Archive for the ‘Consumer Protection’ Category

In this dawning age of Government by Gazillionares, it may seem impertinent to whisper that a few of their tax breaks should be revisited. But candidate Donald Trump did pledge to reduce or eliminate “most deductions and loopholes available to the very rich.”

In this context, Sen. Jack Reed (D-Rhode Island) and Rep. Lloyd Doggett (D-Texas) are re-introducing the “Stop Subsidizing Multimillion Dollar Corporate Bonuses Act.”  This bill closes the loophole in tax law that allows big businesses to rake in billions of dollars in federal tax breaks every year to subsidize top executive pay packages. Current law that was signed in 1993 (otherwise known as Section 162(m) of the Internal Revenue Code) caps the deductibility of pay at $1 million for top executives at publicly-traded corporations. Anything more is considered excess, such as a three martini lunch. The intent of the 1993 law was to protect taxpayers from subsidizing runaway executive pay. The loophole provides that a bonus tied to some performance metric, approved by shareholders, can be deducted. The problems with letting shareholders decide are many. For starters, it’s not in the interest of an owner to pay more tax. Further, shareholder voting is largely controlled by the same institutions such as mutual funds and other banks that benefit from the subsidy.

The Economic Policy Institute estimates that between 2007 and 2010, a total of $121.5 billion in executive compensation was deductible from corporate earnings, and roughly 55 percent of this total was for performance-based compensation. By closing this loophole, the policy reform would raise $50 billion in revenue over 10 years. That further illustrates both the gravity of the problem as well as the utility of the reform to fund needed programs.

In the House, the Doggett bill enjoys nearly 30 co-sponsors. Senate bill co-sponsor Sen. Richard Blumenthal (D-Ct) argues that, “Even as income inequality rises and middle-class wages stagnate, American taxpayers are subsidizing tens of billions of dollars in corporate bonuses.  We should be investing in working families, not using taxpayer dollars for tax breaks to corporations that overpay their executives. ”

Those in the C-suite may argue that these princely payments are wages like all other wages, namely, a legitimate business expense. That turns on the labor theory of value, namely that workers produce value and should be compensated accordingly.  But this theory falls apart readily. Current CEOs of the Fortune 500 are paid 300 times what median workers are paid; thirty years ago, the differential was more like 50 times. It’s tough to reckon that the CEOs of the 1980s who developed the first personal computers and cell phones, new miracle medicines, fuel efficient automobiles, that they’re only a tenth as valuable as today’s corporate chiefs.

In reality, the benefactors of these bonuses control the purse strings. It isn’t that pharmaceutical titans such as Martin Shkreli  work longer hours than the average worker, or truly create wondrous products that most of us can’t imagine; instead, they game the system. In Shkreli’s case, he used other people’s money to buy a drug company named Valaent, then increased the price of an existing life-saving drug by several thousand percent. In addition to Shkreli’s compensation, Valeant CEO Michael Pearson was compensated $10 million in 2015, all subsidized by taxpayers.

On Wall Street, where the added value to the economy is suspect, the bonus culture has run amok. At JP Morgan’s London office, for example, traders gambled with hundreds of billions of dollars in deposits made cheap by the taxpayer-subsidized Federal Deposit Insurance Corp (FDIC). Sometimes they won, such as when they bet that American Airlines would go bankrupt. Sometimes they lost, such as when they overextended on a bet so complex that the JP Morgan CEO himself could identify the problem for weeks. Instead of being paid double, triple, or even 10 times the average income for US workers, (about $50,000), they received more than 100 times. Their boss, Chief Investment Officer Ina Drew, allegedly prompted the mega-trade to goose her stock-based (taxpayer subsidized) bonus, according to a Public Citizen analysis based on a Senate investigation.

Recently, Wells Fargo showed how the bonus virus—subsidized by taxpayers—led to massive fraud. Faced with termination if they failed to meet a quota of new account creation for existing customers (such as a credit card for a checking account customer, a practice known as “cross selling”), thousands of Wells Fargo employees fabricated these accounts. That led to more than a decade of faux growth reported to shareholders, according to a Public Citizen account.  The solid growth in accounts sent the stock price steadily up. And since senior manager pay derived from that stock price—deductible as a business expense—the top brass earned gold. CEO John Stumpf was paid $18 million in 2016, of which $17 billion was deductible, meaning about a third came courtesy of average American taxpayers. Senior officer Carrie Tolstedt was compensation $9 million, with all but $0.7 million deductible.

Sens. Reed, Blumenthal and Rep. Doggett have promoted this reform for years. In the past, this bill entered the concrete of divided government; this time, it becomes part of the chaos theory in which any hypothesis may prove valid.

