Spooky, Scary Junk Fees
Last night, all manner of ghouls, zombies, killers and inflatable Among Us imposters materialized at this writer’s front door. Weirdly, it wasn’t those freaks and fanatics that made him shudder; it was the thought of immigrant workers paying outrageous junk fees.
Because yesterday wasn’t just what we know as Halloween. The Hindu festival of lights, Diwali, kicked off too, called the most important festival of the year for more than a billion people worldwide as they celebrate togetherness and fill the streets with lantern-light. And today, after an evening of gorging ourselves on sweets and treats, Día de los Muertos – the Day of the Dead – begins in Mexico.
For these holidays and others, members of diasporic communities living abroad sometimes want to send money home. This writer’s family has often gone to a Western Union to send what’s called a remittance over the wire and across the ocean so it can land at the bottom of a pot for blessings back home. They were in good company, too: In 2022, the United States originated nearly $80 billion in remittances.
But over the past three years, some of the most financially vulnerable people in the United States, mostly lower-income immigrant workers, lost $15.4 billion in hidden exchange rate markups when they send money. That’s just one of countless junk fees that creep into the lives of everyday people. The Consumer Financial Protection Bureau has embarked on an initiative to save consumers billions of dollars a year by slashing junk fees, but they haven’t gotten to remittance transfers yet.
That’s why AFR and 11 civil rights, consumer advocacy, community-based organizations, and industry groups jointly petitioned the CFPB to curb the use of hidden remittance fee mark-ups and junk fees and to reverse a Trump-era loophole that lets banks and depository institutions charge some of the highest, least transparent remittance fees. Said Santiago Sueiro of UnidosUS:
Our proposed changes will improve transparency, enhance competition, allow consumers to comparison shop, and make remittance transfers safer….The economic impact of such changes would be significant as working-class consumers and immigrants would save billions of dollars per year and be better positioned to help their families abroad.
The petition urges the CFPB to issue rules that would require remittance to clearly disclose a consumer’s total cost — a figure that includes any transaction fees, exchange rate margins, and other hidden costs or fees, in one upfront amount. Parties on both ends of the remittance transaction should see the total amount of remittance and the total amount received by the recipient.
This season is spooky enough without the specter of junk fees looming over us!
BANKING AND FINANCIAL STABILITY: Capital Rules – Capital One/Discover – Synapse – Oklahoma First National – A Bad Apple – Banks and Fraud
CONSUMER: Your Account, Your Data – Black Box Big Brother – Forced Arbitration – Buy Now, Pain Later – Illegal Billing – Enforcement Actions
CAPITAL MARKETS: A.B.C. – AI and the SEC – An Election Gamble
PRIVATE MARKETS: Private Credit – A Built-in Tax Break for PE – PE and Healthcare – Keeping Big from Getting Too Big – PE and the Trades – No Cheers for PE
CRYPTO: DeFinitely Risky Lending – Crypto Targeting Black and Latine Communities – Tether – Derivatives – How Unsafe is Crypto? – A Crypto Coup?
HOUSING: Tenants Together – Governing the FHLBs – Subprime Mortgages? – Private Equity Landlords
CLIMATE AND FINANCE: No More PE, Please – Confronting Skyrocketing Homeowners Insurance – Private Equity and Coal
POLITICS AND MONEY: Crypto Cash
Feedback? Reach us at afrnews@ourfinancialsecurity.org
BANKING AND FINANCIAL STABILITY
Capital Rules.
This week, key financial regulators stood up to industry efforts to water down the critical capital rules. The rules were proposed last summer and have been in the pipeline since the 2008 financial crisis are designed to strengthen financial resiliency at the biggest banks and lower the likelihood and severity of future financial crises. The Federal Reserve buckled under industry pressure and has suggested the regulators should go back to the drawing board and negotiations around the system-shoring slate of capital rules are at a standstill. But some voices are rejecting the Fed’s reproposal idea.
CFPB Director Rohit Chopra stated that he wants the rule finalized “as quickly as possible…[to] ensure that banks are resilient and that we will not have another set of bailouts and harm to the economy during a crisis.”
