MarketWatch, a source I generally like for quick, accurate summaries of what’s going on in markets, has a strange and unsettling commentary up today about a settlement between Discover Financial Services and federal bank regulators.
The investigation was started by the Federal Deposit Insurance Corporation and later joined by the Consumer Financial Protection Bureau. From their press release:
The joint investigation concerned deceptive telemarketing and sales tactics used by Discover to mislead consumers into paying for various credit card “add-on products” – payment protection, credit score tracking, identity theft protection, and wallet protection.
Discover’s telemarketing scripts contained misleading language likely to deceive consumers about whether they were actually purchasing a product. Discover’s telemarketers also often downplayed key terms and spoke quickly during the part of the call in which the prices and terms of the add-on products were disclosed.
Here’s where the MarketWatch commentary takes this, with my bold:
Not to dismiss the FDIC, but the CFPB under Richard Cordray is clearly the driving force behind these investigations and settlements. Which is exactly why the banks fought so hard against the creation of the agency.
It doesn’t matter if Discover, American Express or Capital One really engaged in deceptive practices. In cases such as these it’s often easier and cheaper to not fight city hall.
OK…deep breath. Not sure why, other than the fact that the R’s have been gunning for it ever since it was born, the CFPB is the bad guy here. The FDIC brought the case.
But why, oh why doesn’t it matter if banks deceive and defraud!? After all we’ve been through with the housing bubble and the financial crisis and the banks betting against their customers and hundreds of billions in bailouts, how can that not matter?
It’s just an extremely potent reminder of the mindset among those who used to argue that financial institutions can police themselves, and now argue that the financial reform bill that created the CFPB must go. They just don’t think it matters.
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Google ‘growth of US credit unions’, and note the record numbers of Americans moving to open accounts at credit unions the past few years. If MarketWatch were correct, why would all those people be leaving TBTF banks?
MarketWatch is missing a much more interesting story, which is the one about why so many Americans are willing to go through the inconvenience of moving their money out of TBTF banks the past couple of years and move to other banking alternatives, like credit unions.
I think you may be misinterpreting what the article is saying. The way I read the paragraph you’ve cited, rather than suggesting that deception is unimportant, I think they’re saying that regardless of whether these banks engaged in deceptive practices or not, in either case it’s often easier and cheaper to simply settle – and they believe that itself is a matter of concern.
This is reinforced two sentences later, when they say “banks may or may not be guilty of the infractions”. So they’re not trying to pass judgement on whether they did or didn’t, or argue about whether deception is ethically important, but rather pointing out that in either case there is another, separate issue that they think we should _also_ be concerned about.
You might be right, in which case I should calm down. But it’s quite unclear, at least to me, from the text, that this is as benign as you suggest. And it certainly feeds the view, sans evidence, that the CFPB is gunning for the banks without justification, eg, this ‘graf:
“And that’s really the part that neither side will talk about honestly. The CFPB, like any agency, can be tempted to enforce for the sake of enforcing. And banks may or may not be guilty of the infractions.”
What evidence does the author have that CFPB is not being honest or is enforcing for the sake of enforcing? How does that ‘graf support your view on this (which may be right)?
The bank are so replete with money, Jared, that paying fines that are not even a mosquito bite, has become the cost of doing business: cheap!
We do need campaign finance reform. We also need a serious code of ethics for government and different sectors of business. No more revolving doors, either. We are suffering a near complete breakdown of ethics.
I read it the same as Mark. And I agree with what you say here that the point is that they are trying to claim the enforcement was without basis.
But I don’t see what they have to complain about, the penalty was a whole $14M. They won’t even notice this on any corporate accounting statement. I doubt the $200M refund will even register. Plus fines hurt stockholders, so there really needs to be some executives put in jail if we are going to get these frauds to stop. R’s are all about how the “job makers” take risks. Well, let’s give them some real risk as opposed to only having the worry of when to deploy their golden parachute.
“The CFPB, like any agency, can be tempted to enforce for the sake of enforcing.”
Whut? Part of CFPB’s mission is to “enforce Federal consumer financial laws.” So they’re doing their jobs for the sake of doing their jobs? Shocking! Clearly they have gone too far!
Along these lines, I would love to see the SEC funded so that it could afford to aggressively seek justice (read jail time and forfeiture of assets) in cases where executives at financial institutions are culpable for criminal activities.
Too often, the company settles, admits no wrong-doing, and everyone walks away, “richer” for the experience.
I agree with your main point, it’s FDIC on this, and also that what Discover apparently did is shameful. But I think the Mkt Watch article is repeating a common corporate position: “whether we’re actually wrong or guilty, it’s cheaper and faster to settle and move on than to fight this thing.” Health insurance companies do it all the time when threatened with a suit over a denied claim: you don’t admit wrongdoing, you settle and move on. Public would be better served if regulators and prosecutors insisted on admission of wrongdoing.
Matt Taibbi makes the same point regularly: the settlement culture of regulators in the US really defang the entire idea of enforcement.