Predatory Lending

The Second Trump Administration is Open for Business

Much of the concern about a possible second Trump term has focused on what seem to be his increasingly authoritarian impulses. Yet we should also worry about old-fashioned corruption.

A glaring sign of what may coming has just appeared in the revelation that a businessman with a shady record put up the $175 million bond Trump had to pay while he appeals a civil fraud judgement in New York State. This was after Trump claimed he could not find any company willing to provide the original bond amount of $454 million and successfully begged a state appeals court to reduce the amount.

That businessman is Don Hankey, whose holdings include Knight Specialty Insurance, which provided the bond for what Hankey told the Washington Post was a “modest fee.” He claimed that the bond deal was not meant as a political statement, yet Hankey supported Trump’s claim that the case brought against him by New York Attorney General Letitia James was unwarranted.

Hankey has accumulated most of his fortune, which Forbes estimates at over $7 billion, from making subprime automobile loans via companies such as Westlake Financial, Westlake Services and Wilshire Consumer Credit. These businesses have run afoul of regulators.

In 2015 the Consumer Financial Protection Bureau hit Westlake Services and Wilshire Consumer Credit with a $48 million penalty, including a fine of $4.25 million and $44.1 million in cash relief and balance reductions for customers the agency said had been subjected to illegal debt collection practices. According to the CFPB, the companies:

Pretended to call from repo companies by altering caller ID information. The companies’ debt collectors would then make explicit or implicit threats that the borrowers’ vehicles were in imminent danger of being repossessed.
Altered caller ID information so that it looked like they were calling from unrelated businesses or family members.
Explicitly and implicitly threatened to file criminal charges against consumers even when they had not decided to refer the borrowers to criminal authorities. These tactics likely misled consumers into believing they needed to make a payment urgently to avoid an investigation.
Tricked borrowers whose vehicles had been repossessed by making it appear their calls were coming from a party associated with the word Storage. During some of these calls, the companies’ debt collectors implied that the vehicles would be released if the borrowers made a partial payment on the account; however, the companies would actually only release a repossessed vehicle after a borrower paid the full amount due.
Called consumers’ employers, friends, and family members without permission and told them that consumers were delinquent on loans or facing repossession, investigation, or criminal charges.
Paid a repo company to make collections calls to consumers, even when the companies had not decided to repossess the consumers’ vehicles or the companies had no reason to believe repossession was imminent. This tactic likely misled consumers into believing that they needed to make a payment urgently to avoid repossession.

The CFPB also accused Westlake and Wilshire of violating federal consumer financial laws in their advertising, customer relations, and account servicing practices. These were said to include changing the due dates on accounts or extended loan terms without consulting consumers and giving consumers incomplete information about the true cost of their loans.

In 2016 the Massachusetts Attorney General’s Office announced that Westlake Services would provide $5.7 million in relief to consumers to resolve allegations that the company charged excessive interest rates on subprime auto loans.

In 2017 Westlake Services and Wilshire Consumer Credit had to pay $760,000 to resolve a case brought by the U.S. Justice Department alleging they violated the Servicemembers Civil Relief Act by repossessing vehicles from members of the military without the required court orders.

Are we expected to believe that the owner of a business such as this is helping Trump solely out of the goodness of his heart? It seems a lot more likely that Hankey is currying favor with Trump in the hope of receiving future assistance from the White House in dealing with pesky regulators.

It is not difficult to imagine that Trump would use a new stint in the Oval Office for such purposes. After all, this kind of corruption was a constant theme during his first term, when special interest groups seeking presidential help could simply book an event or a block of rooms at Trump’s hotel on Pennsylvania Avenue.

What is amazing is that this kind of mischief seems to be happening again even before Trump has won the election or taken office.

The CFPB Fights On

The Washington Post recently published a long examination of the obstacles facing the Consumer Financial Protection Bureau in its effort to rein in payday lenders which prey on low-income families. The leading companies in the industry have managed to block various investigations of their practices.

The agency’s difficulties mainly stem from a lawsuit brought by financial industry groups challenging the way in which the CFPB is funded. It is based on disingenuous arguments about the separation of power between the executive branch and Congress. The case made its way to the U.S. Supreme Court, which heard oral arguments last month but has not yet issued a ruling.

The good news is that the CFPB, which is no stranger to opposition from powerful corporate and Congressional foes, is not backing down. While the payday lending cases may be stalled, the agency is aggressively targeting other bad actors.