Separately, acting Comptroller of the Currency Michael Hsu echoed Chopra, saying that failing to finalize more robust rules could cause global guardrails to unravel and “would create unhelpful uncertainty for U.S. banks, could lead to a race to the bottom, which would sow the seeds for a future financial crisis and it would hurt U.S. credibility and leadership on these issues.”
Klaas Knot, chair of the international Financial Stability Board, also urged the passage of strong Basel III Endgame rules.
Capital One/Discover.
The pending Capital One-Discover megamerger, which Americans for Financial Reform (AFR) has argued could harm vulnerable communities, lead to credit card price gouging, and increase risks to the financial system, has drawn the attention of New York Attorney General Letitia James. Last week, the NY AG requested subpoenas as part of an ongoing antitrust probe into the merger. It’s a move that AFR welcomes, with hopes that other states join the effort to block the transaction. Said AFR’s Patrick Woodall:
If federal officials – including the OCC – are interested in a thorough and serious review of this proposed merger, they will not stand in the way of state antitrust authorities using their statutory authority to enforce the law. If they do not, they are whitewashing the potential harms that will come from this merger.”
Synapse.
When Synapse, a middleman fintech company that bridged the gap between traditional banks and fintechs (like gamified finance company Yotta), failed earlier this year, it endangered $265 million worth of deposits from 100,000 Americans. Last week, the OCC’s Hsu backed federal oversight of digital payments to address a “regulatory gap” and preempt another Synapse-esque meltdown. This week, AFR and the Consumer Federation of America submitted comments to the Treasury Department urging banking regulators to subject these banking-fintech relationships to regulatory supervision to protect customers from meltdowns like occurred at Synapse as well as overseeing other risks to customers and the financial system.
Oklahoma First National.
Last week, a $108 million bank in Oklahoma collapsed amid ongoing fraud concerns. Customers had $98 million in deposits at First National Bank of Lindsay in central Oklahoma, and about $7 million of those deposits exceeded the $250,000 limit on deposit insurance (but the FDIC says it would still make at least half of that available to customers). The OCC shuttered the bank after the agency found “false and deceptive bank records and other information suggesting fraud,” referring the case to the Department of Justice (DOJ) for a possible criminal investigation.
A Bad Apple.
The CFPB has ordered Apple and Goldman Sachs to pay over $89 million for Apple Card mismanagement. Failures included mishandling customer disputes, which led to incorrect credit impacts, and misleading users about interest-free payment options on Apple devices.
Apple sent only a fraction of its disputes to Goldman Sachs; even still, Goldman failed to investigate them properly, resulting in unexpected interest charges for customers. The CFPB slapped Goldman with fines and is restricting its launch of a new credit card until Goldman can provide a credible credit plan.
Banks and Fraud.
Treasury Secretary Yellen flagged that fraud has ramped up in the banking system, citing a large increase in government check fraud. Yellen claimed that the Treasury was deploying artificial intelligence to ferret out fraud, but Deloitte recently found that AI was actually a growing source of bank fraud and making it easier, more successful, and more lucrative, estimating AI could spur bank fraud to $40 billion by 2027.
And: A couple of weeks ago, regulators slammed TD Bank with a $3 billion penalty for making it easy to facilitate money laundering. This week, Sen. Warren sent a letter to the Department of Justice suggesting that the penalty wasn’t enough: she says that the bank’s executives should have been prosecuted.
CONSUMER
Your Account, Your Data.
On October 22, the CFPB finalized a rule granting consumers greater control over their financial data. This regulation, intended to boost competition and lower costs, enables consumers to freely move data between banks, making it easier to switch financial providers and protect sensitive personal financial data. Today, shutting down one bank account and moving all your linked transactions, direct deposits, and autopays to another bank is a giant headache that discourages customers from even considering changing banks even when prices and fees rise. The strong rule would address these problems and let consumers have more control over their data. Nonetheless, the Bank Policy Institute and Kentucky Bankers Association are suing the CFPB to block the rule.
“Banks should compete for customers based on the quality of products, services, and prices, instead of essentially making them captive consumers by creating barriers that make it a hassle to switch to a new bank.” said Christine Chen Zinner, senior counsel at the AFR Education Fund.
