David Arkush

'Too Big to Jail' Is a Grave Threat to Financial Stability and Economic Recovery

2013-03-07T12:28:26-05:00

The big news yesterday in financial services regulation is Attorney General Eric Holder's stunning statement before the Senate Judiciary Committee that some banks may be too big to prosecute:

I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if you do prosecute, if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy, and I think that is a function of the fact that some of these institutions have become too large.

Here's the video.

Too-big-to-fail just got much more frightening.

A little over a year ago, Micah Hauptman and I petitioned the Financial Stability Oversight Council to break up Bank of America because it poses a "grave threat" to the financial stability of the United States. The same logic applies to other large banks, as suggested in this letter signed by advocacy groups, professors, and other experts. Our petition argued that regulators must exercise their Dodd-frank Act authority to break up "grave threat" banks well before one of them is on the brink of collapse. Otherwise, that authority will likely be useless. Same goes for Dodd-Frank's orderly liquidation authority, which is intended to avoid bailouts. In short, the solution too-big-to-fail is to transform an institution like Bank of America into units that are smaller, less interconnected, more manageable, and more stable -- and Dodd-Frank gives regulators the authority to do just that. It arguably requires them to use it, or else significant portions of Dodd-Frank will become nullities. As it turns out, the government hasn't just ignored our petition. It has secretly extended new bailouts to Bank of America, releasing the bank from billions of dollars in fraud claims.

Our argument regarding the "grave threat" to financial stability centered on Bank of America's precarious financial condition. But a U.S. policy that big banks and their executives are largely immune from criminal prosecution will give "grave threat" a whole new dimension. The mere existence of too-big-to-jail institutions likely poses a grave threat to the economy regardless of their present financial condition. Executives of the largest banks will have strong incentives -- in fact, they will face market pressure -- to engage in reckless, even disastrous, criminal conduct, so long as it benefits them in the short term. Honest banks will be out-competed by those that press these unfair advantages to the fullest.

Setting aside the incentives of individual large banks, the rule of law itself is one of the most important conditions for a healthy economy. Too-big-to-jail cuts directly against the rule of law. How is the economy supposed to function if we can't trust the institutions that hold deposits, process payments, underwrite stock offerings, and so on?

The government needs to take this seriously. It ought to take immediate steps to demonstrate that Holder's comment does not reflect U.S. policy, and words alone won't suffice, given so many previous statements and actions to the contrary. I have no illusions that this will happen, but we're in for a rough ride without it.

President Obama Appoints Cordray to Head CFPB Over Republican Obstruction

2012-01-04T17:47:52-05:00

This morning President Obama appointed former Ohio Attorney General Richard Cordray to head the Consumer Financial Protection Bureau. It's was the right move, and it's about time.

In December, Senate Republicans blocked a vote on Cordray, who has majority support. In an unprecedented move, Republicans said that Cordray was a fine candidate, but they were holding his nomination hostage because they wanted to change the underlying law and weaken the agency. In another unprecedented move, Republicans claimed that the House of Representatives (which is Republican-controlled) could hold the Senate (controlled by Democrats) in session to block recess appointments.

Today, Obama used his constitutional power to make a recess appointment and cut through all this nonsense.

The big banks and their allies in Congress are in a tizzy. They're steamed. But not for the reasons they say. They claim the president didn't have authority to appoint Cordray, but he did. For example, they say a three-day recess is too short for a recess appointment. But this is really a five-week recess, with some phony gavel-banging thrown in by a single Senator once every three days. In reality, the Senate is out of town. Even if it's a three-day recess, Cordray's appointment is legal. The only court to have looked at the question recognized the obvious: the Constitution "does not establish a minimum time that an authorized break in the Senate must last to give legal force to the President's appointment power under the Recess Appointments Clause." Two past presidents -- Harry S. Truman and Theodore Roosevelt -- made recess appointments during recesses of three or fewer days. And let's not forget: The Republicans didn't have the power to keep the Senate in pro forma sessions anyway.

What's the real reason the big banks and the Republicans are so mad? Because they lost this battle in the war over America's economy. They want big banks to be above the law, to write their own rules, and to compete, if at all, principally on the basis of who scams their customers the most. (The consumer financial sector rotted several years ago, plain and simple.) They want the same system we had before 2008 -- in which big banks raked in billions in profits and government handouts while the economy crashed and millions of people lost their jobs and were thrown out of their homes.

The CFPB and Cordray's appointment are victories for those who have something else in mind. Most people want to get the financial sector back on track, to build a fair economy in which everyone plays by the rules and -- call us old-fashioned -- to have businesses compete to provide consumers value. If you're one of those people, you won a big victory today.

President Obama's Next Moves on Leadership for the Consumer Financial Protection Bureau

2011-12-14T22:50:58-05:00

As expected, last week Senate Republicans blocked President Obama's nomination of Rich Cordray to lead the new Consumer Financial Protection Bureau (CFPB). They continue to hold the agency hostage, taking the unprecedented step of blocking its leadership unless the agency is first weakened.