Last month, the CFPB fined the credit reporting giant TransUnion $23 million for violating the Fair Credit Reporting Act by failing to ensure the accuracy of the information it supplies to landlords for screening of tenant applications. Last week, the agency fined Citibank over $25 million for intentionally discriminating against Armenian Americans in reviewing credit card applications and then lying to those applicants about the reason for the denial.

In its latest action, the CFPB goes after the online lender Enova International Inc. for what the agency calls “widespread illegal conduct including withdrawing funds from customers’ bank accounts without their permission, making deceptive statements about loans, and cancelling loan extensions.”

This is not the first time the CFPB has targeted Enova. In 2019 it fined the company $3.2 million for many of the same practices. That penalty apparently did not get Enova to change its ways. The CFPB found that more than 100,000 customers have been subjected to abuses during the past four years.

To its credit, the CFPB is not just issuing another cease-and-desist order and imposing a larger fine ($15 million) this time around. It is also restricting some of Enova’s business and putting a crimp in the wallets of the company’s top managers.

Specifically, the CFPB is banning Enova for a period of seven years from offering or providing closed-end consumer loans that must be substantially repaid within 45 days. It is also requiring the company to reform its executive pay practices so that compensation is determined in part by compliance with federal consumer financial law.

This approach of restricting a rogue corporation’s business is potentially more effective than simply upping the fine. The same goes for making top executives personally feel some financial pain as a result of their failure to end the misconduct.

In its dozen years of existence, the CFPB has an impressive track record of policing misconduct in the financial services sector. As shown in Violation Tracker, it has imposed more than $17 billion in penalties against miscreants large and small. Let’s hope it is able to go on performing this essential mission.

Trump’s Muddled Class Warfare

Among the various roles played by Donald Trump during his State of the Union address was that of class warrior. He described a divide between “wealthy politicians and donors” living in gated communities while supposedly pushing for open borders and “working class Americans” who are “left to pay the price for illegal immigration—reduced jobs, lower wages, overburdened schools, hospitals that are so crowded you can’t get in, increased crime, and a depleted social safety net.”

Trump’s efforts to stir up worker resentment focus almost exclusively on situations in which foreigners can be depicted as the real culprits. He has no difficulty demonizing undocumented immigrants or the Chinese government, yet he rarely has any critical words for the traditional targets of populist anger: the super-wealthy and powerful corporations. On the contrary, those interests have enjoyed a privileged place during the Trump era, receiving lavish benefits in the form of tax breaks and regulatory rollbacks.

The latest example of the latter came less than 24 hours after Trump concluded his remarks in the House chamber. His Consumer Financial Protection Bureau announced plans to gut restrictions on payday lenders that were developed during the Obama Administration and were scheduled to take effect later this year.

The new rules were designed to put the responsibility on lenders to make sure their customers could afford the loans they were being offered. This was seen as a necessary safeguard in an industry notorious for charging astronomical interest rates to vulnerable customers who frequently ended up with massive debts after rolling over a series of short-term loans.

Prior to being neutered by the Trump Administration, the CFPB conducted a series of enforcement actions against payday lenders for egregious practices. For example, in 2014 the bureau brought a $10 million action against ACE Cash Express, alleging that the company “used illegal debt collection tactics – including harassment and false threats of lawsuits or criminal prosecution – to pressure overdue borrowers into taking out additional loans they could not afford.”

Payday lending has effectively been outlawed in about 20 states, but the Obama-era rules would have made a big difference in the rest of the country where the disreputable business is still allowed to function with annual interest rates of 300 percent or more. It will come as no surprise that many of the latter states are ones in which Trump enjoys high levels of popularity.

I can’t help but wonder what working class Trump supporters will think of this policy. Coal miners cannot be completely faulted for believing that Trump’s moves to dismantle power-plant emission controls may help them get work, but will struggling low-income families be cheered to learn that the administration is making it easier for payday lenders to exploit them rather than following the lead of the states that put a lid on usury?

Or, to put it more broadly, how long will Trump be able to pretend to be a working-class populist while pursuing the worst kind of plutocratic policies?

Portraying Corporate Villains as Victims

The world according to Trump is one of grievances and victimhood. During the presidential campaign he got a lot of mileage by appearing to empathize with the travails of the white working class and promising to be their champion in fighting against the impact of globalization and economic restructuring. At times he even seemed to be adopting traditional left-wing positions by criticizing big banks and big pharma.