Black Box Big Brother.
The CFPB is sounding the alarm on the rise of surveillance practices that rely on complex algorithms that hurt employees by rolling out new guidelines to shield workers from the digital snoops and employment decisions based on third-party consumer reports. The new CFPB guidance encourages employers to follow the Fair Credit Reporting Act (FCRA), requiring data transparency and allowing workers to challenge any inaccuracies.
Forced Arbitration.
Last week, AFR’s Christine Chen Zinner spoke on the American Viewpoints radio show about how forced arbitration pushes consumers into signing away their rights.
Buy Now, Pain Later.
The United Kingdom-based Citizens Advice reports that cries for help over the use of Buy-Now-Pay-Later (BNPL) financing have doubled since 2022. The catch? While BNPL may offer a speedy way to snag that new sofa, it can also lead to a tangled web of debt. With astronomical delinquency rates among BNPL users, regulators are finally stepping in. The UK just placed BNPL under Financial Conduct Authority supervision. Here in the United States, the CFPB issued an interpretive rule in August to improve BNPL oversight and consumer protection. AFR and allies supported these BNPL efforts but urged the CFPB to extend similar protections that consumers get with credit card purchases, like proportional penalty fees.
Illegal Billing.
The CFPB and Centers for Medicare & Medicaid Services issued a joint statement reminding Medicare providers and suppliers that they can be sanctioned or liable under federal law for improperly billing their lowest-income Medicare recipients.
Enforcement Actions.
Tempoe. The leasing company, which offered point-of-sale financing at retailers like Sears and Kmart, will shell out $191 million in refund checks as part of a CFPB enforcement action against its practice of tricking customers into expensive leasing agreements by hiding the contract terms and costs.
VyStar. The credit union will pay $1.5 million for illegally locking consumers out of their accounts for more than six months, causing families to incur fees and costs.
CAPITAL MARKETS
A.B.C.
Asset managers, banks, and control: A recent proposal would bolster FDIC oversight when asset managers gain control of 10 percent of voting securities of bank holding companies with FDIC-supervised subsidiaries. BlackRock and industry groups like the US Chamber of Commerce and the Investment Company Institute have, unsurprisingly, pushed back against the proposal, which would curb their influence over an important part of the country’s financial system.
Labor unions and consumer advocacy groups, including AFREF, signed onto a letter supporting the rule. Said AFREF’s Natalia Renta: “Regulators need to catch up to the reality that the growth and concentration of the asset management industry has fundamentally reshaped how public companies—including listed banks—make decisions.”
Said American Federation of Teachers president Randi Weingarten: "We strongly support the FDIC’s proposal to ensure greater transparency and accountability from the largest asset managers. Our pension funds would be better served by clear guardrails that ensure large money management firms are voting their shares at ‘too big to fail’ banks in the interests of their clients, rather than engaging in ‘under the table’ favor trading that puts steady returns and overall financial stability at risk.”
AI and the SEC.
The SEC is ramping up its scrutiny of Wall Street's use of its new favorite toy: artificial intelligence. Financial firms will soon face increased oversight regarding their AI systems, including the legitimacy of their claims of fraud prevention and anti-money-laundering protocols. The SEC is “also on the lookout for ‘AI-washing’” — making exaggerated claims about their AI usage. SEC Chair Gary Gensler warns that rampant unchecked use of the technology could lead to the next financial crisis (take heed Treasury Secretary Yellen). The move highlights the suite of concerns about the use of emerging technologies in finance, including rising cybersecurity and cryptocurrency risks, substantial racial bias in consumer credit markets, and increased market volatility and systemic risk.
An Election Gamble.
Better Markets filed an amicus brief in opposition to one company’s efforts to allow investors to gamble on elections. Kalshi, a site that lets investors bet on the outcomes of real-world events, offers dozens of “election gambling contracts” (EGCs), which allow investors to bet on how a number of contentious races will turn out. People already have over $106 million riding on the results of the presidential election. Kalshi released the slate of EGCs after a federal court in September bucked the CFTC’s attempt to stop the contracts from going up. Better Markets submitted an amicus brief raising the alarm on the potential for market manipulation, undermined election integrity, and victimization of millions of investors.