Still, there were a few small signs that the Republicans are feeling some heat over their stand against American consumers. On the eve of the vote, Ohio Senator Rob Portman said that even if the Republican filibuster held, he didn't think Cordray's nomination was dead and he wanted to work toward a compromise. And Maine Sen. Olympia Snowe surprised everyone by declining to vote at all. She cited the potential perception of a conflict of interest due to the fact that the CFPB will have jurisdiction over her husband's business. What's odd is that Sen. Snowe was actively involved in the 2010 Senate debate over creating the CFPB, and she even sponsored a successful amendment to weaken the agency. For some reason, it didn't occur to her until the eve of an uncomfortable vote that she should recuse herself from such matters. Together with Massachusetts Sen. Scott Brown's November announcement that he would support Cordray, that makes three Republican senators who have shown signs of strain.

The key question is, what's next for the Cordray nomination? Will President Obama press his advantage and win the nomination, or will the effort stall?

The president has two good options. One is to appoint Cordray during the next Senate recess, which means by January 3. The other is to continue holding votes on Cordray, forcing the intransigent Republicans to face increasing public pressure until they give in (or the president makes a recess appointment). Even though President Obama said after the vote that he won't "take any options off the table," there's little reason so far to think he's charting either of these courses. But he should.

First, let's do a quick recap of the law on a recess appointment. Then we'll talk politics.

The Law

The president has two legal paths to a recess appointment in the coming weeks. First, as I've written multiple times, the House of Representatives claims that it can hold the Senate open to block a recess appointment, but the House can't do that without the president's consent. If the House and Senate disagree on whether to adjourn, the president can adjourn them both.

Second, President Obama can appoint Cordray when the current session of Congress ends, which must happen by January 3 (the 20th Amendment requires that annual congressional sessions begin on January 3). In between the old and new sessions the Senate must be in recess, even if only for an instant. Obama would not be the first president to make an appointment during this type of recess. On December 7, 1903, President Theodore Roosevelt appointed 169 military officers during a recess that appears to have lasted no more than an instant. At noon on that day, the Congress ended an extraordinary session and began a regular session, and that's when Roosevelt said his appointments took place. Obama can do the same on January 3.

The Politics

So the question isn't whether the president can appoint Cordray, but whether he will do it. He certainly should. To appoint Cordray would benefit America families and Obama's political campaign. It's a good deal for a sitting president.

Some people think the Obama campaign will delay moving quickly on Cordray so that the president can enjoy the benefits of the fight longer. It fits right in with his new narrative about fighting for a fair economy. But the president doesn't need to sit on the Cordray nomination to keep pushing the Wall Street vs. Main Street line. In fact, that would be a mistake. When you're winning, you need to press for victory, not let up. Then when you win, you pick another good fight quickly. You keep the opposition off balance. To allow the Cordray nomination to linger would give the opposition the chance to regroup, dig in, and fight back.

A failure to move quickly on Cordray would also expose the president to the criticism that he's not actually taking a strong stand for American families. That criticism would muddle the message that the White House is trying to send: "We're on your side, America. The Republicans are with the big banks."

To be clear, one good course of action involves prolonging the Cordray fight: holding a series of votes to keep the pressure on Senate Republicans. Those votes could yield real policy benefits in addition to whatever they do for political campaigns. If enough Republicans were to give in and vote to confirm Cordray, he'd have a 5-year term. In contrast, a recess appointment would last only through the next congressional session, meaning no more than one year, though he could be reappointed.

Right now, the signs aren't good for a recess appointment or a series of votes. Media outlets have reported that Sen. Majority Leader Harry Reid is unlikely to make House Speaker Boehner try to hold the Senate open. In anticipation of Boehner's refusal, Reid likely will hold it open without attempting to adjourn. And if Senate Democrats were planning to hold a series of votes on Cordray, they should have started already.

Some people I've spoken with are concerned that the president will avoid a recess appointment for fear of being accused of doing something unjustified or inappropriate. This would be a mistake.

First, the administration should dismiss out of hand the view that perhaps the president should avoid using his constitutional power to adjourn the Congress merely because it has never been used before. The reason we're having this conversation in the first place is that the House is engaged in an unprecedented bid to block a presidential nomination by holding the Senate open -- something that isn't constitutional. The House has no business meddling in nominations, which the Constitution assigns to the president and the Senate; and the House has no authority to hold the Senate open without the president's consent.

Also, the mechanics of making the appointment and responding to accusations aren't complicated. For example, the White House could set up a recess appointment as follows: The Senate adjourns and goes home for the holidays when the House does. The president makes a recess appointment. If the Republicans accuse the president of wrongdoing, the White House can respond by saying,

What a strange suggestion. Under the Constitution, one house of Congress can't hold the other in session alone. The president must agree. It's a balance-of-powers issue. In this case -- where House Republicans want to hold the Senate open to block a consumer agency from protecting American families -- the president does not agree.

If the president pursues the other recess appointment path -- the one in which Majority Leader Reid technically keeps the Senate open during the holidays and Obama appoints Cordray between the old and new congressional sessions on January 3 -- then the White House can respond to allegations that the president is exploiting a technicality as follows:

On January 3, the 112th Congress ended and the 113th Congress began. Between the two was a recess, and the president appointed Rich Cordray during that recess. Republicans claim that this recess was a meaningless technicality. But their argument is no different. They claim that the Senate was technically in session for the past two weeks because a single senator showed up every few days to flick the lights on and off. In reality, the Senate was on recess. The Senators weren't here doing business. They certainly weren't available to vote on nominations. They were home for the holidays.

