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> Posted by Elisabeth Rhyne, Managing Director, CFI
Internet privacy rules have just been overturned in the U.S. by Congress and the Administration, and at the same time, struggles over banking privacy are taking place. There are striking similarities as well as crucial differences. As a consumer protection advocate, I am struck by how the narrative about these kinds of conflicts primarily centers on where competitive advantage lies, and which company or industry is made the winner or loser, rather than about the rights of consumers.
The internet case pits telecoms and cable companies, like AT&T, Verizon and Comcast, against internet companies, like Google and Facebook. The Obama-era rules that were just overturned required broadband providers to ask customer permission before tracking, sharing and/or selling their data. These companies complain that the rules disadvantage them relative to internet-based companies, which can collect data without such rules.
The banking case, as reported in The New York Times, pits major banks against fintechs and data aggregators. The question is whether banks will transfer consumer data – at the consumer’s request – to companies that provide personal financial management tools, like Mint, Betterment, and Digit (or to data aggregators that facilitate the transfer – like Plaid and Yodlee). Without this data the financial management apps cannot build the complete portrait of a person’s financial life they need to provide analysis and advice. But banks are reluctant, even after specific consumer requests. You might think this reluctance is to protect their customers or because of data privacy rules for banking, but actually, according to The Times, it’s because the customer data reveals details about banks’ own business models – like pricing and products. The banks fear, probably correctly, that the personal financial management companies will use the information to undercut bank products with their own offerings.
> Posted by Carmen Paraison, Project Associate, the Smart Campaign
On January 18th, 2017, the Consumer Financial Protection Bureau (CFPB) filed suit against Navient, the largest federal and private student loans servicer in the U.S., for “systemically and illegally failing borrowers at every stage of repayment.” Allegations include:
- Misallocating student loan payments by failing to follow instructions from borrowers about how to apply their payments across their multiple loans.
- Steering struggling borrowers toward multiple forbearances instead of lower payments via income-driven repayment plans. (Forbearance is an option that lets borrowers take a short break from making payments, but that still accrues interest.)
- Providing unclear information about how to re-enroll in income-driven repayment plans.
- Deceiving private student loan borrowers about requirements to release their co-signer (e.g. a parent or grandparent) from their loans, which can be advantageous given some lenders’ practices surrounding the death of a co-signer.
- And failing to act when borrowers complained.
Navient currently services more than $300 billion in loans for more than 12 million borrowers.
> Posted by Elisabeth Rhyne, Managing Director, CFI
Major traumas in history are relived in song and story, with each different point of view adding layers of complexity and understanding, until you can’t absorb any more. My friend Anne said she’s full up and never wants to read another book about the Civil War or World War II, but perhaps she’s just not that interested in military history.
As historical traumas go, the 2008-2009 global financial crisis is still fresh, and, especially for those of us interested in financial sectors, it is well worth examining from many different vantage points. No viewpoint could be more central than Tim Geithner’s. Geithner was the head of the New York Federal Reserve Bank when the crisis began and Secretary of the Treasury as the Obama Administration inherited the disaster. The span of his involvement allows his book, Stress Test, to cover the whole sequence from the initial red flags when Countrywide Financial and other actors in the subprime mortgage market went down in the summer of 2007 to the wrap-up with the passage of the Dodd-Frank Act in 2010. Simply as storytelling, Stress Test is a well-written, gripping narrative – a ringside seat at the crisis.
But because Geithner, perhaps more than any other single person, was the point man on the crisis, Stress Test is also about explaining how and why the Fed and later the Administration acted as it did. While Geithner clearly justifies the majority of the decisions taken, unlike many post-service memoirs, self-justification does not get in the way of the book’s ultimate purpose: to explore Geithner’s philosophy of financial crisis management, as advice to future generations.
> Posted by Sonja E. Kelly, Fellow, CFI
We live in an age of cash flow unpredictability. Here at CFI we’ve championed work like Portfolios of the Poor, which focuses on those at the base of the pyramid. But what about those who aren’t poor? Who is paying attention to the wealthy? Are they fully included?
A new product is now addressing an oft-neglected gap in the market. The product is a microfinance loan for those at the top of the pyramid who need credit while they wait for their yearly bonus to be approved by their company’s board or while they wait for a deal to go through in order to receive their golden parachute.
“I’m waiting for my $80 million golden parachute,” says CEO Robert McMillion, CEO of Lime Werner Cable since January 1 of this year. “In the meantime, I find that I don’t have the $700 for the weekly allowance that I give my daughter and son.” McMillion stands to receive $80 million if the company’s purchase by Cobcast Cable goes through and he steps down as CEO.
“I really am in a pinch,” says McMillion. “My daughter’s prom is coming up, and without money in her checking account, how can she go shopping? Similarly, my son was hoping to buy a new sports car, and without the cash, he will have to finance it at high interest rates. If I can avoid him having to do that, I will.”
McMillion does have a great deal of stock and has saved for retirement—one might say that he doesn’t have a problem on his hands. But his stock isn’t liquid, and if he were to take out the retirement money before he actually retires, he would have to pay high taxes on it.
McMillion is not alone. U.S.-based CEOs used to be able to count on their golden parachutes and high year-end bonuses. Now, under the Dodd-Frank Act, CEOs have to wait for full board approval in order to receive the money, and even then the amounts are slightly lower than in the past. Golden parachutes have gone from $30.2 million in 2011 to $29.9 million today (we are not making this up), and executives are under increasing PR pressure to reject or only take a portion of their bonuses when companies don’t do well.