Posts Tagged ‘Dodd-Frank’

April22

SEC commissioner, others call for SEC to protect investors from forced arbitration

By: Guest blogger

the logo for the Securities and Exchange Commissionby Jon Croteau

Last Tuesday, Luis Aguilar, a commissioner for the Securities and Exchange Commission (SEC), showed that he was serious about investor protection. At an annual conference for securities regulators, Aguilar expressed his personal support for an SEC rule that would permit investors to decide how to resolve disputes with broker-dealers and investment advisors. If Aguilar’s fellow commissioners agree and the SEC adopts such a policy, investors will have the option of pursuing their legal claims in court.

Aguilar said, “[i]nvestors … should have the unencumbered right to seek redress in all available forums.” He explained,

Arbitration may be a viable option after a dispute arises and both parties knowingly agree to go into arbitration. However, my main concern with pre-dispute mandatory arbitration is the denial of investor choice; investors should not have their option of choosing between arbitration and the traditional judicial process taken away from them at the very beginning of their relationship with their brokers and advisers.

Currently, the overwhelming majority of broker-dealers and investment advisors include language in their contracts that force investors to resolve disputes against them in private arbitration. Brokerage firm Charles Schwab has raised the stakes by not only forcing individual customers to resolve disputes in arbitration, but by recently adding a provision in its investor contracts that deny customers the ability to band together in class actions against it.

The ban on class actions will harm small investors the most because many lack the resources to pursue valid claims on their own in costly arbitration. They will be unable to recover for losses resulting from all-too-frequent violations, such as misrepresentations about the nature or value of investments.

Since last Monday, Commissioner Aguilar’s statement endorsing investors’ right to seek redress in court has been making headlines in the investment community. The Investment News also agreed with Aguilar that investors should be able to choose a forum to resolve their disputes with broker-dealers and investment advisors. While Aguilar’s statement is a positive development, our work is far from complete.

In 2010, Congress expressly authorized the SEC to restrict forced arbitration between investors and broker-dealers and investment advisors as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. To protect investors, the SEC must adopt a rule to eliminate forced arbitration from these contracts.

Jon Croteau is an intern with Public Citizen’s Congress Watch division

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Posted in: Consumer Protection, Financial Reform, Social Justice0 comments

April16

Public Citizen to House subcommittee: Yes, Dodd-Frank authorizes breaking up big banks

By: Micah Hauptman

a protestor carrying a sign that reads "too big to fail is too big to allow"

Flickr photo via Nowviskie

Note: Public Citizen submitted testimony to the House Financial Services Subcommittee on Oversight and Investigations in advance of its hearing today titled “Who is Too Big to Fail: Does Dodd-Frank Authorize the Government to Break Up Financial Institutions?” The testimony is available here.

Public Citizen commends the House Financial Services Subcommittee on Oversight and Investigations for holding today’s hearing to discuss the government’s authority to break up financial institutions under the Dodd-Frank Wall Street Reform and Consumer Protection Act.

In January 2012, Public Citizen called on the Federal Reserve and the Financial Stability Oversight Council to break up the financial behemoth Bank of America. We relied on a relatively obscure provision in the Dodd-Frank Act, Section 121, which grants financial regulators authority to mitigate the grave threat that an institution poses to U.S. financial stability. More than 30,000 people have signed our petition calling for regulators to break up the bank into pieces that are smaller, simpler and safer for market stability.

But regulators appear unwilling to use the broad authorities in their arsenal to safeguard financial stability, and the Federal Reserve Board’s three-paragraph response to our detailed petition suggests that regulators may not be taking seriously their responsibilities under Dodd-Frank.

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Posted in: Congress, Financial Reform0 comments

April12

Barofsky, Born and Miller’s bombshells (video and notable quotes on “too big to fail”)

By: Rick Claypool

“Too big to fail” banks not only leave the country at risk of another crippling financial crisis, but also are holding the country’s political processes hostage because of the outsized power they wield.

That was the consensus among speakers at the release of Reality Check, a book by Public Citizen’s Taylor Lincoln that seeks to remind the public that deregulation caused the economic downturn and to counter the myths that have been propagated about regulations in recent years.