The Republicans can't have it both ways. Either we dispense with all the technicalities and the Senate was on recess for the past two weeks -- in which case the president appointed Cordray during that recess -- or we follow the letter of the law and the president appointed Cordray during the recess between sessions of Congress.

By the way, does anyone doubt that if the circumstances were reversed -- if the Republicans stood to win something by arguing that there technically will be a recess on January 3 -- they would not hesitate to make that argument?

Finally, the White House shouldn't forget that absurd and hyperbolic attacks are inevitable. They have been a constant ever since Obama took office and congressional Republicans vowed to waste four years doing little but trying to hold his presidency to a single term. Under those circumstances, there is no sense in President Obama compromising his positions in an attempt to blunt criticism.

He should keep up the fight.

White House, Senate Democrats Turn Up the Heat on Cordray Nomination to Head New Consumer Agency

2011-12-06T18:31:32-05:00

This week, the White House and Senate Democrats launched a new campaign in the long fight over leadership for the Consumer Financial Protection Bureau (CFPB). The Senate will likely vote on Thursday, December 8 whether to hold an up-or-down vote on President Obama's nomination of former Ohio attorney general Rich Cordray. In a striking display of allegiance with big banks against the American people, Senate Republicans are poised to block the nomination. Last May, 44 Republican senators vowed to block any director of the CFPB unless the agency is substantially weakened.

Thursday's vote will set up President Obama to make a recess appointment in the coming weeks, showing the American people that he stands with them against Wall Street and its political allies. The vote also will let the president spend the rest of his reelection campaign making Republicans regret having taken a stand against American consumers. Think of it as a fast break, with Harry Reid throwing one off the backboard for Obama to jam home.

One question is whether Senate Republicans will surprise everyone and give in this week. Another is whether Obama is finally ready to suit up and run the floor.

Here's a quick recap of events for those who don't live and breathe financial reform: Congress passed a law creating the CFPB in July 2010. Many advocates urged President Obama to nominate Elizabeth Warren to head the agency immediately. Warren came up with the idea for the agency, worked tirelessly to create it, and showed through her leadership of the Congressional Oversight Panel for the TARP that she's just the kind of tough, independent, common-sense advocate that American families need. If Republicans wanted to fight over her nomination with an election coming, that was their problem.

But alas, President Obama flinched. He appointed Warren to set up the agency not to direct it, saying he wanted to avoid a lengthy confirmation fight with Republicans. Nine months later, Warren was still under consideration to head the agency when 44 Senate Republicans -- still afraid to pick a fight over Warren in public but emboldened by the lack of accountability for their Wall Street allegiance -- came up with a new demand: they would oppose any nominee to run the CFPB unless the agency was first weakened.

Let's take a moment to consider this position. These 44 Senate Republicans are fighting to weaken an agency that a democratically-elected Congress just created. They are criticizing the agency for being too independent and too powerful even though they haven't complained about banking regulators that have at least as much power and even more independence. And they are opposing oversight and accountability for banks that just crashed the economy with an array of reckless and predatory acts, putting millions out of work and out of their homes.

Not to be outdone, House Republicans also got in on the action. Like many Americans, you might think it's not quite right that a minority of senators can block a nomination that has majority support. House Republicans are trying to top that. An obscure clause in the Constitution says that each house of Congress must get permission from the other to adjourn for more than three days. So apparently for the first time in U.S. history, House Speaker John Boehner decided last May to withhold permission for the Senate to leave town. By keeping the Senate in session, he is foreclosing another avenue for President Obama to install a director of the CFPB -- an appointment when the Senate is on recess.

Now when Senate Majority Leader Harry Reid says, "We'd like to go home, please," House Speaker Boehner says, "No dice. But I'm leaving -- see you later, suckers!"

Just kidding. Most members of Congress actually go home. But once every three days, a member of each house shows up for a few minutes to bang the gavel, declare the chamber in session, and then declare it out of session again.

Let's hope they also say a prayer for the long-term viability of a country governed by such rules.

It is astounding that any elected official can get away with this nonsense, but the Republicans have been doing it for months. President Obama appears to be betting that they can't get away with it for long. In fact there are signs that Senate Republicans are feeling some heat. For example Massachusetts Senator Scott Brown recently announced that he would support Cordray's nomination. Brown is in a special position, to be sure. He happens to have a formidable opponent for his senate seat: Elizabeth Warren herself. Still, we might see other defections if the fight drags on long.

But it shouldn't. The American people have gone too long without someone in the federal government looking out for them instead of the big banks. And House Republicans do not actually have the power to block a recess appointment indefinitely. First, the current session of Congress must end by January 3 because that's when the new session will begin. (The Twentieth Amendment to the U.S. Constitution says that annual congressional sessions "shall begin at noon on the 3d day of January, unless they [Congress] by law shall appoint a different day"). When Congress adjourns the current session and begins the next one -- even if Republicans attempt to make the switch really fast -- there must be a moment in there when Congress technically is not in session.