Over the past ten months that stance has been steadily changing, and now the transformation is starkly evident. Trump is still obsessed with victimhood, but the focus on the legitimate economic grievances of white workers has been replaced by a preoccupation with the bogus grievances of large corporations. He would have us believe that today’s most oppressed group is Corporate America.

The desire to come to the rescue of big business is, when all the distracting tweets are put aside, at the core of the mission that Trump shares with Congressional Republicans: dismantling regulation and slashing corporate taxes.

It’s difficult to know whether this is what Trump planned all along and cynically manipulated his supporters or if he was turned by the Washington swamp he unconvincingly vowed to drain. In either event, his administration is engaging in one of the most egregious betrayals in American history.

Trump is not only neglecting the economic interests of his core supporters; he is siding with those who prey on them. This is playing out in many ways — from promoting anti-worker policies at the Labor Department to going easy on the drug companies responsible for the opioid epidemic — but one of the most revealing situations is taking place at the Consumer Financial Protection Bureau.

Putting aside the question of whether outgoing director Richard Cordray or President Trump has the right to name an acting director, the real issue is what is going to become of an agency that has been courageous and unrelenting in its enforcement actions against predatory financial firms.

The CFPB’s sin, from the point of view of the White House and Congressional Republicans, is that it has been doing its job too well. One of the dirty little secrets of Washington is that most regulatory agencies are in the pocket of the corporations they are supposed to police. Oversight is usually friendly or at least not onerous.

The CFPB was designed to, and in practice did, break that mold. It has not been chummy with the banks, payday lenders, mortgage brokers and credit agencies. As shown in Violation Tracker, since 2012 the CFPB has brought more than 100 enforcement actions and imposed more than $7 billion in penalties.

After he was named to take over the agency, Mick Mulvaney, who had long advocated its dismantlement, was quoted as saying that President Trump wanted him to get the CFPB “back to the point where it can protect people without trampling on capitalism.” The very thinly veiled message is that CFPB will cease to be an aggressive advocate for consumers, allowing banks and other financial companies to breathe easier.

Mulvaney was giving what amounted to a moral reprieve for all those companies pursued by the CFPB, including:

Wells Fargo, which was the target of one of the CFPB’s highest profile enforcement actions: the $100 million penalty imposed on the bank for secretly creating millions of extra accounts not requested by customers, in order to generate illicit fees.
Mortgage loan servicer Ocwen Financial, which the CFPB ordered to provide $2 billion in principal reduction to underwater borrowers, many of whom had been forced into foreclosure by Ocwen’s abusive practices.
Bank of America and FIA Card Services, which the CFPB ordered to provide $747 million in relief to card customers harmed by deceptive marketing of add-on products.
Corinthian Colleges Inc., the operator of dubious for-profit schools that was sued by the CFPB and ended up going out of business amid charges that it lured students into taking out private loans to cover expensive tuition costs by advertising bogus job prospects and career services.
Colfax Capital (also known as Rome Finance), which the CFPB ordered to pay $92 million in debt relief to some 17,000 members of the U.S. armed forces who had been harmed by the company’s predatory lending practices.
Or smaller operators such as Reverse Mortgage Solutions, which the CFPB fined for falsely telling customers, mainly seniors, that there was no risk of losing their home.

The Trump Administration has come to the rescue of financial scammers such as these by moving to defang the CFPB and restore the proper order of things in which it is not capitalists but rather consumers and workers who get trampled.

Trump’s Other Ban

Trump’s travel ban and his rightwing Supreme Court pick are troubling in themselves, but they are also serving to deflect attention away from the plot by the administration and its Republican allies to undermine the regulation of business.

Surprisingly little is being said about Trump’s January 30 executive order instructing federal agencies to identify two prior regulations for elimination for each new rule they seek to issue. It also dictates that the total incremental cost of new rules (minus the cost of repealed ones) should not exceed zero for the year.

While Trump’s appointees will probably not propose much in the way of significant new rules that would have to be offset, the order amounts to a ban on additional regulation. It boosts the long-standing effort by corporate apologists to delegitimize regulation by focusing on the number of rules and their supposed cost while ignoring their social benefits.

Meanwhile, the regulation bashers are also busy on Capitol Hill. Republicans have resurrected the rarely used Congressional Review Act as a mechanism for undoing the Obama Administration’s environmental regulations as well as its Fair Pay and Safe Workplaces executive order concerning federal contractors.

