News & Analysis
Success! ... CFPB's 'First Enforcement Action'
Consumer agency fines Capital One for card marketing ... The enforcement action, announced on Wednesday, is the first by the Consumer Financial Protection Bureau, which said it unearthed the activities through an examination of the bank. The CFPB was created by the 2010 Dodd-Frank financial reform law and is nearing its one-year anniversary. The government said $150 million of the sanctions will go to reimburse affected customers, while the remaining penalty will be split between the Office of the Comptroller of the Currency, which fined the bank $35 million, and the CFPB, which will collect $25 million. "We are putting companies on notice that these deceptive practices are against the law and will not be tolerated," said CFPB Director Richard Cordray. – Reuters
Dominant Social Theme: Now the government has begun to protect US consumers against financial-consumer fraud. This is a big step forward.
Free-Market Analysis: The mission statement of the newly formed Consumer Financial Protection Bureau (CFPB) is "To help consumer financial markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives."
Now the first enforcement action has been taken against Capital One. Here's how CFPB top guns announced it:
"Today's action puts $140 million back in the pockets of two million Capital One customers who were pressured or misled into buying credit card products they didn't understand, didn't want, or in some cases, couldn't even use," said CFPB Director Richard Cordray. "We are putting companies on notice that these deceptive practices are against the law and will not be tolerated."
Let's do a little math. The CFPB by its own admission extracted US$ 60 million for its coffers and those of the Comptroller of the Currency while sending a whopping US$ 70 per head back to customers that felt the sting of Capital One's whip on their tender collective shoulders.
The budget for the CFPB appears to be about US$ 125 million, "transferred" from the Federal Reserve (in whose offices the CFPB is currently housed). The CFPB is also authorized to request US$ 200 million in funds in case of apparent budget insufficiencies. This is certainly a lot of firepower that has been aimed at extracting US$ 70 per head.
A little more math ... per employee head. As of July 8, 2011, the CFPB has 400 employees, according to bureau literature, and was "growing rapidly." Let's estimate that the CFPB has by now hired on 1,000 employees. This would mean that the CFPB had collected per head US$ 25,000 for its own (collective) pocket versus US$ 70 for individuals affected by the Capital One fraud.
The point of these numbers is only to illustrate that FedGov is getting a pretty big piece of the pie versus the individuals who were actually damaged, according to the CFPB information.
And here is another question delivered within the free-market context that we support: What on Earth justifies this kind of legal and regulatory effort when the result is a US$ 70 reimbursement?
The litany of complaints that are aimed at Capital One sound grave, indeed, but when one considers the ultimate fine, the punishment seems somehow disconnected. Here's the breakout, courtesy of a Forbes magazine article on the topic:
Deceived about the nature of the products: Consumers were not always told that buying the products was optional. In other cases, consumers were wrongly told they were required to purchase the product in order to receive full information about it, but that they could cancel the product if they were not satisfied. Many of these consumers later had difficulty canceling when they called to do so.
Misled about eligibility: Although most of the payment protection benefits kicked in when consumers became disabled or lost a job, some call center representatives marketed and sold the product to ineligible unemployed and disabled consumers. Despite paying the full fees, they could not get all the benefits of payment protection; some later filed claims that were denied because their "loss" (e.g. loss of job or onset of disability) occurred prior to enrollment.
Misinformed about cost of the products: Consumers were sometimes led to believe that they would be enrolling in a free product rather than making a purchase.
Enrolled without their consent: Some call center vendors processed the add-on product purchases without the consumer's consent. Consumers were then automatically billed for the product and often had trouble cancelling the product when they called to do so.
You see? You may have been subjected to all of this, dear reader, and if you were, then sometime within the next year US FedGov will send you a check for seventy dollars.
Of course, we would like to point out (as a free-market oriented publication) that whatever Capital One does to its customers (who don't have to buy its products) pales in comparison to the Federal Leviathan that now keeps some six million prisoners – half of the world's prison population – incarcerated in a kind of Gulag sprawling across America.
We wrote that these charges leveled against Capital One "sounded grave." We are not necessarily of the opinion that they WERE grave. The worst of what FedGov seems to argue ultimately is that people who enrolled in the Capital One program had "trouble cancelling the product" when they wished to.
It occurs to us that the US Leviathan is engaged in about six overt or covert wars at the cost of US$ 1 trillion or more a year while the Federal Reserve itself seems to have issued something like US$ 25 TRILLION combating the current Great Recession.
Let's not forget about the trillions taken in by the IRS or the FedGov budget itself, which is something like US$ 3 trillion (and rising). Put all these trillions together and you've got what someone once called "real money."
But contrast the real money of countless trillions with the seventy dollars that FedGov intends to return to consumers as a result of the Capital One settlement! When you get done examining the numbers, what comes across most clearly is the corrosive contempt that those in power have for the US electorate.
We won't rehearse yet again the litany of difficulties with regulatory democracy. Regulations are price fixes and don't work, can't work and never work. Lawmaking generally is a kind of price-fixing and its results are never exactly as predicted.
Then there is the issue of where the fine is leveled. Actually, there is no such thing as Capital One Financial, but the US Supreme Court has agreed for some reason that corporations are people and thus a corporation can be fined like a person. What is less clear is whether a corporation can "feel" reprimanded and thus take steps to address whatever failure is being alleged.
In fact, it is somewhat doubtful that those who make up a corporation are much affected by a fine of this sort. It is not apparently aimed at any individual and probably does not have a great deal of long-term impact on Capital One's bottom line.
In any event, Capital One has issued a statement explaining that it didn't do anything wrong directly and has blamed third-party vendors for the problems for which it has been fined.
The CFPB has indicated it intends to charge other banks with similar wrongdoing. No doubt over time the complicit mainstream media, in cahoots with CFPB bureaucrats, will manage to make it sound as if the entire marketplace is filled with corruption and fraud.
The end result will be yet another reinforcement of the power elite's dominant social theme of "market failure." The idea is always to reinforce suspicion of the marketplace so that government swells. Since the power elite that wants to rule the world actuates its control via the levers of mercantilism, anything that expands government is a net positive.
Conclusion: Even forgetting about the larger elitist – "one world" – motivations, a cursory look at the CFPB's budget shows that the bookkeeping exercise includes estimates of "offsetting collections." Given the millions that FedGov has kept for itself, one wonders if this highly touted bureau is not merely intended to be another kind of revenue collector for a bloated, over-militarized and out-of-control central government.