But there's also a more direct path. House Republicans do not actually have the power to prevent a Senate recess. Although the Constitution authorizes the House to keep the Senate in session against its will (Article I , Section 5), it also says that if the two houses of Congress can't agree when to adjourn, then the president can adjourn them both (Article II, Section 3). President Obama should appoint Rich Cordray to head the CFPB during the congressional recess over the holidays. If there is no recess -- if the House continues to meddle with the president's and the Senate's constitutional authority over nominations and insists that a few members of Congress must spend their vacations occasionally flicking on and off the lights in the Capitol -- then President Obama should not hesitate to put an end to the nonsense. He should use his adjournment power to take a stand for the American people against the Wall Street's devastation of the economy, and against Republican shenanigans on Wall Street's behalf. It's time to appoint Rich Cordray to lead the CFPB.

Maybe the Republicans will realize their folly and give in on the CFPB. It's still worth telling your senators to confirm Cordray. But if they don't, then I'll ask you soon to weigh in with the president.

Starbucks: Stop Taking Away Your Customers' Rights

2011-12-02T11:02:12-05:00

If you're one of millions of Starbucks customers who might buy or receive a prepaid card this holiday season, you might want to take a moment to send Starbucks a message: Don't take away my rights!

Buried in the fine print of the terms and conditions for Starbucks's prepaid cards is language saying, in effect, that you can't sue the company -- not even if it steals the money from your prepaid account. It's an odd stance for a company that portrays itself as consumer-friendly and socially responsible.

How can Starbucks take away your constitutional right to go to court? Because of an obscure 1925 law called the Federal Arbitration Act. The law was passed to ensure that sophisticated business parties are bound to their agreements to resolve disputes out of court. Imagine Starbucks makes a promotional deal with Lady Gaga, and later the two have a dispute over their contract. Instead of going to court, they might agree to go to binding arbitration with no appeals -- maybe to a particular arbitration firm that specializes in the quick resolution of conflicts between coffeehouses and Fame Monsters. If at the end of the arbitration either Lady Gaga or Starbucks doesn't like the result, they're stuck. The Federal Arbitration Act says they can't come crying about it to a judge.

Somewhere along the way, big companies got the idea of using the Federal Arbitration Act to force their customers and employees to pursue legal claims in private, secretive, company-friendly tribunals. Some of the real courts shrugged and signed off on the practice. The federal courts not only signed off but held that states can't protect their citizens from the practice. The Federal Arbitration Act stops them.

Eventually some companies figured out how to grant themselves virtual immunity from most consumer and employee claims. Last April, the Supreme Court held in AT&T v. Concepcion that companies can use the fine print of their contracts to ban class actions by their customers (and presumably their employees). Before Concepcion, class action bans were illegal in 20 states. The reason is that many claims aren't feasible on an individual basis, so a company that bans class actions effectively puts itself above the law in those cases.

Take your AT&T cell phone bill--or *ahem* your Starbucks prepaid coffee card. Say the company violates the law and charges you $2 illegally. Would you go to court over $2, or for that matter present your claim before the company's hand-picked arbitration firm in Seattle? Hardly. As one the country's most respected federal judges put it, "only a lunatic or a fanatic sues for $30." The legal system has an answer to this problem: the class action. If your $2 claim can be joined with those of 10 million other customers, then it's worth bringing a lawsuit to recover $20 million in ill-gotten gains.

Blocking this kind of accountability is what forced arbitration clauses are all about.
On Tuesday, Public Citizen and three other groups wrote to Starbucks, asking it to remove the forced arbitration provisions from its prepaid card contract. We also launched a petition campaign.

Why fuss about Starbucks in particular? Well, first of all, we plan to pick on some other companies too in the coming months. But what's interesting about Starbucks is that the company works so hard to project an image of social responsibility and consumer friendliness. We expect aggressive, anti-consumer campaigns from a company like AT&T. It has the lowest customer satisfaction among mobile providers, a set of companies that consistently drive their customers batty. You have to work pretty hard to be the worst of the worst. Maybe AT&T has specialists working around the clock to ensure that its customers are never satisfied.

The good people at Starbucks want us to expect more from them.

Tell them you do.

Republicans Do Not Have the Power to Block an Elizabeth Warren Recess Appointment

2011-06-21T11:39:49-04:00

If you're following the story of whether President Obama will nominate Elizabeth Warren to head the Consumer Financial Protection Bureau (CFPB), you've probably heard that the Republicans found a way to block even a recess appointment. It turns out that's mistaken.

Media outlets have reported that the Republicans, despite being the minority party in the Senate, can block not only Senate confirmation by the Democratic majority (using the standard filibuster), but also a recess appointment -- by stopping the Senate from adjourning. How can the minority party stop the Senate from taking a break? Press accounts haven't explained or elaborated on the point, except to report that apparently it's the House -- meaning Speaker Boehner -- that can hold the Senate open. That doesn't explain much.

Here's the rule:

Neither House, during the Session of Congress, shall, without the Consent of the other, adjourn for more than three days, nor to any other Place than that in which the two Houses shall be sitting.

That's Article I, section 5, clause 4 of the U.S. Constitution. You have to hand it to the House Republicans. They read the Constitution.

But they may not have read the whole thing. A little bit later -- in the very same Constitution -- is this passage on presidential powers:

[The President] shall from time to time give to the Congress Information of the State of the Union, and recommend to their Consideration such Measures as he shall judge necessary and expedient; he may, on extraordinary Occasions, convene both Houses, or either of them, and in Case of Disagreement between them, with Respect to the Time of Adjournment, he may adjourn them to such Time as he shall think proper; he shall receive Ambassadors and other public Ministers; he shall take Care that the Laws be faithfully executed, and shall Commission all the Officers of the United States.