Both Trump and Congressional Republicans are also targeting the Dodd-Frank law that enhanced financial regulation after the 2008 meltdown. Calling the law a “disaster,” Trump recently said “we’re going to be doing a big number on Dodd-Frank,” adding: “The American dream is back.”

If Trump was referring to the aspirations of the wolves of Wall Street, then that dream may indeed be in for a resurgence. For much of the rest of the population, the consequences would be a lot less pleasant.

To take just one example, an attack on Dodd-Frank would certainly include an assault on the Consumer Financial Protection Bureau that was created by the law and which has aggressively gone after financial predators. As Violation Tracker shows, during the past five years the agency has imposed more than $7 billion in penalties in around 100 enforcement actions against banks, payday lenders, credit card companies and others. Its $100 million fine against Wells Fargo last September brought attention to the bank’s bogus-account scheme.

The CFPB has not let the election results impede its work. Since November 8 it has announced more than a dozen enforcement actions with penalties totaling more than $80 million. The largest of those involves Citigroup, two of whose subsidiaries were fined $28.8 million for keeping borrowers in the dark about options to avoid foreclosure and burdening them with excessive paperwork demands when they applied for foreclosure relief.

Citigroup, one of the companies that has the most to gain from restrictions on the CFPB and Dodd-Frank in general, has shown up often as I have been collecting data on recent enforcement cases from various agencies for a Violation Tracker update that will be released soon.

The Securities and Exchange Commission recently announced that Citigroup Global Markets would pay $18.3 million to settle allegations that it overcharged at least 60,000 investment advisory clients with unauthorized fees. In a separate SEC case, Citi had to pay $2.96 million to settle allegations that it misled investors about a foreign exchange trading program.

Around the same time, the Commodity Futures Trading Commission filed and settled (for $25 million) allegations that Citigroup Global Markets engaged in the illicit practice of spoofing — bidding or offering with the intent to cancel the bid or offer before execution — in U.S. Treasury futures markets and that it failed to diligently supervise the activities of its employees and agents in conjunction with the spoofing orders.

Citi’s record, along with that of other rogue banks, undermines the arguments of Dodd-Frank foes and in fact makes the case for stricter oversight. Yet the reality of financial misconduct is about to be overwhelmed by a barrage of alternative facts about the magic of deregulation.

Update: After this piece was written, Congress voted to repeal another provision of Dodd-Frank known as Cardin-Lugar or Section 1504, which required publicly traded extractive companies to report on payments to foreign governments in their SEC filings. The disclosure was meant as an anti-corruption measure.

Preying on the Military

militarylending Reincorporating in foreign countries with lower tax rates is not the only way large corporations put profit before patriotism. A front-page story in the New York Times points out that predatory lenders continue to target members of the U.S. military. Despite much business talk about supporting the troops, these unscrupulous firms exploit the precarious financial condition of many members of the armed services.

The vulnerability of service members to predatory lending is not a new story. The federal Military Lending Act of 2007 was passed with the intention of barring the most exploitative practices, but it did not go far enough. The Obama Administration is now seeking sweeping changes to the law to eliminate its many loopholes and to expand its applicability to the many new kinds of predatory “services” that the infinitely creative consumer finance industry has created in the past seven years.

At the same time, the Consumer Financial Protection Bureau has brought enforcement actions against predators that have been violating the law. Last year the bureau got payday lender Cash America to pay $19 million to settle charges relating to abusive practices such as charging more than the 36 percent interest cap established by the Military Lending Act. In May, Sallie Mae and its former loan servicing unit Navient had to pay $60 million to settle federal allegations that they charged servicemembers excessive interest rates and fees on student loans. And in July, a company called Rome Finance had to pay $92 million to settle accusations that it exploited military purchasers of consumer electronics. CFPB Director Richard Cordray told reporters at the time: “Rome Finance’s business model was built on fleecing servicemembers.”

Faced with these obstacles, the predatory lenders have been looking for relief at the state level. The Times points out that states such as Kentucky, Arizona, Missouri, Indiana and Florida have eased their financial regulation, but it gives special attention to North Carolina, where a 2011 push by financial services lobbyists to ease interest rate restrictions was so brazen that it prompted military commanders from Fort Bragg and Camp Lejeune to warn the changes could harm their troops. Last year the industry tried again and succeeded, thanks in part to a decision by the commanders not to get involved again.

