Finance Brief: CFPB Lawsuit Against Navient Can Move Forward

Government Brief

  • Nonprofits seek to convince lawmakers to alter tax code proposals to include a “universal” tax deduction for charitable contributions. Charities are in danger of losing billions in financial support under current tax proposals that could dissuade donors by making deductions less lucrative. (CNN)
  • Republican tax reform consensus is blocked by disagreement about how low to cut corporate tax rates without contributing to the deficit. Top tax writers have said President Donald Trump’s goal of cutting the rate to 15 percent is unlikely, especially after a revenue-raising border adjustment tax was pulled from proposals last month. (The Hill)
  • GOP lawmakers looking to overturn a recently enacted Consumer Financial Protection Bureau rule to ban forced arbitration might have an uphill battle in the Senate. The House passed a resolution to overturn the regulation in July, but some Republicans in the Senate’s slim majority remain undecided, saying they are concerned overturning the rule would be portrayed as siding with big banks and against consumers. (The Wall Street Journal)

Business Brief

  • A CFPB lawsuit against student loan titan Navient can move toward trial after a judge ruled against Navient’s pleas for dismissal. The suit alleges that the company steered debtors toward costly and unwise financial moves to minimize its own costs. (Bloomberg)
  • The financial industry will likely emerge as one of the biggest winners if Trump keeps his promises to cut regulations and reinterpret others. Morgan Stanley analysts predict the administration’s deregulation plans could boost financial companies’ earnings by more than 15 percent. (CNBC)
  • The Commonwealth Bank of Australia said a coding error was responsible for the more than 50,000 times it failed to report large money transfers and suspend accounts linked to criminal activity. The bank could be fined several billion dollars for breaking anti money-laundering laws beginning in 2012. (Reuters)

Chart Review

Events Calendar (All Times Local)

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EPI event on Regulatory Accountability Act 10 a.m.
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Navient Can’t Block U.S. Claim It Duped Student Debtors
Shahien Nasiripour, Bloomberg

Student loan giant Navient Corp. has suffered a pair of courtroom defeats in its attempt to block government lawsuits alleging the nation’s largest student debt company mistreated borrowers. The losses come in a trio of lawsuits filed in January by the U.S. Consumer Financial Protection Bureau and state attorneys general of Washington and Illinois.

GOP Effort to Overturn Arbitration Rule At Risk of Republican Defectors
Andrew Ackerman, The Wall Street Journal

A Republican-backed effort to overturn a rule making it easier for consumers to sue banks has hit a snag: the Senate. At issue is a Consumer Financial Protection Bureau rule approved in July barring fine-print requirements that consumers use arbitration to resolve disputes over financial services.

Puerto Rico oversight board orders furloughs, governor defiant
Daniel Bases, Reuters

Puerto Rico’s federally appointed financial oversight board said on Friday it will institute a two-day per month work furlough for government employees, but a defiant Governor Ricardo Rossello rejected the measure out of hand. The plan, which originally envisioned a four-day per month furlough, is set to begin on Sept. 1 and last throughout the 2018 fiscal year in an effort to achieve $218 million in savings.

Euro Shrugs Off German Data to Rise; Crude Drops: Markets Wrap
Robert Brand, Bloomberg

The euro resumed gains against the dollar even as data showed German industrial production unexpectedly fell in June. Futures on the S&P 500 Index advanced 0.1 percent.


US haul from credit crisis bank fines hits $150bn
Kara Scannell, Financial Times

Financial institutions have paid more than $150bn in fines in the US relating to the credit crisis, passing a significant milestone a decade after it became clear American subprime woes had become a global problem. Ten years ago this week, France’s BNP Paribas barred investors from accessing money in funds with subprime mortgage exposure, citing a “complete evaporation of liquidity”.

As Black-Owned Banks Withdraw, Community Sounds Alarm
Sharon Nunn, The Wall Street Journal

Six CEOs of black-owned banks locked themselves in a New Orleans conference room for more than a day in late 2016. Surrounded by papers, drawing boards and PowerPoints, the group strategized ways to reverse a trend 15 years in the making: the decline of their own banking sector.

Behind HSBC’s U.S. retail banking turnaround
Laura Alix, American Banker

HSBC has traveled a long and winding road since the financial crisis. It endured heavy losses from the mortgage crisis, unloaded nearly 200 U.S. branches and later paid an infamous $1.9 billion fine for anti-money-laundering violations.

Financial Products and Investments

While big bills have failed, Wall Street sees opportunity in Trump’s massive deregulation movement
Thomas Franck, CNBC

President Donald Trump’s and the GOP’s formal legislative agenda may be stalled, but that is not stopping them from embarking on what may likely be the most massive deregulation effort the nation has ever seen. Trump has said he wants to gut as much as 75 percent of all government regulations throughout his time in office.