That's Article II, section 3, clause 3 (the emphasis is mine, not the founders'). Yes, you read it correctly. If the Senate wants to adjourn and the House won't permit it, the President can adjourn both houses of Congress. That would be a fitting end to the House meddling in nominations -- a power the Constitution expressly assigns to the President and the Senate, not the House.

Below is the letter I sent to President Obama today, urging him to exercise his "adjournment power" if necessary to appoint Prof. Warren. Please sign our petition asking him to appoint her.

President Barack Obama
1600 Pennsylvania Ave, NW
Washington, DC 20500

June 21, 2011

Dear President Obama:

On behalf of more than 225,000 Public Citizen members and supporters, I urge you to install Professor Elizabeth Warren as director of the Consumer Financial Protection Bureau (CFPB) -- including by recess appointment if necessary.

Few would dispute that Professor Warren is the best candidate to lead the CFPB. She is among the nation's leading experts on consumer financial protection. At the same time, she is no ivory-tower academic. Her expertise is complemented by an understanding of the financial problems of ordinary Americans and a passion for making markets work for them. She is also a superlative spokesperson and, in standing up the CFPB, she has shown that she is a highly competent manager and administrator.

There is no legal obstacle to making Professor Warren the CFPB's first director. Contrary to press reports, the House of Representatives cannot hold the Senate open to block a recess appointment. When the House and Senate cannot agree on the timing of adjournment, the Constitution explicitly provides the President the power to adjourn the Congress:

[H]e may, on extraordinary Occasions, convene both Houses, or either of them, and in Case of Disagreement between them, with Respect to the Time of Adjournment, he may adjourn them to such Time as he shall think proper . . . .

U.S. Const. Art. II, § 3 (emphasis added). The use of this "adjournment power" would be particularly appropriate if the House prevents Senate adjournment in a bid to interfere with the appointment of certain public officials, a matter that the Constitution explicitly assigns to the President and the Senate.

Senate rules permit just 41 senators to block the Senate from voting on a nominee, and 44 Senate Republicans have stated that they will oppose any nominee for the CFPB unless the agency is weakened. Negotiating to weaken the CFPB is unacceptable. Unless at least four senators change their minds, thereby providing the 60 votes necessary to hold a simple majority vote on a nomination, you will need to make a recess appointment to secure a director of the CFPB.

I urge you to nominate Prof. Warren to head the CFPB and, if House obstructionism makes it necessary, to use your adjournment power so that you can appoint her during a Senate recess.

Sincerely,

David Arkush
Director
Public Citizen's Congress Watch division

cc: The Honorable Harry Reid, Senate Majority Leader

This post was edited to add the request to sign a petition urging President Obama to appoint Prof. Warren.

An Open Letter to Chairman Patrick McHenry Regarding Accusations Against Professor Elizabeth Warren

2011-05-31T09:08:41-04:00

Chairman Patrick McHenry
Subcommittee on TARP, Financial Services
and Bailouts of Public and Private Programs
Committee on Oversight and Government Reform
House of Representatives
Washington, D.C.

May 31, 2011

Dear Chairman McHenry:

On Tuesday, May 24, you twice accused Professor Elizabeth Warren, special assistant to the president and special advisor to the secretary of the Treasury, of dishonesty in her statements to a congressional committee. The public record contains no evidence to support the allegations. It is unbefitting a member of Congress -- not least the chairman of an important oversight subcommittee -- to accuse someone of lying to a congressional committee without adequate basis. On behalf of more than 225,000 Public Citizen members and supporters, I write to request that you clarify this matter by disclosing records that will permit the public to evaluate your accusations.

Professor Warren is charged with standing up the Consumer Financial Protection Bureau (CFPB), the agency created in the summer of 2010 to protect consumers from unfair, deceptive and abusive practices in markets for financial services. If it operates well, the agency will prevent not just individual abuses, but also the economic instability that arises from them -- like the predatory mortgage practices at the root of the current financial crisis and recession. This mission is laudable -- indeed, critical -- and Professor Warren has advanced it with skill, ingenuity and openness.

There exists on Capitol Hill a silly and shameful campaign to discredit Professor Warren and weaken the CFPB, which your actions have advanced. In addition to your unsupported accusations against Professor Warren, you have made untruthful claims about the CFPB. For example, you have said the agency has "virtually unchecked discretion," even though it has a severe, unprecedented check on its discretion in the form of veto power by other financial regulators (including the very banking regulators who have been too cozy with banks and failed to prevent the current financial crisis). You also have said the agency's "budgetary authority" is "unparalleled" because it does not derive from annual appropriations. But the Federal Reserve's budget also does not derive from annual appropriations. Moreover, unlike the CFPB's, the Federal Reserve's budget is unlimited.

In light of these statements, one cannot help forming the impression that you might not be taking your job seriously, and that you might be serving your campaign contributors rather than your constituents. Your top contributor is Wells Fargo. Also among your top twenty are Bank of America, the American Bankers Association and the National Association of Realtors.

I urge you to change course. You should clarify these matters immediately and leave no reasonable person to question whether you are committed to serving the public and engaging in an honest exchange of ideas about policy.