The issue is playing a role in this year’s U.S. Senate race in the Tarheel State. Republican candidate Thom Tillis, the state Speaker, supported the easing of restrictions on military lending and has reaped large campaign contributions from the financial services industry. The Times asked his campaign manager Jordan Shaw about this and was told that that the donations did not influence his voting record. Yet Shaw stated that Tillis “wanted to make sure that people still have these loans as an option.”

Conservative politicians such as Tillis have bought into the self-serving ideology of predatory lenders – that consumers should have the freedom to choose exploitative borrowing arrangements. It’s bad enough when this mindset is applied to the general public. Extending it to those who risk their life for their country is breathtakingly cynical and a reminder that corporations are loyal to nothing other than their own enrichment.

Payday Predators Become the Prey

shark-week-cover2 Every industry has its faults, but there are only a few for which it can be said that society would be better off if they did not exist at all. One member of that special group is payday lending, the business of providing short-term cash advances to desperate people at unconscionably high interest rates with the expectation that they will not be able to repay the money and thereby get caught in an ever-worsening debt trap.

National People’s Action and other groups fighting predatory lending are highlighting this problem with their Shark Week Campaign. An NPA fact sheet does a good job of summarizing what’s wrong with payday lending and links to some of the best research on the subject, including a 2013 report by the Center for Responsible Lending that makes the case for stronger federal regulation. The issue was also the focus of a brilliant segment on John Oliver’s HBO show that included a mock public service ad narrated by Sarah Silverman arguing that the best alternative to payday loans is “anything else.”

While stricter rules are clearly needed, the good news is that the sharks are no longer operating with total impunity. The Dodd-Frank Act opened the door to federal action on payday lending, and the Consumer Financial Protection Bureau is starting to act on that authority. Last November, the agency ordered Cash America International, one of the largest predators, to pay $19 million ($5 million in fines and $14 million in refunds to customers) for using illegal robo-signing in preparing court documents in debt collection lawsuits. The company was also charged with violating special rules involving lending to military families. In addition, Cash America was accused of destroying documents relevant to the agency’s investigation of its practices.

In the wake of that case, the CFPB took its first action against an online payday lender, suing CashCall Inc. for engaging in “unfair, deceptive, and abusive practices, including debiting consumer checking accounts for loans that were void.” In July, the bureau announced that Ace Cash Express would pay $10 million to settle charges that it engaged in “illegal debt collections tactics — including harassment and false threats of lawsuits or criminal prosecution — to pressure overdue borrowers into taking out additional loans they could not afford.”

Last March, the bureau held a field hearing on payday lending and issued a report finding that more than 80 percent of loans by the industry are rolled over or followed by another loan. The Justice Department is reported to be carrying out an investigation of the role of banks in financing payday lenders.

The sharks are also under attack at the state and local level. Manhattan District Attorney Cyrus Vance Jr. just announced the criminal indictment of a group of online payday lenders and the individuals who control them. The case is an effort to get at companies that use complicated corporate structures and offshore registration to get around the interest rate caps that states such as New York have adopted.

In June, officials in Maryland announced that South Dakota-based Western Sky Financial and CashCall would pay about $2 million to settle charges that they engaged in “abusive payday lending and collections activities” that included loans with annual interest rates of more than 1,800 percent. The settlement also permanently barred the companies from doing any business in the state that required licensing.

Last October, five payday lending companies had to pay $300,000 to settle charges brought by the New York State attorney general, and the year before Sure Advance had to hand over $760,000 to settle allegations that it charged illegal rates as high as 1,564 percent.

Payday lenders have also been targeted in class action lawsuits. Cash America agreed to pay up to $36 million to settle one such case that had been brought under Georgia’s usury and racketeering laws.

Faced with a dwindling number of states in which they can operate as they please, along with tighter federal rules, some of the payday companies are giving up. For example, giant Cash America is reportedly planning to spin off its payday lending operations and focus instead on the supposedly more reputable business of pawn shops.

Most stories about attempts to control abusive commercial practices end up with corporations finding a way to prevail. Payday lending may turn out to be that rare case in which the predators lose.

JPMorgan Chase in the Sewer

dimon The business news has been full of speculation on whether JPMorgan Chase Jamie Dimon will go on serving as both CEO and chairman of the big bank, in light of a shareholder campaign to strip him of the latter post. The effort to bring Dimon down a notch—and to oust three members of the board—is hardly the work of a “lynch mob,” as Jeffrey Sonnenfeld of Yale suggested in a New York Times op-ed.

