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Friday, April 13, 2012

Credit-Card Companies in a Conflict of Interest

On April 12, 2012, Hawaii sued Bank of America, Chase, Citi, Barclays, Capital One, Discover, HSBC, and their subsidiaries, “claiming that the banks ‘slammed’ Hawaii credit card customers, charging them for products customers didn't need and that the companies never provided.” The Hawaiian government alleges that the banks used “‘predatory tactics to sign up customers for services they either don’t want or don't qualify for,’ and the companies charged their customers ‘without their knowledge or consent,’ according to a press release issued by the Hawaii attorney general's office.” According to the Attorney General, David Louie, “You don't know that you're enrolling, but they say, 'Oh you just enrolled,' okay, and now they've put a charge on your credit card.”  The banks’ telemarketing departments may have charged customers an average of $150 in the form of small charges.

The full essay is at Institutional Conflicts of Interest, available in print and as an ebook at Amazon.

Banks Coopting the Consumer Protection Agency

According to the Credit Card Act, which took effect in February 2010, credit-card issuers cannot charge fees equal to more than 25% of the borrower’s credit limit in the first year after the account is opened. A question confronting the Consumer Financial Protection Bureau was whether up-front fees charged before the account is open count toward the limit. The new agency decided against subjecting such fees to the limit. The question is why.

Bankers at First Premier bank, which issues credit cards to people with low credit-ratings, claimed that the bank’s “very existence” would be threatened on account of “the loss of millions of dollars in profits.” That the threat was self-serving should at the very least make it questionable. However, if true, it could mean that the bank was depending on taking advantage of customers for its own survival—in which case it should not continue to exist. The bank was charging a $95 processing fee before an account is opened, plus a $75 annual fee. The annual fee itself is questionable, given the credit limit was $300. It is highly doubtful that the cost to the bank of processing a credit card application was $95. It can thus be argued that the bank was taking advantage of people who needed a credit card in order to rebuild their credit history. Depending on such a business model is not viable, at least ethically-speaking.

For an agency whose entire raison d’etre is to protect consumers to enable such charges by exempting them from the law’s limits for first year charges raises the question of whether “regulatory capture” had occurred.  Hardly unknown among regulatory agencies, the phenomenon occurs when the industry being regulated “captures” its regulators. Whether through the power of information that the agency needs or outright political pressure, industries can coopt or subvert their respective regulatory agencies from their formal missions. That the banks objected to Elizabeth Warren and she was replaced as the proposed director by Richard Cordray may suggest that his loyalties were not entirely behind the consumer. That is to say, the banks may have had too much influence on the selection of the director tasked with protecting consumers.


Tara Bernard, “ConsumerBureau Declines to Resist Upfront Credit Card Fees,” The New York Times, April 13, 2012.

Using Corporate Position to Torture Whistle-Blowers

Jack B. Palmer made a quiet complaint through internal channels at Infosys, an outsourcing company based in India. He suspected some managers were committing visa fraud. His complaint leaked. As a result, investigators from the U.S. Government looked into “whether the company used workers from India for certain kinds of jobs here that were not allowed under their temporary visas, known as B-1.”

The full essay is in Cases of Unethical Business: A Malignant Mentality of Mendacity, available in print and as an ebook at Amazon.

Thursday, April 12, 2012

Facebook Devours Instagram: Buying a Product

Reporters can easily get carried away in characterizing mergers and acquisitions in business.Regarding eBay buying PayPal in 2002 for $1.5 billion, Google purchasing YouTube in 2006 for $1.65 billion, and Facebook acquiring Instagram in 2012 for $1 billion, expanding in the technology sector can be viewed as buying technology as a product rather than acquiring another company. Accordingly, the fact that Instagram had not earned any revenue is irrelevant. 

The full essay is at "Taking the Face Off Facebook."

Wednesday, April 11, 2012

Justice as Fairness: Greece’s Bond-Holder Holdouts

In the wake of the agreement whereby private holders of Greek debt would swap the bonds and take a 75% loss, two or three percent of the private holders—namely, well-financed hedge funds including Aurelius Capital and Elliott Associates—were thought to be mulling over holding out for full pay-outs instead of agreeing to take the loss. Greece’s dilemma would have been to pay them in full in order to avoid a default and face the ire of the holders who took the losses, or risk default by invoking a collective bargaining law to force the holdouts to swap their bonds.

The full essay is in Essays on the E.U. Political Economy, available in print and as an ebook at Amazon.

Tuesday, April 10, 2012

On the Arrogance of Assumed Superiority: Assad of Syria

One week after Assad’s Syrian government had agreed to a cease-fire with the state’s opposition, the government added further stipulations. First, it wanted “written guarantees” that rebels would  stop fighting and lay down their weapons before any government pull-back could occur. Second, the Syrian government wanted guarantees that Qatar, Saudi Arabia and Turkey would stop financing the armed groups within Syria. “The regime will not implement this plan,” Col. Riad As’aad, the leader of the opposition militia fatalistically said.

The full essay is at "Assad of Syria."

Reuters, “Cease-Fire in Doubt as Syria Demands New Conditions,” The New York Times, April 9, 2012.