There are two accusations in question, both arising out of Tuesday's oversight hearing. First, in your opening statement, you said that you had "concerns about the veracity" of Professor Warren's earlier testimony that her role in mortgage fraud settlement negotiations was "limited to 'advice.'" The only support you offered for the accusation was that Professor Warren was in "dozens of meetings with federal and state officials about these settlements" and that the CFPB produced a PowerPoint presentation about settlement possibilities.

Neither attending meetings nor producing a PowerPoint slideshow is inconsistent with giving advice. In fact, attending meetings and committing thoughts to paper are sensible activities for someone advising others on an important matter.

During the hearing, you added to this accusation by implying that Professor Warren had been dishonest when she previously stated that she was providing advice to federal officials because she was also providing advice to state officials. In response, Professor Warren read aloud a letter that she had sent you over two months ago, which stated that she was advising both federal and state officials, to which you did not respond.

Second, when Professor Warren stated that she had an agreement with your staff that she would attend yesterday's hearing for only one hour, you stated flatly, "You're making this up." This accusation was particularly jarring. To a third-party observer, it seems exceedingly unlikely that Professor Warren would simply fabricate an agreement with your staff. It is much more likely that you did not know the details of your staff's communications with her, or that she and your staff had a misunderstanding. The speed and casualness with which you accused her of lying -- under oath, no less -- was breathtaking. It was shameful behavior for a sitting member of Congress, unless you have a strong basis for the accusation.

In a subsequent press statement, you added another accusation -- also unsupported, seemingly even sillier than the initial one -- that Professor Warren tried to "dictate a one hour time limit for her testimony." It is only reasonable, given the multiple changes of schedule for the hearing and your open attempts to bully a busy public servant with a full schedule, that Professor Warren or her staff might try to reach an understanding with your staff regarding the boundaries of her obligation to you on a given date. You have provided the public no reason to think Professor Warren thought she could "dictate" the duration of her testimony, rather than merely negotiate it or simply try to reach a firm, reliable understanding of it.

You also have released three emails, apparently in an attempt to substantiate your claim that Professor Warren "made up" the notion of an agreement. The emails fall short for two reasons: First, there is no reason to believe they are an exhaustive account of relevant communications. In fact, one of them refers to an earlier telephone conversation. There may have been later telephone conversations or later emails. More important, the emails do not rule out the possibility of a misunderstanding, rather than a lie. There could have been a misunderstanding between Professor Warren's staff and your staff, or between her staff and herself. They fall far short of proving that Warren "made up" what she said to you about an agreement.

Please provide the public evidence to support your claims:

1. Please provide evidence of a role Professor Warren has played in settlement negotiations that is inconsistent with giving advice. Equally important, please state clearly what non-advising role you believe Professor Warren has played -- for example, has she claimed authority over the negotiators? -- with evidence to support that claim.

2. Please release records or any other information sufficient to support your accusation that Professor Warren fabricated the claim that she had an agreement with your staff -- that she had neither an agreement nor a misapprehension regarding an agreement.

If you are unwilling or unable to provide the evidence requested, I urge you to retract your accusations immediately. It is deeply inappropriate for a powerful member of Congress to level a baseless accusation that an individual has perjured herself before a congressional committee. You should be as committed to telling "the truth, the whole truth and nothing but the truth," just as you require of witnesses you swear in.

Sincerely,

David Arkush
Director
Public Citizen's Congress Watch division

The U.S. Chamber's Big Lie on Election Spending

2011-05-12T13:21:45-04:00

A few weeks ago, the Obama administration circulated a draft executive order that would require companies seeking federal contracts to disclose their political spending, including the new spending that the Supreme Court permitted in Citizens United v. Federal Election Commission. Citizens United gives corporations the right to spend unlimited sums to elect candidates. They can spend the money themselves or funnel it through independent groups (corporations still can't give directly to candidates or parties in federal elections -- not that it matters anymore).

Obama's proposed executive order

The Obama proposal is modest. The better approach, in force in eight states and several localities, is to outlaw legalized bribery from government contractors outright, not just to require that it be disclosed to the public. But the proposed executive order is necessary to prevent most political spending from scurrying out of the sunlight.

Here's another reason why the order is modest: The law already requires corporations to disclose all other election spending -- mainly contributions by management to the company PAC, and PAC contributions to candidates and parties. Under the law, the new Citizens United money should be disclosed too -- except that the Federal Election Commission (FEC) opened up a large loophole that directly contradicts the statutory disclosure requirement. In effect, the executive order would merely take a step toward closing this loophole.

And here's why the order is necessary: The FEC's loophole is so big that you can drive most corporate election spending through it. The loophole lets companies can spend unlimited amounts on elections in the dark, directly from the corporate treasury. If you're a CEO who wants to buy a fat government contract, why would you spend your own money, in a way that lets the public see your campaign contributions, when instead you can use your company's money and spend it without the public knowing?

To bring this back to the executive order, most major U.S. corporations are government contractors. The U.S. government doesn't just buy stealth bombers; it buys pencils, toothbrushes and telephones. Requiring disclosure by government contractors sweeps back in most major corporations. It's a good approach.