Watch the video (also embedded above) featuring highlights of the discussion.

Speakers included Neil Barofsky, the former inspector general of the Troubled Asset Relief Program, former Commodity Futures Trading Commission (CFTC) Chairperson Brooksley Born, and former Rep. Brad Miller (D-N.C.).

These three former public officials are among the best equipped to evaluate risks to the economy from insufficient regulation. Barofsky went toe-to-toe with the other financial regulators in pursuit of standards to prevent fraud and steps to ensure that loan restructuring programs perform their stated purpose of helping people avoid foreclosure rather than softening the blow to the banks’ balance sheets. Born warned about the risks of financial derivatives in the 1990s, a decade before they nearly brought down the financial system. Miller sought to police subprime lending abuses long before they were widely recognized and was an outspoken champion of the creation of the Consumer Financial Protection Bureau in the 2010 Dodd-Frank Wall Street reform bill.

The panelists’ discussion about the influence of too-big-to-fail banks and the force that industry wields through its ability to offer future employment to agency and congressional staffers was packed with eye-opening – and often appalling – observations.

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Posted in: Congress, Congress Watch Column, Consumer Protection, Financial Reform, Regulation0 comments

April10

Seven questions for seven bills (or, derivatives for dummies)

By: Bartlett Naylor

"Bart Naylor" "Financial policy reform"This month, a House subcommittee and possibly the entire House will consider a passel of bills to repeal several reforms that Congress approved in the 2010 Dodd-Frank Wall Street Reform Act.

Sponsors will parade the bills as technical corrections, non-controversial, or important for the economy.

Untrue, untrue, and untrue.

Here are brief summaries of these bills along with questions that members who are wary of their true impact might raise in committee hearings or during floor debate.

HR 634: The Business Risk Mitigation and Price Stabilization Act

This bill would forbid Wall Street banks from requiring “margin” for swaps if their gambling partner is a small business or bank. Margin here plays the same role as good faith money. If you bet a banker $100 that the Washington Nationals will beat the San Francisco Giants, he’ll want to see at least $10 on the table to make this bet real. And if the score is 10-0 Giants in the eighth inning, he’ll want to see another, say, $50 on the table in “variation” margin. Requiring no margin might be acceptable for smaller bets. But what about a $1,000 bet? Some limits may be required. That’s prudent banking.

Wall Street argues that requiring margin would squander Main Street capital that could be better used elsewhere. Main Street can benefit from derivatives as hedges, such as locking in a price for fuel. But hedges cost money. Banks can only engage in swaps because the national bank regulator interpreted them as the functional equivalent of a loan. No prudently managed bank could or should offer a loan or a hedge “for free.” In fact, as MIT Professor John Parsons explains, no bank does. Those swaps without explicit margins cost more in price—like a mortgage without points, but at a higher interest rate.

A question for this bill’s backers: If requiring margin from Main Street clients for swaps contracts ties up capital, should banks be prevented from charging periodic interest on commercial loans, and instead simply ask for repayment with interest at the end?

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March1

Oxymoron alert: No one cares about controversial CEO pay

By: Bartlett Naylor

"Bart Naylor" "Financial policy reform"The simplest and most straightforward requirement in the Dodd-Frank Wall Street Reform Act may be section 953(b), which asks corporations to disclose the CEO’s pay as a multiple of the median-paid employee at the firm.

So far, the Securities and Exchange Commission (SEC) has yet to write the rule that will cause corporations to publish this number. But corporate America says the SEC should shelve its plans to require companies to disclose this ratio because … no one cares about it.

It’s booooorrrrr-innnnng.

So boring, in fact, that the U.S. Chamber of Commerce recommended that the SEC summon experts from around the country for a series of summits on the topic. A letter from the U.S. Chamber to the SEC reads, “It is unclear how the pay ratio disclosure will be material for the reasonable investor when making investment decisions.”

So tantamount to watching paint dry is the pay ratio that corporate America convinced one-term- (and now, former-) Congresswoman Nan Hayworth, a New York Republican, to propose an act of Congress to repeal this Dodd-Frank provision. Hayworth explained that the “information is not beneficial.”

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