on for decades (well really a lot longer – it is basically just a modification of the trust busting that Teddy Roosevelt tried). It is becoming more of an issue because we are allowing more of the gains to be driven by anti-competitive forces (than at least since the boom trust times) and we just don’t have nearly as much loot to allow so much pilfering and still have plenty left over to please most people.

I am amazed and disgusted that we have, for at least a decade or two, allowed talking head to claim capitalist and market support for their special interest anti-market policies. It is an indictment of our educational system that such foolish commentary is popular.

Free Texts Pose Threat to Carriers

At 20 cents and 160 characters per message, wireless customers are paying roughly $1,500 to send a megabyte of text traffic over the cell network. By comparison, the cost to send that same amount of data using a $25-a-month, two-gigabyte data plan works out to 1.25 cents.

This is exactly the type of behavior supported by the actions of the politicians you elect (if you live in the USA).

It is ludicrous that we provide extremely anti-market policies to help huge companies extract monopoly profits on public resources such as the spectrum of the airwaves. It is an obvious natural monopoly. It obviously should be managed as one. Several bandwidth providers provide bandwidth and charge a regulated rate. And let those using it do as they wish. Don’t allowing ludicrous fees extracted by anti-free-market forces such as those supporting such companies behavior at Verizon, AT&T…

I guess the 99% are protesting against the culture of allowing bought and paid for politicians to put their donors interests above the countries interets. But this is no change from what has been going on for a long time. The “solution” is easy. Elect people with ethics and a concern for the country instead of those that are bought and paid for. But we have shown no interest in doing so, and don’t show much of one now. My prediction is we will chose to elect the same people have sold the countries interests down the road for decades.

Those that believe in special interest politics and against free market capitalism (instead supporting large business special interests against the free market system) dominate the talking head and political leaders in the USA. Until that changes nothing will change in any real way. yes occasionally you will have minor successful measures such as restricting some of the abuses by large banks (while allow most of the abuses to continue instead of dealing with the problem of restraint of competition and free markets) but the effectiveness of such measures is very limited.

All we have to do to change is elect smart, decent, ethical people like Elizabeth Warren. But we need to elect hundreds of them. There are probably 20 or 30 in Washington now but that can’t do much against the bought and paid for politicians.

I understand the sensible criticism of overregulation. Fools that think the EPA is a bad thing are another matter entirely. Criticizing the poor implementation of regulations, is a good expenditure of resources. Debate over how we regulate externalities in the markets. Perfectly sensible. Market based solutions are great. I understand some far out people will even argue for not regulating pollution and the like (those that think the EPA needs to be abolished for example – the EPA is already so de-neutered it is amazing to see people still fighting against the institution). Fighting against bad regulations or execution, yes, sure, that makes lots of sense. But the idea that we shouldn’t have the government concerned about the externalities of pollution for our health is crazy. There is no other way to see it. We are all free to have crazy ideas. We shouldn’t be taken seriously when we do, however. Mostly, it isn’t crazy, but paying off people giving large amounts of cash in order to have special rules to allow them to harm society. Why we accept such behavior from anyone we take seriously is beyond me.

Visa, Mastercard Accused of Price Fixing

Visa Inc. and Mastercard Inc. (MA), the world’s biggest payment networks, were sued by a trade group representing operators of automated teller machines over claims the card companies fix prices and suppress competition between ATM networks.
The companies, in a lawsuit filed today in federal court in Washington, are accused of “eliminating or severely restricting independent decision-making” among ATM operators by establishing a uniform agreement with almost every card-issuing U.S. bank to “fix” ATM access fees.
…
“The ATM restraints prevent ATM operators from offering their customers a discount or benefit for completing a transaction over a network that is less costly to the ATM operator, so consumers cannot be rewarded for using a lower cost and more efficient network,” the lawsuit states.

It is pretty obvious ATM fees are ludicrously high. The most likely reason (given the political economy culture [essentially the support of anti-market forces that aim to help interests collect profits gained by restricting the ability of the market to provide value to society] we have right now) for such a situation is collusion to prevent free markets from providing value to society and instead a few players extracting profits from anti-market policies.

We should also note that in many locations (all?) we have allowed the judicial branch to be bought and paid for as well as the legislative branch of government. The executive branch is bought less directly with “capture” by the regulated and the promise of jobs that pay well later, for those who provide favors today (plus, of course, buying the political leaders at the top of the executive branch). Also the top of the executive branch organizations are often seeded directly by those that gave the politicians money. This is a very bad situation. And the corruption it leads to is not something that is easy to fix. When even the judicial branch is so highly tainted it is a very bad state of affairs.