The Chamber's lies... and intimidation

The U.S. Chamber of Commerce and its allies hate the proposed executive order, for at least two reasons. First, the order would stop major corporations from legally buying, bribing, and intimidating elected officials in secret. You may like the idea of basing government contracts on merit, not political power, but the Chamber does not. And you might like the idea of elected officials serving their voters rather than their corporate underwriters, but the Chamber disagrees with that too.

Second, the Chamber itself is a major player in electoral politics. The order would require the Chamber to disclose the contributions that it receives to run election ads.

Of course the Chamber and its allies can't admit their real reasons for opposing the order, so instead they're just lying about it: According to the Chamber, the Obama administration wants contractors to disclose election spending so the administration can "retaliate" against those whose political views it disfavors. Senate Minority Leader Mitch McConnell says he's concerned that the administration wants to "silence or intimidate political adversaries' speech."

These claims could hardly be more distant from the truth. Government officials already know who's trying to influence them by spending money on elections. The spenders, mostly corporations and wealthy individuals, make sure of that. If you're trying to bribe a politician to do you a favor, it helps to make sure they know who you are. So under current law, the only people who won't know what's going on are the voters. Major corporations want to be able to intimidate and retaliate against elected officials who don't do their bidding -- not the reverse.

Don't just take my word for it. For one thing, a Public Citizen survey released Wednesday found Democratic Hill staffers beginning to admit being influenced by the fear of election spending against their bosses.

And then there's the New York Times' coverage of the Chamber's reaction to the draft executive order: The Chamber, said R. Bruce Josten, its chief lobbyist, "is not going to tolerate" the proposal. He elaborated, "We will fight it through all available means... to quote what they say every day on Libya, all options are on the table."

It's not every day you hear a sophisticated Washington lobbyist talk openly about waging war on the president of the United States as if he's a dictator who slaughters his own citizens. You generally only talk that way if you're delusional -- or maybe drunk on power.

Let's just say the Chamber knows a thing or two about intimidation.

Sign a petition urging President Obama to stand up to the Chamber and sign the executive order.

(This post was edited on 5/12/11 to correct two small editing errors and make a sentence clearer.)

Senate Republicans Give up on Opposing Elizabeth Warren for CFPB, With a Twist

2011-05-06T19:16:36-04:00

On Thursday, 44 Senate Republicans signed a letter to President Obama stating that they will oppose any nominee to head the Consumer Financial Protection Bureau (CFPB) unless the Bureau is first weakened dramatically. This is an interesting development.

Here's what's really going on, that the papers won't be reporting: This letter signals that the Senate Republicans have surrendered their fight against Elizabeth Warren. In recent weeks there has been a strong, growing belief in Washington that the president will nominate Warren to head the CFPB. Public Citizen has been urging Obama to nominate her since last summer, and saying it's a fight worth having. Warren is an outstanding champion for consumers. If the American public gets more exposure to her, they will love her. Wall Street and its congressional allies would be bruised and muddied by a nomination fight; she and the CFPB would be strengthened.

Apparently the Senate Republicans understand this. So they are doing the best they can to retreat strategically. It's not a bad strategy: First, they are pretending their fight is about something else. They say they would oppose any nominee, not just Professor Warren, because the agency is structurally flawed. Second, they are forcing the president to make a recess appointment, which they will use to claim that he and the agency are unaccountable and undemocratic. Their arguments about the agency are specious, as recent congressional debate has shown. It's clear that they simply oppose a strong consumer protection agency.

The Senate Republicans' strategic surrender -- giving up on fighting Warren and saying instead that they would oppose anyone -- leaves President Obama no choice but to appoint a CFPB director during a Senate recess. It also leaves him no reason to appoint anyone but the strongest candidate, Elizabeth Warren. That's an excellent development.

But the president shouldn't fall into the trap that's been set -- letting Wall Street and its congressional allies avoid a public conversation about Elizabeth Warren and the agency. They are on the run. The president should not miss the opportunity to introduce more Americans to Professor Warren, and to have the debate that Wall Street and its congressional allies fear. He should nominate Professor Warren immediately and tout her and the CFPB loudly. The Senate should hold hearings on her nomination right away. They should make sure the American public sees Warren and hears her message -- and sees and hears the opponents of strong consumer protection.

Then, if Republicans continue to block her nomination, the president should appoint Warren during the next Senate recess, the week of Memorial Day.

Sign a petition calling on President Obama to nominate Elizabeth Warren.

U.S. Supreme Court to Major Corporations: You Write the Rules

2011-04-28T17:06:35-04:00

On Wednesday the U.S. Supreme Court sided with AT&T in AT&T Mobility v. Concepcion -- a decision with devastating consequences for consumer protection and civil rights. In essence, AT&T asked the court to allow it to use the fine print of contracts to eliminate class actions, a practice that flouts the laws of 20 states. In a 5-4 decision, the court granted AT&T's request.

The case's potential impact is breathtaking. Corporations can now prevent consumers and small business owners from exercising what is often their only real option for challenging companies that defraud them by millions or even billions of dollars: banding together to file class action lawsuits. The case could be equally devastating to millions of non-union employees, who need class actions to challenge systemic discrimination by their employers. The Supreme Court has given major corporations the green light to engage in nearly limitless wrongdoing against others, so long as they do it in relatively small dollar amounts, which ensures that no one can afford to challenge the misconduct without a class action.

