Let's Perma-Ban Consumer Predators
Regulating consumer predators is a bit like Whac-a-Mole. No matter how many times you put the bad guys out of business, they keep popping up again and again. Maybe it is time to consider a lifetime ban from financial services for the worst offenders. The Consumer Financial Protection Agency proposed by the President may be just the right watchdog for the job of handing out such banishments.
A colleague recently suggested this approach, which has the advantage of not just stopping illegal activity, but stopping those responsible for it. No other approach seems to attack the root of the problem: those driving predatory activities. They may be the heads of large, national banks, but also the heads of small mortgage brokerages or closing companies.
While banishment could be used on large-scale consumer predators, it should also be used on small-scale operators. A few examples: bait-and-switching mortgage brokers, small-time predatory credit card lenders (those with $250 limits that begin with $200 in fees, for example), lending redlining (and reverse redlining), and others.
The Consumer Financial Protection Agency (CFPA) proposed by the Obama Administration is supposed to be a consumer watchdog agency, responsible for ensuring financial products are safe much as the Consumer Product Safety Commission (CPSC) does for physical products. It will be in the best position to supervise financial services vendors, large and small, and impose banishment when appropriate.
It may be that enabling the CFPA to banish the worst offenders as an extreme sanction is the best way to give the new watchdog real teeth.
Sam Glover is a consumer rights lawyer, enemy of shady debt collectors, previous Consumerist contributor, and writes the Caveat Emptor blog. His column appears monthly.
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@BZMedia: How about something really strict for the worst offenders? Something such as they cannot work for ANY financial services company, OR any company that is owned by a financial services company.
While at first this seems like a good idea, I think its going to be a bit hard to actually get traction on...
bait-and-switching mortgage brokers - this is an obvious one. But there is a more simple solution - why not make brokers get a certification like a CPA? Do things wrong, we yank your license, you can no longer practice. CPA's seem to do a good job at regulating themselves...
Small-time predatory credit card lenders (those with $250 limits that begin with $200 in fees, for example) - while it might seem predatory, its still legal. Sucks, but its still legal.
Lending redlining (and reverse redlining) - sadly, "redlining" often times comes from the true enforcement of lending requirements. If a bank takes a stand of "we require at least 5% down and proof of income that the monthly payment, including taxes, insurance, etc is no more than 33% of take home pay" that can turn into what looks like redlining. Are they trying to? Nope. But they'll be forced to step away from solid lending practices that ultimately led to the subprime mortgage disaster.
Oh man--I got a doozy of an offer yesterday.
It was from an old debt that I settled years and years ago (more than 10). A college era credit card debt that I settled for about 40% off of the fees and interest (way more than the principal). I had to pay income taxes on the 'forgiven' amount.
This 'debt' keeps getting sold and sold to slimier and slimier debt collectors. I've learned to not sweat it as it isn't on my credit card and I do not owe it. Yesterday I was offered a combo settlement of about 70% off the original debt and a new credit card with a $5,000 limit. I didn't read the fine print (or even the big print, actually) and just throw it away--but I kind of wished I scanned it and sent it to you.
@Jeangenie: BTW, not trying to be off-topic. Just ties in to that lovely $250 credit card with $200 in fees.
@BZMedia:
I think the idea would be to place the lifetime ban on the person, not the company, and give the ban legal teeth so the person will get a good smackdown if they defy it.
I wonder if they would issue the new card and then apply the debt to the balance. Presto, fresh debt to be collected.
@NightSteel: "I think the idea would be to place the lifetime ban on the person, not the company,"
But how? If it's a corporate entity, it is the corporation that's responsible. Even if it's really the person responsible, ultimately it falls on the entity. Remember, Corporation = Person, for all legal purposes. The people running it are protected by it. And if you smack down the corp., they simply create a new one. In fact, by doing this frequently enough, they can milk the tax system through a loophole and skip out on a very large chunk of taxes. So, I guess I'm asking, how would you legally ban someone from starting up a different, perfectly legal corporation? Or even having a friend create it, and put you in the officers list. New entity has nothing to do with the old entity, and therefore can't be punished until it does something wrong.
Step one would be banning the Consumer Financial Protection Agency and any other sort of useless new government agencies which will just become black holes for tax dollars, patronage mills and of course all buddy buddy with the people they are supposedly overseeing.
So long as the operators can hide behind articles of incorporation, they'll spawn like mushrooms, hopping ahead of the guillotine of justice that falls upon their fraud-ridden concerns.