That’s not to say that a corporate lynching is not in order. JPMorgan’s behavior has been outrageous in many respects. The latest evidence has just come to light in a lawsuit filed by California Attorney General Kamala Harris, who accuses the bank of engaging in “fraudulent and unlawful debt-collection practices” against tens of thousands of residents of her state.

In charges reminiscent of the scandals involving improper foreclosures by the likes of JPMorgan, the complaint describes gross violations of proper legal procedures in the course of filing vast numbers of lawsuits against borrowers, including:

Robo-signing of court filings without proper review of relevant files and bank records;
Failing to properly serve notice on customers—a practice known as “sewer service”; and
Failing to redact personal information from court filings, potentially exposing customers to identity theft.

JPMorgan got so carried away with what the complaint calls its “debt collection mill,” that on a single day in 2010 it filed 469 lawsuits.

The accusations come amid reports of ongoing screw-ups in the process of providing compensation to victims of the foreclosure abuses. For JPMorgan, the California charges also bring to mind its own dismal record when it comes to respecting the rights of credit card customers.

In January 2001, just before it was taken over by what was then J.P. Morgan, Chase Manhattan had to pay at least $22 million to settle lawsuits asserting that its credit card customers were charged illegitimate late fees.

In July 2012 JPMorgan Chase agreed to pay $100 million to settle a class action lawsuit charging it with improperly increasing the minimum monthly payments charged to credit card customers.

The credit card abuses are only part of a broad pattern of misconduct by JPMorgan. In the past year alone, its track record includes the following:

In October 2012 New York State Attorney General Eric Schneiderman, acting on behalf of the U.S. Justice Department’s federal mortgage task force, sued JPMorgan, alleging that its Bear Stearns unit had fraudulently misled investors in the sale of residential mortgage-backed securities. The following month, the SEC announced that JPMorgan would pay $296.9 million to settle similar charges.

In January 2013 JPMorgan was one of ten major lenders that agreed to pay a total of $8.5 billion to resolve charges relating to foreclosure abuses. That same month, bank regulators ordered JPMorgan to take corrective action to address risk management shortcomings that caused massive trading losses in the London Whale scandal. It was also ordered to strengthen its efforts to prevent money laundering. In a move that was interpreted as a signal to regulators, JPMorgan’s board of directors cut the compensation of Dimon by 50 percent.

JPMorgan’s image was further tarnished by an internal probe of the big trading losses that found widespread failures in the bank’s risk management system. Investigations of the losses by the FBI and other federal agencies continue.

In February 2013 documents came to light indicating JPMorgan had altered the results of an outside analysis showing deficiencies in thousands of home mortgages that the bank had bundled into securities that turned out to be toxic.

In March 2013 the Senate Permanent Committee on Investigation released a 300-page report that charged the bank with ignoring internal controls and misleading regulators and shareholders about the scope of losses associated with the London Whale fiasco.

In an article in late March, the New York Times reported that the bank was facing investigations by at least eight federal agencies. Last week, the newspaper revealed a new investigation of JPMorgan by the Federal Energy Regulatory Commission, which was said to have assembled evidence that the bank used “manipulative schemes” to transform money-losing power plants into “powerful profit centers.”

You know a bank is in big trouble when the coverage of its activities includes phrases like “lynch mob,” “sewer service” and “manipulative schemes.“

Removing the Burden of Student Loans

Undeterred by its eviction from public parks in numerous cities, the Occupy movement is looking to other venues, among them college campuses.

Occupying universities is not just a matter of finding new encampment sites. It is also a means of asserting the connection between the current protests and the student activism of the 1960s, which in many ways paved the way for the current upheaval.

Those historical links have been in full view in Berkeley, where Occupy forces have been struggling to maintain an encampment at the University of California on the very spot where the Free Speech Movement was born nearly a half century ago. The call by that movement’s leader, Mario Savio, for students to throw their “bodies upon the gears” of the capitalist/military machine is echoed in the speeches in today’s Occupy general assemblies.

Berkeley also serves as a reminder that the universities are not that far removed from Wall Street. A 1998 agreement by UC-Berkeley to put its biotechnology research under the control of drug company Novartis (later Syngenta) was a key event in the corporatization of academia and was prominently featured in Jennifer Washburn’s 2005 book University Inc.: The Corporate Corruption of Higher Education.