A sudden demise of class actions will shock the markets and the legal system. It will dramatically increase the market power of major corporations over ordinary Americans and small business owners, who are already outmatched. Innumerable laws that protect the public will become irrelevant because few people can enforce them.

Yet for all these far-reaching implications, AT&T's achievement is remarkably ordinary. The company has secured a state of lawlessness similar to the one that allowed banks to foreclose on millions of homeowners without showing evidence that they had the right to do so. It has achieved a deregulatory regime similar to those that tanked the economy and destroyed millions of jobs, devastated the Gulf of Mexico with oil, allow thousands of preventable workplace deaths every year and threaten untold upheaval through climate change. Like the big banks, the oil and coal companies and the mine operators, AT&T simply wants to write its own rules. It's doing just that, through a practice that has become so ordinary we hardly notice the absurdity and injustice anymore: writing one-sided contracts and imposing them on others.

Why corporations are permitted to do anything important through standard-form contracts is somewhat of a mystery. Companies hire armies of lawyers to draft and redraft these contracts, claiming every new advantage they can wring out of legal developments. They secure "consent" by holding our credit cards or cell phones for ransom, saying we must submit to the new terms or immediately stop using them. Some companies even do this with people's jobs, telling employees they must sign new contracts or be fired (never mind that contract law is supposed to be based on mutual consent).

The average American is deluged with hundreds of thousands of fine-print words each year that no one reads and no one understands -- but that everyone is bound by. Avoiding these contracts is impossible unless one eschews most consumer products and services. Courts uphold adhesion contracts with a breeziness that is astonishing, especially since judges themselves don't read the fine print (John Roberts, chief justice of the U.S. Supreme Court, has said he doesn't read it). The effect is nothing short of privatization of the law, with major corporations writing the rules and imposing them on the rest of us.

If recent crises have taught us anything, it's that disaster follows quickly when companies have too little oversight. AT&T is pushing the outer limits of deregulation, seeking a world in which companies can use one-sided contracts to grant themselves immunity from accountability for a vast range of wrongdoing. Concepcion represents a giant leap toward a dystopian legal system that the Supreme Court should have rejected out of hand -- lawlessness for major corporations and corporate-made law for the rest of us.

But the Court rubber-stamped AT&T's scheme, so we need the Congress and administrative agencies to protect us. The Dodd-Frank Wall Street Reform and Consumer Protection Act gives the new Consumer Financial Protection Bureau (CFPB) and the Securities and Exchange Commission (SEC) the authority to eliminate abuses like AT&T's within their jurisdictions. The CFPB and SEC should get to work quickly. To solve the problem in every industry, not just financial services, Congress should pass the Arbitration Fairness Act, which Sens. Al Franken (D-Minn.) and Richard Blumenthal (D-Conn.) and Rep. Hank Johnson (D-Ga.) plan to introduce next week.

Sign a petition to support the Arbitration Fairness Act.

Roberts Court: Unclear, Activist, and Pro-Corporate

2010-11-19T13:02:40-05:00

New York Times' Adam Liptak recently wrote about a problem with Roberts Court opinions: They're very long, but they fail to give clear guidance on what the law is. The article focuses on causes like compromises between the justices and ghostwriting by clerks.

But there may be other ways in which this court's opinions are undermining clarity in the law. The court has been notably activist, overturning precedent that has been on the books for decades (or even a century) in areas ranging from campaign finance to antitrust. When the Supreme Court is so willing to overturn precedent, what is the law? Framed differently, how does one even craft arguments to this court? Citing the law won't cut it because the court might just ignore or overturn it. So one must look to the justices' individual politics and values. That has always been the case to some extent. But when the court is so willing to remake the law in a broad range of areas, individual political appeals become much more important. A devastating piece of evidence on this point came from AT&T's brief in AT&T Mobility v. Concepcion -- the pending case that could wipe away nearly all class actions. AT&T's lawyers made this argument:

Accordingly, California's professed belief that class actions are necessary for deterrence boils down to the proposition that deterrence is served by imposing on all businesses -- without regard to culpability -- the massive costs of discovery that typically precede a class certification motion and the inevitable multimillion dollar fee award extracted by the class action attorneys as the price of peace. In other words, because class actions always cost vast amounts to defend and eventually settle with a large transfer of wealth from the defendant to the class action lawyers no matter how guiltless the defendant may be, all businesses will be deterred from engaging in misconduct by the very existence of this externality producing procedure.

Note that this is a pure policy argument, not a legal argument. More important, it's politically charged hyperbole. Class actions "inevitabl[y]" end with "multimillion dollar fee awards" -- and "without regard to culpability!" AT&T has fought off many class actions, as have its lawyers. Hyperbole is a rather generous characterization of its argument here.

And look at some of the other language: Class action attorneys "extract" millions from defendants. Class actions "always cost vast amounts to defend" (another flat untruth that could be disproved by looking through AT&T's or its lawyers' files), and they eventually end with a "large transfer of wealth" to the class action lawyers "no matter how guiltless the defendant may be."

AT&T's lawyers are not hacks. They are some of the nation's best Supreme Court litigators. It is a devastating indictment of the Roberts court that these lawyers think repeating myths about greedy trial lawyers is an effective way to argue. They must think the court is brazenly activist and political.