I Strongly Support Elizabeth Warren and the Consumer Financial Protection Bureau

John Hunter — Thu, 02 Jun 2011 22:27:38 +0000

I strongly support Elizabeth Warren and strongly support her for to head the Consumer Financial Protection Bureau. She would do a great deal to improve the economy of the USA. And she would do a great deal to improve the life of tens or hundreds of millions of people. We have allowed a few people to bribe our elected officials to distort markets to damage hundreds of millions and provide huge gains for a few. We need to support capitalism not crooked elites breaking capitalism to favor their allies at the expense of the economy and those who want to benefit from free markets. It is very difficult to impede the greed fueled distortions that politicians put in place to break free markets and provide huge benefits to those who pay them. Elizabeth Warren is one of the few that is knowledgeable and skillful enough to reduce the damage those people cause the economy and everyone else.

Why I Support Elizabeth Warren and the CFPB

To simplify, government’s retreat from principled and thoughtful regulation licensed investment banks, credit agencies, insurance companies, and Wall Street gurus to put greed above reason. We permitted them to persuade ordinary citizens (and pension funds and homeowners) that securitized instruments, of similar efficacy to carney-sold patent medicines, were worth buying. We also allowed them to sell the idea that wishing could repeal the law that what goes up must come down.

Nobody is entirely innocent; money’s promise is for most of us a siren’s call. And, as a nation, we’ve willfully scanted education in civic and financial literacy in schools at all levels. So guilt is not worth focusing on. We need instead a future practice of clear rules and tough oversight. And we need to remind ourselves that Adam Smith’s concept of an invisible hand did not contemplate that hand’s picking the pockets of the people whose individual decisions and actions, if the market works perfectly, let supply match demand.

There are few political appointments I care much about. They normally are so co-opted even if they have good ideas they can’t get anything done. Don Berwick is a great person to have lead health care reform. The system is so messed up I am skeptical he can actually get much done, but I also strongly support him.

Elizabeth Warren is excellent and wise enough to actually accomplish things even with those who will attempt to thwart and improvements in the financial system that move forward capitalism at the expense of a few nobles that are protected by political allies. I have no doubt those in power will still thwart most efforts to stop politically sanctioned distortion of markets to enrich a few people that then pay a portion of their gains to the politicians that let them ruin free markets for their own huge personal gains.

Very few political appointees make much difference. If Elizabeth Warren gets this position she will have a good chance and making a huge difference o the quality of life for hundreds of millions of people and the economy overall. That is true even though she will have to continually fight those politicians seeking to protect the anti-competitive benefits they have lavished upon those that pay them to enact policies that benefit them at the expense of everyone else.

Elizabeth Warren Webcast On Failure to Fix the System

John Hunter — Mon, 14 Dec 2009 14:15:00 +0000

Elizabeth Warren is the single person I most trust with understanding the problems of our current credit crisis and those who perpetuate the climate that created the crisis. Unfortunately those paying politicians are winning in their attempts to retain the current broken model. We can only hope we start implementing policies Elizabeth Warren supports – all of which seem sensible to me (except I am skeptical on her executive pay idea until I hear the specifics).

She is completely right that the congress giving hundreds of billions of dollars to those that give Congressmen big donations is wrong. Something needs to be done. Unfortunately it looks like the taxpayers are again looking to re-elect politicians writing rules to help those that pay the congressmen well (one of the problems is there is little alternative – often both the Democrat and Republican candidates will both provide favors to those giving them the largest bribes/donations – but you get the government you deserve and we don’t seem to deserve a very good one). We suffer now from the result of them doing so the last 20 years. Wall Street has a winning model and betting against their ability to turn Washington into a way for them to mint money and be favored by Washington rule making is probably a losing bet. If Wall Street wins the cost will again be in the Trillions for the damage caused to the economy.

If you Can’t Explain it, You Can’t Sell It

John Hunter — Fri, 20 Nov 2009 00:12:44 +0000

Over the last few years Elizabeth Warren has become one of my favorite leaders. She is a leader in economic thought, ethical society and the law (she is a law professor at Harvard Law School). Far too many on Wall Street, Washington and in C-suites are leading us down a very bad path. She is a voice we need to heed.

If you can’t explain it, you can’t sell it

“We need a new model: If you can’t explain it, you can’t sell it,”
…
The 1966 high school debate champion of Oklahoma may get what she wants. The House of Representatives will vote in December on her idea. She suggested a Financial Product Safety Commission in a 2007 article in the magazine Democracy [Unsafe at Any Rate]. President Barack Obama proposed it to Congress in June as the Consumer Financial Protection Agency.

Warren won’t discuss whether she may be a candidate to lead the authority, which would have the power to regulate $13.7 trillion of debt products. A Warren nomination would tell banks that Obama is determined to force reduced checking-account fees and limit lender claims in mortgage advertising, among other measures the industry opposes, said Thomas Cooley, dean of New York University’s Stern School of Business.
…
In her role overseeing the TARP, Warren has been critical of the administration, accusing the Treasury Department of undervaluing the stock warrants that were supposed to compensate taxpayers when banks repay their bailouts. A lack of transparency about how TARP functions “erodes the very confidence” it was to restore, her committee said in a report.

I hope she can take her attempts to reduce political favors being granted huge financial institutions and those institution be forced to follow sensible rules to protect individuals and our economy. With a few more people like there we will have a much better chance of a positive economic future.