Support for reform spans the partisan bridge. In 2006, Senator Chuck Grassley (R-IA), the then-chair of the Senate Committee on Finance, stated: “162(m) is broken. …It was well-intentioned.  But it really hasn’t worked at all.  Companies have found it easy to get around the law.  It has more holes than Swiss cheese.  And it seems to have encouraged the options industry.  These sophisticated folks are working with Swiss-watch-like devices to game this Swiss-cheese-like rule.”

Key tax policy in the Trump administration may turn on a trio of Goldman Sachs alumni: Treasury nominee Steven Mnuchin, senior Trump advisor Steve Bannon, and National Economic Council Director-designate Gary Cohn. Goldman Sachs, the epitome of the Wall Street that feeds of Main Street, may be an unlikely breeding ground for populist reforms. Moreover, the accessible public record to date on what this trio thinks about tax policy, however, is shorter than this blog. Bannon, for example, has cancelled public appearances following the election.

One can only hope that, now they have their millions, they may feel liberated from financial concern to shape sensible policy.

As tax policy makes its way through Congress, lawmakers including the Trump administration will ideally calculate that the winners in this reform are many.

The Regulations from the Executive in Need of Scrutiny Act (REINS Act) would require congressional approval of all major regulations issued by federal agencies before those regulations could go into effect. This bill represents one of the most radical threats in generations to our government’s ability to protect the public from harm.

The REINS Act will delay or shut down the implementation of critical new public health and safety safeguards, financial reforms and worker protections, thereby making industry even less accountable to the public. It will only benefit those corporations that wish to game the system and evade safety standards and do nothing to improve protections for the American public.

The REINS Act is redundant and needlessly time-consuming.

Agencies already undergo rigorous reviews of their proposed rules and solicit comments from the public, business interests, and other agencies. In addition, many rules are promulgated in response to congressional directive, such as the regulations required by recent product safety, health care, and financial services laws. And under the Congressional Review Act, Congress already has the authority to review and nullify a rule by passing a resolution of disapproval. The REINS Act would force Congress to refight its previous debates, wasting time and money and paralyzing the agencies and Congress itself.

The REINS Act endangers the public.

The REINS Act would require both houses of Congress to approve a major rule, with no alterations, within a 70-day window. If both chambers are unable to approve a major rule, it would not take effect and would be tabled until the next congressional session. In other words, by doing nothing, Congress would prevent existing laws from being effectively implemented. It would stop all major rules and delay vital public protections, such as those limiting the amount of lead in children’s products, preventing salmonella contamination in eggs, and increasing the safety of job sites where cranes or derricks are operated. These rules were promulgated to reduce injuries, illnesses, and fatalities caused by unsafe products or behavior. Allowing them to be held up or stopped by Congress would endanger the public.

The REINS Act threatens the separation of powers.

Congress already participates in the rulemaking process by writing and passing federal law that provides the blueprint for agency actions. Any agency error or misinterpretation is subject to judicial review. The REINS Act attempts to dramatically alter the separation of powers by allowing Congress to veto executive actions. Previous attempts to create a legislative veto have been overturned for violating the separation of powers. Although the REINS Act possibly skirts this issue by requiring the president’s signature before a rule is overturned, this legislation does not comply with the spirit of the checks and balances system laid out in the Constitution.

The REINS Act corrupts and politicizes the regulatory process.

The REINS Act would inappropriately – but deliberately – inject political considerations into a regulatory process that is supposed to be based on objective agency science and expertise. Federal agencies employ personnel with policy, scientific, and technical expertise to produce smart and sensible regulations. Allowing Congress to have the final say on regulations would give lobbyists, special interest groups, and those who provide legislators with campaign contributions even more influence in shaping a rule.

The REINS Act is unnecessary.

The regulatory process already allows ample opportunities for input, including the opportunity for Congress to vote to nullify a rule. Requiring Congress to affirmatively pass each rule before it can go into effect would taint the regulatory process with improper political considerations, endanger the public by delaying crucial safeguards, and would usurp powers reserved to the executive and judicial branches to implement and interpret the law. The REINS Act is a deeply flawed bill that would handicap the federal agencies and add a considerable workload to a legislative body which already struggles with time constraints. Congress should be searching for ways to make federal agencies run more smoothly, not throwing up roadblocks to the regulatory process.

Each day this week we’ll be highlighting some of the anti-regulatory bills that Public Citizen and our allies have been pushing back against this fall.

REVIEW Act or the “Endless Corporate Lawsuits” Act

Photo courtesy Eric Parker/Flickr/CC BY-NC 2.0

Photo courtesy Eric Parker/Flickr/CC BY-NC 2.0

Industry has a long history of running to the courts to block or delay public protections that would cut into their massive profits. As a gift to their industry donors, House conservatives crafted the Require Evaluation before Implementing Executive Wishlists Act or the REVIEW Act (H.R. 3438).

