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Finance

Michael Barr

By Andrea Shalal

WASHINGTON (Reuters) -U.S. President Joe Biden on Friday said he would nominate former Treasury official Michael Barr to be the Federal Reserve's top regulatory official, replacing Sarah Bloom Raskin who withdrew in March after failing to win the backing of moderate Democrats.

Barr, currently a professor at the University of Michigan Law School, was a central figure at the Treasury under President Barack Obama when Congress passed the 2010 Dodd-Frank financial reform law in the wake of the 2007-09 financial crisis, and helped create the Consumer Financial Protection Bureau (CFPB).

"Michael brings the expertise and experience necessary for this important position at a critical time for our economy and families across the country," Biden said in a statement.

The Fed vice chair for supervision is responsible for overseeing the biggest banks, determining proper capital ratios, and represents the United States in cross-border negotiations over international banking standards.

As Treasury assistant secretary for financial institutions, Barr helped shape the Wall Street post-crisis overhaul, Biden said, adding that Barr had strong support across the political spectrum. He noted that Barr had been confirmed on a bipartisan basis for the Treasury post in 2009.

However, Patrick Toomey, the top Republican on the Senate Banking Committee, criticized Barr's support of the Dodd Frank law, which Toomey said enshrined taxpayer bank bailouts. He also said the CFPB was "unaccountable" and "unconstitutional."

"For these and other reasons, I have concerns about his nomination, but I look forward to meeting and discussing these and other matters," Toomey said in a Friday statement.

The president said he would work closely with the Senate Banking Committee to move Barr's nomination forward quickly, and called on the Senate - which is evenly split with Democrats holding the tie-breaker vote - to swiftly confirm his four other Fed nominees, including Jerome Powell for a second term as chair and Fed Governor Lael Brainard for vice chair.

A vote is expected on Powell, Brainard and economists Philip Jefferson and Lisa Cook, both nominated to fill vacant Fed board seats, after the Senate returns from the Easter break.

'This Job Is Vital'

Senate Banking Committee Chair Sherrod Brown said he would support Barr's nomination and strongly urged his Republican colleagues to avoid personal attacks and back him as well.

"At a time when working families are dealing with rising prices while corporate profits continue to soar, this job is vital to ensuring the economy works for everyone," Brown said.

If confirmed Barr, who would have a vote on monetary policy issues, would arrive at the Fed as it is confronting the highest inflation in 40 years, with officials promising an aggressive series of rate hikes this year to rein in prices. The central bank is also planning to cull its $9 trillion balance sheet.

Barr will also have a lengthy to-do list on the regulatory front, including pushing ahead with climate risk tests for Wall Street banks, implementing new capital rules, and drafting new rules for cryptocurrencies and community lending.

Barr's name had been floated for another bank regulatory post, heading up the Office of the Comptroller of the Currency, but some progressives objected, citing his work with some fintech firms after leaving government.

Biden said Barr had spent his career protecting consumers, and played a critical role in creating both the CFPB and the Fed post for which he was now being nominated. He also served at the National Economic Council in the White House.

Former CFPB Director Richard Cordray has described Barr as "a progressive champion," while Senator Elizabeth Warren has called him "a hero" for his work on Dodd-Frank.

"He was instrumental in the passage of Dodd-Frank, to ensure a future financial crisis would not create devastating economic hardship for working families," Biden said.

Raskin withdrew from consideration for the top regulatory post at the Fed on March 15, a day after Democratic Senator Joe Manchin and moderate Republicans said they would not back her, leaving no path to confirmation by the full Senate.

(Reporting by Andrea Shalal; additional reporting by Michelle Price; Editing by Leslie Adler and Franklin Paul)

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Junk fees and checking account overdraft fees are on the run now that President Joe Biden has appointed regulators who are looking out for bank customers instead of just bankers.

Such fees can result in a cup of coffee that costs $40 — five bucks for the java and a $35 bank overdraft fee because the debit card purchase came to pennies more than the customer had on deposit.

The Biden administration is reviving the Consumer Financial Protection Bureau, the brainchild of Sen. Elizabeth Warren that Trump and his cronies tried to shut down.

Before Trump, and now under Biden, the board is recovering for consumers many times its annual budget. Under Trump CFPB enforcement shriveled as $1 fines for bank misconduct became common.

In a much more tentative way, the Office of the Comptroller of the Currency may be recovering some regulatory backbone after being weakened under the predatory banker Stephen Mnuchin when he was Trump’s Treasury Secretary.