PRIVATE MARKETS
Private Credit.
Global regulators are concerned about private credit, the opaque corner of finance that can amplify systemic risk. The SEC joined the European Central Bank and International Monetary Fund on a panel warning about a “lack of transparency around private loan valuations and potential liquidity mismatches,” according to Bloomberg. Watchdogs are worried that lenders may be overvaluing loans of companies struggling to repay their debt, and some have called for provisions to be able to stress test the actors in the sector.
Meanwhile: There are murmurings of a potential sale of a $10 billion private credit behemoth, HPS Investment Partners, to asset mega-manager BlackRock, which itself already has an $85 billion private credit business. And Blackstone closed a new direct lending fund with about $22 billion of investable capital.
But, in what would be one of the largest transactions of its kind, the Florida State Board of Administration, which oversees the state’s pensions, is interested in selling a parcel of private credit stakes worth as much as $4 billion. The fund wants to cut exposure to opportunistic credit.
A Built-in Tax Break for PE
Financial Times explains the built-in tax loophole that greases the gears of private equity’s billionaire factory: carried interest. That’s the share of profits from a private equity fund that the employees get when they sell investments, taxed at lower rates than some of the employees of the companies they own. Since 2000, firms have raked in more than $1 trillion in carried interest. Typically, for tax purposes, it’s treated as capital gains (as if it were a long-term investment) instead of income (which is how it really works for PE insiders). A fund might net 20 percent of its gains from a sale from carry alone. The Trump corporate tax cuts pretended to close the carried interest loophole but it only narrowed it slightly, allowing most of the carried interest to be taxed at the far lower capital gains rate.
Carried interest is a big deal in Britain right now because the new Labour government headed by Keir Starmer has backpedaled on its promises to end the carried interest loophole after furious lobbying by private equity moguls.
PE and Healthcare.
Despite the high-profile collapse of formerly PE-backed Steward Health Care and the pressure on private equity in healthcare by lawmakers and regulators, the number and value of private equity transactions in the sector has more than doubled in Q3 2024 from the preceding three months. Investors are most interested in industries that fall outside of current scrutiny, like tech-enabled services and pharmaceutical services.
Still, buyouts are happening in spaces where private equity is no stranger. One of Iowa’s largest nursing home franchises was scooped up late last week by private equity firm Marcus & Millichap. AFR has previously lowlighted the dangerous role PE plays in nursing homes.
Keeping Big from Getting Too Big.
Set to take effect in January, the Federal Trade Commission unveiled stronger rules in the Hart-Scott-Rodino (HSR) Act pre-merger notification process, tightening up requirements for private equity takeovers. Companies must file HSR pre-merger disclosures to describe proposed takeovers and mergers so antitrust regulators can identify potentially antitcompetitive elements of the transaction — such as interlocking directors, serial acquisitions in the same industry, and more.
Related: This year, private equity firms have sealed almost $85 billion in transactions.
PE and the Trades.
Private equity is growing more interested in skilled trades, buying up businesses in HVAC, plumbing and electrical. PE has snapped up nearly 800 companies in those industries since 2022.
No Cheers for PE.
Private equity has also been circling the cheerleading powerhouse, Varsity Brands, for a few years. Kids can suffer injury and abuse in the high-intensity field that costs families tens of thousands of dollars for camps. Bain Capital purchased the company for nearly $3 billion in 2018. And earlier this year, KKR announced it was next in line. After six years of scandal, including numerous incidents of sexual assault, Bain was poised to get away with hundreds of millions in profit.
CRYPTO
DeFinitely Risky Lending.
Lending on decentralized finance (DeFi) exchanges is driven by speculation and a desire to consolidate voting power on these platforms, according to a working paper published by the Bank of International Settlements. The researchers found that lenders and borrowers who tap DeFi protocols are seeking high yields and quick returns, but they also may be trying to gain control of the platform governance decisions. All told, the researchers concluded that, instead of being a vehicle for credit, these conditions “move funds from savers to speculators,” which suggests the lending practices on DeFi platforms aren’t making credit for users more accessible, just more risky.