But perhaps the most compelling reason for Occupy efforts on college campuses is that they are the scene of the crime for the abuse that perhaps more than any other animates the current movement: the burden of student debt.

For many young Occupiers, who have never had a chance to take out a home mortgage on which to be foreclosed, their main relationship to Wall Street is through what they owe banks on the loans they amassed for their education. It is thus no surprise that some of the more common Occupy protest signs are those that say something like: “I have $80,000 in student loan debt. How can I ever pay that back?”

Occupiers are starting to move from simply bemoaning their student loans to rejecting the idea that those obligations have to be met. We’re seeing the emergence of a movement for student loan debt abolition.

To put this movement in context, it’s helpful to recall the modern history of higher education in the United States. Once the province of the upper class, colleges were transformed in the post-World War II era into a system for preparing a workforce that was becoming increasingly white-collar. The GI Bill and later the candidly named National Defense Student Loans were not social programs as much as they were indirect training subsidies for the private sector. The Basic Educational Opportunity Grants (later renamed Pell Grants) created in the 1970s brought young people from the country’s poorest families into the training system.

It was precisely this sense that they were being processed for an industrial machine that motivated many of the student protesters of the 1960s. As with many of today’s Occupiers, they ended up questioning the entire way of life that had been programmed for them.

Those challenges eventually ebbed, and the powers that be then pulled a cruel trick on young people. Once a college education had become all but essential for survival in society, students were forced to start shouldering much more of its cost. During the 1980s, the Reagan Administration slashed federal grant programs, compelling students to make up the difference through borrowing. As early as 1986, a Congressional report was warning that student loans were “overburdening a generation.”

Over the past 25 years, that burden has become increasingly onerous. Both Republican and Democratic Administrations exacerbated the problem by cracking down on borrowers who could not keep up with their payments, while at the same time giving the profit-maximizing private sector greater control over the system. That control was intensified by the privatization of the Student Loan Marketing Association (Sallie Mae) in the late 1990s and by the refusal of Congress for years to heed calls to get private banks out of the student loan business.

It was not until March 2010 that Congress, at the urging of the Obama Administration, eliminated the private parasites and converted billions in bank subsidies into funds for the expansion of the Pell Grant program. This was a remarkable step that will reduce future debt burdens, but by the time it occurred a great deal of damage had already been done.

During the past two decades, student loan debt has skyrocketed. Last year new loans surpassed $100 billion for the first time, and total loans outstanding are soon expected to exceed $1 trillion. According to the College Board, the typical recipient of a bachelor’s degree now owes $22,000 upon graduation. These numbers are all the more daunting in light of the dismal job prospects for graduates, millions of whom are unemployed or underemployed.

Given this history, young people are justified in viewing their student debts as akin to the unsustainable mortgages foisted on low-income home buyers by predatory lenders. President Obama recently announced some administrative adjustments to student loan obligations, but that will make only a small dent in the problem.

Even before the Occupy movement began, there was talk of a student loan debt abolition movement. Much of this talk was inspired by the writings of George Caffentzis, including a widely circulated article in the journal Reclamations. Caffentzis acknowledges the challenges to such a movement stemming from the fact that student loans are not repayable while borrowers are still in school: “Student loans are time bombs, constructed to detonate when the debtor is away from campus and the collectivity college provides is left behind.”

The advent of the Occupy movement is creating a new collectivity and a new way of thinking that addresses the call by Caffentzis for a “political house cleaning to dispel the smell of sanctity and rationality surrounding debt repayment regardless of the conditions in which it has been contracted and the ability of the debtor to do so.” Occupiers are also apt to be more receptive to Caffentzis’s argument that student debt should be seen not as consumer debt but in the context of education as an adjunct to the labor market.

A decade ago, many U.S. activists were building a Jubilee campaign for third world debt cancellation. We now need a similar effort here at home to liberate young people from the consequences of an educational financing system that has gone terribly wrong.

The (Investment) House Always Wins

Goldman Sachs, which has long prided itself on being one of the smartest operators on Wall Street, has apparently decided that the best way to defend itself against federal fraud charges is to plead incompetence. The firm is taking the position that it is not guilty of misleading investors in a 2007 issue of mortgage securities because it allegedly lost money – more than $90 million, it claims – on its own stake in the deal.

