The bad old ways of shortchanging the customers, continue

In many of my articles since late 2011, I have emphasised that consumers of financial services in India usually do not get a fair deal because the system is loaded against them. Both the United Kingdom and the United States, from where we have borrowed various laws and practices, have been trying to ensure that consumer protection occupies centre stage in financial regulation. Unfortunately, four years after the onset of the global financial crisis, when the markets have almost recovered to new highs, the urgency to make fundamental changes is gone.

Indeed, the financial lobby is back at work, undermining any changes to the regime of mis-selling, large commissions and lack of accountability for inflicting damage to the lives of ordinary citizens. Some randomly selected news reports show the state of financial regulation.
 
• The American consumer economy is supported by retail consumption, which, in turn, depends a lot on borrowed money. Therefore, credit reports are central to the US system. Banks have access to inpidual credit reports, which are used to generate a credit score on which depends partly the interest rate they can charge. For decades, consumer groups have been complaining that credit reports have errors. Now, a new survey by the US Federal Trade Commission (FTC) confirms this. The study, featured on CBS 60 Minutes on February 10, found that 21 per cent of credit reports, affecting 40 million Americans, had verified errors; 13 per cent of borrowers had errors that affected their credit scores; and five per cent had errors serious enough to cause them to be denied or to pay extra for credit. The FTCs chairman admitted that the study was pretty troubling; the study found that the percentage of serious errors was about 10 times the figure reported by an industry-funded study on May 2011. Cant something be done about it? The FTC study was mandated under the Fair and Accurate Credit Transactions Act of 2003. But the power to act is with the newly created Consumer Financial Protection Bureau. The CFPB is hobbled by political squabbles over who should head it.

• Jack Lew is US Treasury Secretary nominee. His own bonus as an investment banker came from the Treasury Department, when it rescued Citigroup in 2008. A revelation from Mr Lews Senate confirmation recently was that his guaranteed incentive and retention award wouldnt be paid if he quit his job, with limited exceptions. One exception was that if he left Citigroup as a result of your acceptance of a full-time high level position with the United States government or regulatory body. And now, Mr Lew will become US Treasury Secretary. Earlier, he was paid an astronomical sum by New York University, which directed student loans to Citibank and also paid Mr Lew an unusual severance package when he later left NYU to join Citi.

• At least three commissioners on the five-member Commodity Futures Trading Commission the CFTC overseees trading in derivatives, an opaque world of hundreds of trillions of dollars want to loosen proposed new restrictions and allow continued private trading of derivatives with less transparency. The banks have been lobbying for this, while Americans for Financial Reform, an advocacy group, says that this amounts to watering down rules intended to avoid another financial crisis. A financial reforms law tasked the CFTC with creating a new marketplace in which banks would trade derivatives openly, with their positions disclosed to the public. This has not happened, and the CFTC is already finding ways to undermine it.
 
Since the 2008 financial crash, the Securities and Exchange Commission brought charges against 150 people and institutions and collected $2.68 billion in penalties. The number of Wall Street executives who have been prosecuted for fraud: zero.
 
Space constraints do not allow me to go into it, but its a similar situation in the UK.

What should be done? Easy. Lets apply the definition of fraud, cheating and misrepresentation in criminal law to finance people. But there is hardly any discussion on why this common sense approach cannot be adopted. Pulitzer prize-winning journalist Jesse Eisinger says: Banks did engage in criminal activity in the lead up to the financial crisis and after the financial crisis they misled customers to sell them things that were misrepresented Now, why we couldnt have gotten some of the bankers for these kind of activities, [which were] very similar to what Ken Lay at Enron and Jeff Skilling were accused of and went to prison for, is a mystery of epic proportions.
 
Asked in a BBC Radio 4 programme late last year whether bankers responsible for having fraudulently ripped off their customers should be jailed, Martin Wheatley, chief executive of Financial Conduct Authority, seemed satisfied that paying back some of the money was enough.
 
BBC: Yes, but other thieves in other areas, other people who nick money in other areas, dont just pay the money back; they go to jail, dont they?
 
Mr Wheatley: Thieves is obviously a strong term. Our view is that this is inappropriate conduct; that is quite a long way short of fraud.

Is it? Regarding the Libor rate-fixing scandal, Former Metropolitan Police chief Lord Ian Blair said: Anybody, the youngest detective, would say this is conspiracy to defraud. It can mean nothing else. And therefore someone has to launch a criminal inquiry into this behaviour.

Well, there wasn’t a criminal inquiry and there will not be. The more things change, the more they remain the same.

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