Crypto Targeting Black and Latine Communities.
Crypto's promise often turns into a trap. With Bitcoin ATMs popping up disproportionately in Black and Latine neighborhoods and sky-high fees, crypto’s charm offensive that it can improve financial inclusion looks a lot more like exploitation. Better Markets makes clear that underserved communities deserve real wealth-building tools, not predatory fees and risky investments. Learn more in their fact sheet.
Tether.
Federal authorities continue to investigate Tether, the issuer of the USDT token worth a $120 billion. Tether has been linked to illegal activities, including drug trafficking, sanctions evasion, financing terrorism, and money laundering. This recent reporting suggests that longstanding investigations by federal authorities are proceeding. Meanwhile, Tether is pushing to expand into providing lending for commodities trading, but if the U.S. Treasury imposes sanctions, it could disrupt the crypto token’s stability and current dollar value, sending shockwaves through the crypto market.
Derivatives.
The collapse of numerous crypto lenders in the past several years has dried up sources of unsecured borrowing. Crypto trading firms are trying to get into derivatives to boost their leverage, jacking up their debt to “supercharge their bets,” according to the Financial Times. Too much leverage and not enough risk management has a history of bad outcomes in the crypto industry; for example, crypto hedge fund Three Arrows Capital collapsed in 2022 when it borrowed large amounts from lenders to make big bets in crypto markets that then collapsed, and took some of its crypto lenders, such as Celsius and Voyager, down with it.
How Unsafe is Crypto?
A new Pew survey shows Americans aren't exactly crypto converts. 63 percent of those surveyed have little to no confidence in crypto’s reliability and safety. One in six adults who responded to the survey have dabbled in digital coins, with older folks being especially wary. “Crypto bros” (aka, men under 50) are the main enthusiasts, but only a few users report actual financial gains.
A Crypto Coup?
In a blog, AFR intern Casia Thompson reveals that crypto billionaires are shaking up U.S. politics, pouring money into the 2024 presidential election to dodge effective regulations and cement their influence. Despite the industry's hype about decentralization, the industry is run by a small but powerful group that is spending big to support pro-crypto candidates and oppose candidates they believe are “anti-crypto.”
Crypto billionaires are trying to create a political environment that serves their agenda, relying on financial loopholes in U.S. campaign finance laws to spend lavishly to prevent needed regulatory oversight. This trend threatens to reshape American democracy by further concentrating power into a new class of wealthy individuals — crypto billionaires. If these tycoons get their way, this small, fraud-ridden industry could rewrite the rulebook of our democracy, with regulations and policies shaped not by the public interest but by private finance.
This isn’t just an investment in political influence; “it’s a move by the new rich to privatize the democratic process.” These tycoons are pushing for a “cryptocracy” where ordinary voices are drowned out by their financial clout.
HOUSING
Tenants Together.
The Tenant Union Federation, a union of tenant unions from across the country to which AFR provides policy support, initiated its first two rent strikes earlier this year, hoping to hold Fannie Mae accountable for the quality and cost of housing at buildings backed by government-sponsored loans. Two local unions in Kansas City, representing 200 tenants, called on the Federal Housing Finance Agency to cap rent growth at Fannie and Freddie-backed buildings at 3 percent.
Related: 82 percent of U.S. residents across party lines think there should be caps on the amount that landlords are allowed to increase rents, according to a survey conducted by Redfin.
Governing the FHLBs.
The Federal Housing Finance Agency proposed a rule that would better govern the Federal Home Loan Banks, a network of banks that are meant to increase access to affordable housing but have in recent years drifted away from that focus (instead prioritizing dividends to member banks). The revisions would increase director expertise in climate risk, artificial intelligence, and other areas of focus as well as clarifying requirements for public interest and requiring the banks to adopt conflicts of interest policies.
Subprime Mortgages?
Home equity investment loans are basically subprime mortgages and they need to be regulated as such to protect consumers, the National Consumer Law Center argues. New business models have emerged to purportedly help people tap into the equity stored in their home without a loan, but homeowners are pushed into trading shares of their precious equity in exchange for cash advances. “Whatever this product is called, it is a loan masquerading as obligation-free cash. The companies that market and sell them often use deception to lure financially struggling consumers into unconscionable, high-priced loans,” the NCLC writes.