The REVIEW Act would make our system of regulatory safeguards weaker by requiring courts to review “high-impact” regulations to automatically “stay,” or block the enforcement of such protections, until all litigation is resolved– a process that takes many years to complete.

If passed, it would add several years of delay to an already unreasonably slow rulemaking process, invite more rather than less litigation, and rob the American people of many critical science-based public protections, especially those that ensure clean air and water, safe food and consumer products, safe workplaces, and a stable, prosperous economy.

H.R. 3438 would reverse one of the most fundamental and settled legal principles in our regulatory system. Under current law, courts are allowed to use their discretion to determine if it is appropriate to issue an injunction blocking the enforcement of a regulation while it is being challenged in court.

By Lisa Gilbert and Michael Tanglis

Don’t hold your breath waiting for Wells Fargo to do the right thing.

John Stumpf, Wells Fargo’s recently retired CEO, admitted in a congressional hearing that he first learned about his own bank’s problem with millions of fraudulent accounts in 2013. After three years of evasions and excuses, this week he resigned.

Image courtesy Tyler/Flickr/CC BY-NC-ND 2.0

Image courtesy Tyler/Flickr/CC BY-NC-ND 2.0

If the bank’s deflection of blame onto more than 5,000 low-level employees is any indication, customers waiting for Wells Fargo to take responsibility for its mismanagement, pay back customers and repair damaged credit scores could be waiting a very long time. So here are some steps you can take to see if you’ve been a victim of Wells Fargo’s fraud and what to do if you suspect foul play.

If you use Wells Fargo’s online banking system, sign in and look for accounts or transactions you do not recognize. If you do not use their online platform, signing up is a good way to monitor your banking activity. If you see something that looks suspicious, get in touch with the bank. You can either contact customer service, visit a local branch to speak with a representative or call their dedicated hotline set up in the wake of the scandal.

If you cannot achieve a satisfactory resolution, one option is to file a complaint with the U.S. Consumer Financial Protection Bureau (CFPB). If you suspect you have been the victim of fraud or a fake account was opened in your name, the CFPBwants to hear about it.

Another way to identify malfeasance is to obtain a credit report. If your credit score took a hit for unknown reasons and you are a Wells Fargo customer, it’s worth investigating the possibility that it might be related to an account that was opened in your name without your permission. If that appears to be the case, you should contact your local law enforcement and report it to the Federal Trade Commission.

A final option is to close your Wells Fargo accounts. The widespread fraud was the result of a 16-year cross-selling frenzy in which bank management put enormous pressure on workers to open as many new accounts as possible, with a goal of eight per household. Since turnabout is fair play, it may be that the best response to the Wells Fargo scandal is for consumers to leave them with none at all.

If you close your current accounts, think carefully about where you want to open new ones. It is likely that community banks and credit unions may be safer and more trustworthy alternatives than another megabank because they are smaller and therefore closer and more responsive to their customer base.

This scandal happened in no small part because megabanks are simply too big to manage. In two congressional hearings, Stumpf demonstrated as much when he repeatedly pleaded ignorant in response to even the most elementary questions about his bank’s operations and sales practices.

Megabanks tend to copy each other’s “successful” strategies and management practices, so it’s entirely possible that other large banks may have indulged in a similar cross-selling frenzy with similarly fraudulent results.

In fact, The Wall Street Journal recently reported that Bank of America COO, Thomas Montag, attended a banking function wearing a hat and T-shirt with the words “Cross Sell“ on them – the practice at the heart of the misconduct that led to the government imposing a $185 million fine on Wells Fargo.

We don’t know what misdeeds regulators will uncover at other megabanks in the months and years ahead, but the 2008 financial crash demonstrated that these banks put profits ahead of what’s best for their customers and the country.

If there’s one lesson we can take away from the Wells Fargo scandal, it’s that if banks are too big to fail, too big to jail and too big to manage, they’re also probably too big to trust.

Gilbert is the director of Public Citizen’s Congress Watch division. Tanglis is a senior researcher for Public Citizen’s Congress Watch division. This article  originally appeared on Huffington Post.

Disclosures from a sick Wells Fargo obviously soil the efforts of deregulators on many issues. One of these is the very issue of disclosure.

In the Wells Fargo scandal, more than 5,300 employees created more than 2 million accounts unsolicited accounts for their customers.

Photo courtesy J B/Flickr, CC BY 2.0.

Photo courtesy J B/Flickr, CC BY 2.0.