Regulators Penalties Against Wall Street Are Down Sharply in 2017
Jean Eaglesham et al., The Wall Street Journal

Wall Street regulators have imposed far lower penalties in the first six months of Donald Trump’s presidency than they did during the first six months of 2016, a comparable period in the Obama administration, according to a Wall Street Journal analysis. Lawyers who defend financial cases said a shift to a business-friendly stance at regulatory agencies in the Trump administration is one of several reasons for the decrease.

Housing and GSEs

A Mortgage Mystery: What Happens to ARMs When Libor Goes Away?
Christina Rexrode, The Wall Street Journal

The Libor index is going away. For U.S. consumers, its demise is most likely to be felt in adjustable-rate mortgages.

HUD poised to end Obama’s illegal Section 8 housing grant scheme
Todd Shepherd, Washington Examiner

The Department of Housing and Urban Development is poised to reverse the Obama administration’s policy and return to a competitive bidding process to award Section 8 housing, according to a well-placed source in the department. The move would overturn the Obama-era methodology of using a grant-style process that was rebuked by administrators and ultimately the U.S. Supreme Court.


How tax reform could hit charitable giving
Jeanne Sahadi, CNN

Plenty of factors can motivate charitable giving: Moral obligation, religious tithing, a desire to improve the world or leave a legacy. But another factor — the tax benefits for giving — could soon change if lawmakers push through tax reform.

GOP debates deep cut to corporate tax rate
Naomi Jagoda, The Hill

Republicans are wrestling with how low to cut the corporate tax rate. While GOP lawmakers and the White House all believe that the current rate of 35 percent is too high and makes the U.S. business climate less competitive, some policymakers want to cut it more deeply than others.

Financial Technology

Bitcoin Soars to Record as Buyers Look Beyond Miners’ Split
Justina Lee, Bloomberg

Bitcoin extended gains to a record, ignoring a split in the cryptocurrency over its future. The digital exchange rate jumped as much as 16 percent from Friday to an unprecedented $3,292.41, even after bitcoin’s division last week.

Countering West Coast Pull, by Helping Finance Start-Ups Sell in New York
Randall Smith, The New York Times

When Jeff Bezos, then a New York hedge fund employee, decided to start Amazon in 1994, he quickly moved to the West Coast. So did Mark Zuckerberg, who moved from Harvard to California in 2004 to find the technology talent and financing needed to build up Facebook.

Commonwealth Bank blames ‘coding error’ for alleged money-laundering breaches
Paulina Duran and Tom Westbrook, Reuters

The Commonwealth Bank of Australia on Monday said a software error was behind most of the roughly 53,700 times it allegedly broke anti-money laundering law, in a case that could see the country’s biggest lender fined several billion dollars. Financial intelligence agency AUSTRAC filed a civil case on Thursday accusing the bank of several breaches of law including failing to identify, monitor and report money transfers over $10,000, in contravention of the anti-money laundering and counter-terrorism financing Act.

Opinions, Editorials and Perspectives

Lehman Bankruptcy Ruling Shows Risk of Deferred Compensation
Stephen J. Lubben, New York Times

Judge Shelley C. Chapman of the Federal Bankruptcy Court in Manhattan has issued an opinion that provides an important reminder for employees throughout the United States who participate in deferred-compensation plans. The opinion is from the long-running Lehman Brothers bankruptcy, but it applies to employees of all sorts of companies.

Congress should stop states from taxing and regulating beyond their own borders
Clark Packard and Peter O’Rourke, Washington Examiner

Nearly 230 years after the Constitution’s ratification, we are still debating the limits of power granted to the states to tax and regulate. Should California have the power to prohibit the sale of pork from out-of-state producers if the pigs were born to sows housed in gestation stalls?

The Myth of Trump’s Do-Nothing Presidency
Greg Ip, The Wall Street Journal

Six months into his presidency, Donald Trump’s detractors portray him as a do-nothing president with no big wins on issues such as health care, taxes and infrastructure. That may be true if the benchmark is legislation, but that is an incomplete benchmark.

Research Reports

Which Banks Recover From Large Adverse Shocks?
Emilia Bonaccorsi di Patti and Anil Kashyap, The National Bureau of Economic Research

Matched bank-borrower data shows that recovering banks are significantly more aggressive in managing their riskiest clients. The risk management differences are consistent with some banks cutting credit to very riskiest clients while others appear to be gambling for reclamation by continuing to extend credit to high risk borrowers.