Ending Junk Fees

These two agencies are pushing to end junk fees and reduce overdraft fees. The Comptroller has even proposed specific reforms on overdraft fees.

A dozen large banks, recognizing the days of easy profits from gouging customers with junk and overdraft fees were unlikely to survive a Biden administration, reduced or eliminated them last year, the trade publication American Banker reported. Its reporting showed “how quickly a longtime mainstay of the consumer banking business has fallen into disfavor.”

If you haven’t heard about that, it’s not surprising. The actions have gained hardly any mention in America’s major news organizations with a few exceptions.

For decades I’ve noted that newspaper business pages and cable financial news channels typically report on banking issues through the eyes of bankers instead of the vastly larger audience of bank customers.

The nonprofit National Consumer Law Center has long been at the forefront in working for policies that reduce or eliminate overdraft and junk fees. Center lawyer Chi Chi Wu says that fees for overdrafts or insufficient funds on deposit “are one of the leading reasons that people are unbanked, either because past overdrafts put the consumer on an account screening lists that prevent them from opening new accounts, or because the fees make it too costly to maintain an account.”

Account screening can also be seen as an anti-consumer measure designed to give banks an excuse to reject service. It’s a key factor in the public banking movement to make low-cost banking services universal.

Whitewashing Banking History

Sadly, the banking industry is busy trying to erase the real history of its price gouging, dishonest mortgage lending, and reckless risk-taking as banks mixed the staid business of retail banking (checking and savings accounts; auto, credit card, and mortgage loans) with the risky but often more profitable businesses of underwriting stocks and bonds, trading securities and commodities and insurance.

A revealing example of this comes from the web pages of the Consumer Bankers Association which has a mildly Orwellian name. The trade group is not about consumers, but retail banks that serve them. You can get a flavor of its real interest from articles it reprints. For example: Fewer People Are Paying Overdraft Fees and Banks are Hurting.

Orwellian is a strong term, but then note this February 10 announcement, paying close attention to the words “understand” and “attack.”

“The Consumer Financial Protection Bureau (CFPB) last month launched a new initiative to better understand fees charged by banks and other financial institutions, with a specific emphasis on overdraft fees. The launch marked the latest attempt by the CFPB to attack the banking industry with extreme rhetoric…”

Using understanding and attack as synonyms is not just Orwellian, it's Trumpian.

Actual Banking History

Here’s some perspective on why a federal agency dedicated to protecting consumers from predatory banking practices would be interested in such fees:

Overdraft fees per American adult averaged $687 in 2008 (the equivalent of $915 in today’s money) with a total cost to bank customers of almost $200 billion in today’s money. Fewer than 10 percent of bank customers incur more than 90 percent of bank overdraft fees, most of them poorly paid workers.

Those fees have now fallen 77 percent to $158 per American, the Consumer Bankers Association says, a burden still borne mostly by the poorly paid. But the association focuses on how this “hurts” banks, not the consumers they exist to serve.

Here’s another association claim that would make Orwell smile: “America’s leading banks engage in rigorous underwriting practices.”

“Arts and Crafts”

Failure to underwrite mortgages, including the brazen fabrication of documents in “arts and crafts” rooms at Countrywide Mortgage to justify mortgages to unqualified buyers, was half the reason for the Great Recession in 2008. The other half was dishonest ratings by Wall Street. Journalist Michael Hudson was onto this as early as 2005 while most news reports praised the glories of mortgage lenders who were neck-deep in fraud against their customers and buyers of mortgage-backed securities.

All this is documented in the report of the Financial Crisis Inquiry Commission. From page 23 of its report:

“This report catalogues the corrosion of mortgage-lending standards…. Many mortgage lenders set the bar so low that lenders simply took eager borrowers’ qualifications on faith, often with a willful disregard for a borrower’s ability to pay. Nearly one-quarter of all mortgages made in the first half of 2005 were interest-only loans. During the same year, 68 percent of ‘option ARM’ loans originated by Countrywide and Washington Mutual had low- or no-documentation requirements.”

By the way, no error has ever been found in the inquiry commission report.

Keep all this in mind as the Consumer Finance Protection Board and the Comptroller move to make new regulations that protect customers from the worst behavior by bankers.

David Cay Johnston is the Editor-in-Chief of DCReport. He is an investigative journalist and author, a specialist in economics and tax issues, and winner of the 2001 Pulitzer Prize for Beat Reporting.

Reprinted with permission from DCReport