In fact, Goldman would have us believe that it took a bath in the overall mortgage security arena. This story line is a far cry from the one put forth a couple of years ago, when the firm was being celebrated for anticipating the collapse in the mortgage market and shielding itself – though not its clients. In a November 2007 front-page article headlined “Goldman Sachs Rakes in Profit in Credit Crisis,” the New York Times reported that the firm “continued to package risky mortgages to sell to investors” while it reduced its own holdings in such securities and bought “expensive insurance as protection against further losses.” In 2007 Goldman posted a profit of $11.6 billion (up from $9.5 billion the year before), and CEO Lloyd Blankfein took home $70 million in compensation (not counting another $45 million in value he realized upon the vesting of previously granted stock awards). Some bath.

Goldman is not the only one rewriting financial history. Many of the firm’s mainstream critics are talking as if it is unheard of for an investment bank to act contrary to the interests of its clients, as Goldman is accused of doing by failing to disclose that it allowed hedge fund operator John Paulson to choose a set of particularly toxic mortgage securities for Goldman to peddle while Paulson was betting heavily that those securities would tank.

In fact, the history of Wall Street is filled with examples in which investment houses sought to hoodwink investors. Rampant stock manipulation, conflicts of interest and other fraudulent practices exposed by the Pecora Commission prompted the regulatory reforms of the 1930s. Those reforms reduced but did not eliminate shady practices. The 1950s and early 1960s saw a series of scandals involving firms on the American Stock Exchange that in 1964 inspired Congress to impose stricter disclosure requirements for over-the-counter securities.

The corporate takeover frenzy of the 1980s brought with it a wave of insider trading scandals. The culprits in these cases involved not only independent speculators such as Ivan Boesky, but also executives at prominent investment houses, above all Michael Milken of Drexel Burnham. Also caught in the net was Robert Freeman, head of risk arbitrage at Goldman, who in 1989 pleaded guilty to criminal charges. When players such as Freeman and Milken traded on inside information, they were profiting at the expense of other investors, including their own clients, who were not privy to that information.

During the past decade, various major banks were accused of helping crooked companies deceive investors. For example, in 2004 Citigroup agreed to pay $2.7 billion to settle such charges brought in connection with WorldCom and later paid $1.7 billion to former Enron investors. In 2005 Goldman and three other banks paid $100 million to settle charges in connection with WorldCom.

In other words, the allegation that Goldman was acting contrary to the interest of its clients in the sale of synthetic collateralized debt obligations was hardly unprecedented.

What’s not getting much attention during the current scandal is that in late 2007 Goldman had found another way to profit by exploiting its clients, though in this case the clients were not investors but homeowners.

Goldman quietly purchased a company called Litton Loan Servicing, a leading player in the business of servicing subprime (and frequently predatory) home mortgages. “Servicing” in this case means collecting payments from homeowners who frequently fall behind in payments and are at risk of foreclosure. As I wrote in 2008, Litton is “a type of collection agency dealing with those in the most vulnerable and desperate financial circumstances.” At the end of 2009, Litton was the 4^th largest subprime servicer, with a portfolio of some $52 billion (National Mortgage News 4/5/2010).

Litton has frequently been charged with engaging in abusive practices, including the imposition of onerous late fees that allegedly violate the Real Estate Settlement Procedures Act. It has also been accused of being overly aggressive in pushing homeowners into foreclosure when they can’t make their payments.

Many of these complaints have ended up in court. According to the Justia database, Litton has been sued more than 300 times in federal court since the beginning of 2007. That year a federal judge in California granted class-action status to a group of plaintiffs, but the court later limited the scope of the potential damages, resulting in a settlement in which Litton agreed to pay out $500,000.

Meanwhile, individual lawsuits continue to be filed. Many of the more recent ones involve disputes over loan modifications. Complaints in this area persist even though Litton is participating in the Obama Administration’s Home Affordable Modification Program and is thus eligible for incentive payments through an extension of the Toxic Assets Relief Program.

There seems to be no end to the ways that Goldman manages to make money from toxic assets. On Wall Street, as in Las Vegas, the house always wins.

BONUS FEATURE: Federal regulation of business leaves a lot to be desired, but it is worth knowing where to find information on those enforcement activities that are occurring. The Dirt Diggers Digest can help with our new Enforcement page, which has links to online enforcement data from a wide range of federal agencies. The page also includes links to inspection data, product recall announcements and lists of companies debarred from doing business with the federal government.