Private Equity Landlords.
As rents surge nationwide, Elizabeth Warren is leading Democratic senators in scrutinizing private equity landlords, who are buying up rental properties, raising rents, cutting corners on maintenance, and aggressively pursuing tenants in court. Warren recently challenged private equity firm KKR over their $2.1 billion apartment acquisition, questioning their plans for rent hikes and additional fees.
As landlords, private equity firms raise rents, impose new fees, skimp on property maintenance and pursue tenants more aggressively in court, the Americans for Financial Reform research noted. “The cumulative effect is a massive transfer of wealth from mainly low- and middle-income renters, who can’t afford the onerous barriers to homeownership, to some of the wealthiest men in America,” it said.
CLIMATE and FINANCE
No More PE, Please.
Thanks to the tireless efforts of Strong Economy for All, the Climate Organizing Hub, New York Communities for Change and frontline activists such as the Wet'suwet'en Nation and South Texas Environmental Justice Network, New York City Comptroller Brad Lander announced a groundbreaking commitment to exclude future pension investments in private equity-backed fossil fuel midstream and downstream companies and projects. If passed, NYCERS, NYCTRS and NYCBERS, three New York City pensions that are among the largest in the country and represent $207 billion in assets under management, would exclude future investments and limited partnerships in fossil fuel exposed private equity funds. Said AFR’s Oscar Valdés Viera:
Private equity asset managers jeopardize the financial future of retirees, whose public pension contributions are used to fund these investments, by tying their retirement security to dirty assets. Comptroller Lander’s commitment to ending new investments in private equity-backed midstream and downstream fossil fuel companies for New York City’s public pensions is a critical step to addressing the looming climate and financial risk produced by investing in these opaque funds and dirty assets.
Confronting Skyrocketing Homeowners Insurance.
AFR Educational Fund’s associate director for housing, Caroline Nagy, explores the problem of increasing insurance premiums in the face of climate catastrophes. Hurricane Helene shattered the myth of “climate havens,” proving that no place is truly safe from natural disasters. Across the country, homes face not just rising floodwaters but also skyrocketing insurance costs, or outright policy drops, leaving many without coverage, shifting the burden onto lower-income and marginalized communities, which are often hit hardest by climate change.
While large insurance companies can continue to profit through this tumult, the costs will shift inequitably to low-income communities and Black, Latino, and Indigenous people. These communities are disproportionately exposed to climate-related hazards like flooding and wildfires and have less household wealth to help with recovery, due to the nation’s history of segregation and racist policies. They are also less likely to be able to adapt to meet rising deductibles, wait for long periods on their claims, or move nearly as easily as their insurance companies can drop them.
The Equitable and Just Insurance Initiative sees this as a climate justice issue and aims to rightly elevate the insurance crisis as a national priority, organizing communities to fight for democratic, inclusive insurance reform and better infrastructure.
Private Equity and Coal.
Ohio’s pollution powerhouse, Gavin Power Plant, is being bought by Energy Capital Partners and Javelin, who hint at a transition to sustainability, but remain silent about the how. Watchdogs worry Ohio taxpayers might end up paying for Gavin’s costly coal ash cleanup if it fails to deliver on its promise of greener energy solutions. But with Gavin’s emissions exceeding the airline industry levels and rivaling Canada's 2023 wildfires, the new owners might focus more on keeping costs — rather than emissions — low.
Meanwhile, private equity is warming up to nuclear energy, fueled by the booming energy demands of tech giants like Amazon, Google, and Microsoft, who are looking to meet their electricity needs — driven partly by AI.
POLITICS and MONEY
Crypto Cash.
On October 24, during a virtual event hosted by Public Citizen and AFR, political representatives expressed concerns about crypto-backed Super PACs’ use of financial impact to undermine Democratic candidates, arguing that PACs, including Fairshake, have weaponized their financial influence to silence lawmakers committed to holding the crypto industry accountable.