Go after the companies, sure. But nail the execs personally, too. Make them churn thru countless hours of lawyers' fees as they try feebly to not have their homes and assets seized. Salt the earth of their homes and sell their children to Chinese WoW Gold Farmers.
@I Love New Jersey: I was wondering if government agencies would be able to get banned. Are we going to ban the Social Security Administration and a lot of the public education systems?
@BZMedia: "Even if it's really the person responsible, ultimately it falls on the entity."
Not always, and laws can be written (and have been written) to hold individuals responsible even when acting at the behest of a corporate entity. Or hold individuals responsible for ordering those acts.
Let's further expand government and its reach for only government can save us from our own stupidity!
And - when government fails us (as it will) - the attorneys will arrive to clear the battlefield!
What happened to bad things happening to stupid people? Must we protect everyone? So many times when reading about people being swindled, one can only shake their head as to how gullible the person was...
@Eyebrows McGee (now with more baby!): That's true, corporate veils can be pierced, but a) judges are very hesitant to do that without serious cause, and b) it still doesn't prevent them from creating a new one.
@BZMedia: They do something like this in the licensed industries. Example, if the SEC debars a securities salesman, that salesman can't get a job with any licensed broker dealer. The problem with the suggestion is that we're talking about the entire industry, not just the licensed portion of it, and unless we're willing to create an enforcement mechanism that will probably dwarf the Pentagon, it's going to be very difficult to enforce.
How about 'caveat emptor' and screw the government.
@BZMedia: I'm sorry, but you make it sound like it's not worth trying just because it would be difficult to enforce on everyone. I don't really understand this. It does sound like a good idea to me, and one good enough to support. Just because it sounds difficult doesn't mean it couldn't still have a big effect. I see it similar to an infection.. some bacteria are hardy bastards that don't respond to antibiotics and keep finding ways to survive, but an appropriate dose of antibiotics still does a hell of a lot of good toward making you well.
That's just me, though, I'm sure there could be things I'm missing.
@Trai_Dep: If a lot of the operators use email, maybe the companies facilitating it could somehow be held responsible? There would have to be evidence that the operators were using the IT services for no good, but the service companies might think twice about accepting them as customers if they have potential liability.
@BZMedia: My understanding is that it would be sort of like like telling a hacker they can't work in computer & programming or have a computer any longer. Or a doctor no longer allowed to practice medicine.
@OldSpinDoc: Some of them are gullible, some of them are just desperate. If a man hangs from a cliff and grabs for a tuft of grass, do you say he's stupid for thinking that the grass will support his weight?
@Eyebrows McGee (now with more baby!): True, and in fact, it's not really that difficult. Consider this example:
A CEO (or some higher-office dude) of a company kills someone. The motive is entirely profit-based (maybe the victim worked for a competitor), and the entire plot was carried out on company time with company resources. Result = The individual is nailed for murder, not the company.
Compared to...
A CEO (or some higher-office dude) of a company scams someone. The motive is entirely profit-based, and the entire plot was carried out on company time with company resources. Result = The individual could be nailed for scam.
@BZMedia: If you personally commit a tort, you are personally responsible.
I imagine this is about making enforcing the tort violations and making this the punishment.
By your logic you could go to work for "Assassins, Inc." and claim that you're not guilty of murder because "the company is responsible." You're actually still responsible for your actions even if you run a company.
And there are all sorts of people who are no longer allowed to be officers in corporations.
@Tux the Penguin: "why not make brokers get a certification like a CPA?" Holy shit - you mean this is actually not a requirement in the States? More and more, the current crisis begins to make sense.
Up here, every aspect of the finance industry I've seen is licensed, including mortgage brokers and financial planners. Before a license is issued, the candidate has to be vetted by a potential employer - who is on the hook in addition to the employee if things go awry. And even if you Do step outside the bounds of your license (ie, claim you're a financial planner without your CFP), you're bound by fiduciary duty and can be found in breach of that if your advice isn't solid.
Good idea, but I really don't see how this is possible. I mean, we're not talking about a couple dozen companies, we're talking thousands and thousands, plus the small time at-home operations. New brokers and closers, and small time stuff pops up daily. Entities are changed, switched around, merged, bought & sold constantly. Even if you lifetime ban someone, there's nothing to prevent them from whipping up a brand new, perfectly legal corporate entity with subsidiaries and branches and partners and you name it, and moving right along.