First, the Wells Fargo employees faked the accounts to avoid being fired for failing an account creation quota.  Then, their bosses pressured them to meet quota because the bosses got bonuses based on quotas. And finally, their bosses and bosses’ bosses all the way to the CEO got bonuses when investors drove up the stock price as those investors figured those ever expanding account creation numbers demonstrated exceptional management.

Twelve times in the last half decade, CEO John Stumpf made reference to those account numbers on the quarter calls with Wall Street analysts.

The very core of this pathology involves disclosure.  In this case, both non-disclosure and fake disclosure.

Yet at this very time, Chair White’s Securities and Exchange Commission is railroading through a monster rule designed explicitly to reduce disclosure. Keeping with the tradition of misdirection, this reduction is misnamed the “Disclosure Update and Simplification.”

As Wells Fargo was diligent in reporting rigidly account sales figures, here are simply a few of the inconvenient items that are obviously material to how an investor values this stock that Wells Fargo elected not to disclose.

  • In 2009, Wells Fargo executives recognized that certain ambitious sales programs – such as “Jump into January” – were generating fraudulent accounts. This was not disclosed.
  • In February 2011, Chairman and CEO John Stumpf reportedly received an email from a 22 year veteran of the company explaining how the appearance of growth in new accounts could be faked; this employee was subsequently terminated. This was never disclosed.
  • In 2011, employee satisfaction surveys reportedly found that bank employees were uncomfortable with instructions from management to push customers to buy products. This was not disclosed.
  • In 2012 the community banking unit began to investigate suspicious practices in areas with high levels of customer complaints, such as Southern California. These investigations reportedly led to the firing of 200 employees in February 2013. This was not disclosed.
  • In 2013 and 2014, the board and management took action in response to these signals and at the behest of regulators— including increased risk management standards in the community banking divisions, modification of some sales goals, and an internal investigation by Accenture and Skadden, Arps on which the board was reportedly updated. This was not disclosed.
  • The Consumer Financial Protection Bureau began its investigation in 2013. This was not disclosed.
  • Wells Fargo employees delivered petitions with more than 10,000 signatures to the board at both the 2014 and 2015 annual meetings that urged the board to recognize the link between Wells Fargo’s high-pressure sales quotas and the fraudulent opening of accounts without customer permission. These petitions called on Wells Fargo to cease using these high-pressure quotas. This was not disclosed.
  • The New York Times reports that even after the company began to recognize the problem and provide ethics training that warned against creating false accounts, the continued sales pressure from management overwhelmed the ethical training. When employees either refused to sell customers products they did not want, or reported fraudulent account creation to the Wells Fargo ethics line, they were subject to discipline including termination. This was not disclosed.

While viewing this perfect example of non-disclosure, Chair White has been speeding through her SEC a major proposal to gut disclosure rules. The bewilderment of changes includes gutting disclosure on executive compensation.

The Agency proposes to delete its requirement that CEO and other senior officer pay be disaggregated. Disaggregation allows investors to see what in the pay package is cash, stock, options, etc. Had it been clear to investors that the millions in bonuses for the top brass stemmed from line salespeople (paid $25,000 a year) to open an absurdly high eight accounts per customer,[1] or be fired, or cheat and try not to get caught, then this runaway fraud might have lasted two years, instead of a possible two decades.

In addition,  White plans to reduce what firms using repurchase agreements (repo) for loans must disclose. Repo is like a pawn shop, where you deposit a watch worth $1,000 and get $900 for a day, then you buy back the watch for $1,100, which you agreed to from the outset. (You need to do well at the horse race track in the interim for this to work out for you.)  The financial crisis demonstrated that firms such as Lehman had grown addicted to repo, and had manipulated tax and other rules to enable its dependency. In fact, repo disclosure should be enhanced, not deleted.

There are a number of other disclosure rules that Chair White wants to white out.

On many items, White says the SEC won’t require a disclosure if GAAP requires it. GAAP may stand for “generally accepted accounting principles,” but that must be an inside joke since they’re not generally accepted. U.S. GAAP differs from accounting standards in other countries (an acute problem given that many public companies operate in multiple nations). And it can change, regardless of what the SEC does. As with many other proposals, the Agency is ceding its responsibility to safeguard disclosure.

That’s not a very cheery pep talk to write comment for the Nov. 2 deadline. So, Citizens, just try this:

Write Ms. White at, put this in the subject line:  Re: “Disclosure Update and Simplification,” Proposed Rule; File No. S7-15-16; RIN 3235-AL82, and write something like: “Chair White,  Wells Fargo shows that all’s not well that ends well short of full disclosure. Wells Fargo shows that your disclosure idea goes in the opposite direction. Investors want to know.  Sincerely, your name.”

(Oh, and white-out apparently doesn’t work on computer screens, which is double-entendre.)

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