Banking and finance roundup


  • RE: CFPB rules.

    1. There is no question that large companies have illegitimate gains.
    2. While the aggregate gains are relatively large, the individual losses can be miniscule. Think of a company with 1 million customers, stealing $2/month from each customer.
    3. Without some sort of way for customers to aggregate, there is no practical way to recover the costs.
    4. Class actions are one way to disgorge the ill-gotten gains.
    5. Class actions are skewed by the incentive to settle with the lead plaintiffs and pay plaintiffs’ counsel.
    6. Class actions can be a triple whammy for companies. They lose the ill-gotten gains (and maybe more), have to pay their own lawyers, and have huge litigation costs.
    7. No-one opposing class actions has come up with an alternate solution. In fact, when asked, Wells Fargo identified no party who would have had the incentive to get them to stop. It was not until the CFPB stepped in that Wells Fargo’s theft came to light. (And have no doubt, it was theft).
    8. Wells Fargo got off cheap (as has VW).
    9. So long as we keep saying that companies have one purpose: to make money for shareholders, society does not encourage ethical actions by those companies.
    10. The only way to get companies whose sole purpose is to make profits to change is to develop a system where companies lose those profits if they engage in nefarious activities.
    11. In the alternative, there should be more robust efforts at criminally punishing or finding the indifferent, negligent, reckless, or criminal companies, executives, and board members.

    • 1. False, Not every large company has illegitimate gains.
      4. They are also a great way for unethical lawyers to blackmail companies over frivolous claims unless the courts very tightly control both the creation of classes for purposes of class actions and class action claims.
      5. Far too many cases where the plaintiffs lawyers get more in fees than the entire class receives. If class actions are allowed, the payoffs to plaintiffs lawyers need to be severely restricted, Other wise the incentive for the lawyers to manufacture frivolous class actions is too high.
      7. I don’t oppose class actions in general, but I think the courts have been too lax in allowing weak class actions inviting fraud and legal blackmail.
      8. agreed.
      9. It’s not their sole purpose, It is however their primary purpose. To allow otherwise for publicly held companies invites fraud by corporate officers against the investors/shareholders.
      10. I agree in general, I just don’t agree that allowing class actions over trivial claims is a good way to accomplish this.

      • And yet the remedy we’ve been going with for these problems has been to force consumers to sign away their rights to ever participate in any class action no matter how meritorious it may be, and people here at Overlawyered frequently defend that as a good thing because of “freedom of contract.”

      • 1. I did not say that ALL large companies have ill-gotten gains. Perhaps it was ambiguous. To be clear: there are some large companies that have ill-gotten gains.
        4. Perhaps. But that is like saying we should prohibit people from owning guns because some people misuse them.
        5. IMHO, plaintiff counsel attorney fees should be limited to the market hourly rate charged by defendants’ attorneys (as opposed to the discounted rates that the defendants might receive).
        7. I agree. Rule 11 is not employed enough
        9 I disagree. The primary purpose of companies is to provide a return on investment for shareholders. Everything else is ancillary. When we make ethics ancillary, we invite fraud. And that is what we have.
        10. OK. We are in agreement. If there is an alternative, I would like to hear it.

        • 4. Again, I don’t think class actions should be prohibited, I just think that the courts have been too lax in policing them to keep out frivolous claims.

          9. We are not in as much disagreement as you think. Yes, ROI is the primary purpose, it’s just not the sole purpose.

          Ethics aren’t ancillary. However the primary ethical duty of corporate officers is their fiduciary duty to the shareholders. It is that ethical duty to the shareholders that makes providing a return on investment the primary purpose.

          10. I wish I had a good idea to share on this.

          If the courts would better police class actions to keep out frivolous claims and block settlements that that give no value to the class members, it would be a good step towards turning class actions into something that could provide the signalling you are looking for.

          The problem is, to force the kinds of changes you want, it’s not enough to just cut into their profits. You need that to get the shareholders to either change the leadership or dis-invest. The problem is that class actions as they exist now, are largely viewed by investors, the same way the view natural disasters; unpredictable and disjoint from the actions of corporate leadership.

        • Allan,

          #9 Your response is rather simplistic in my view. Most people would say that the object of a company is to make money for its owners / shareholders within a legal framework.

          Your position is akin to saying “the primary goal of people is to provide for themselves and their families and how they do that is ancillary.”

          When we make the ethics of making a living ancillary, we invite fraud, theft, etc.

          Is that really where you want to go?

          • Ethics… We have no real incentive for companies to act ethically.

            Take as an example, Epipens. We have a company that buys product then inflates the price 600%. Is this legal? YES. Is it ethical? NO. That is because these pens are essential life-saving devices for millions of people. Certainly, once the manufacturer got caught, there was some bad publicity. But the company has already made its profits. And it remains the only seller. In sum, the company did not do what was right for the common good, but it did do what was right for its shareholders.

            Using Epipen production as an example, I have three questions.

            1. Is what the Epipen manufacturer did wrong” If not, skip the next questions.

            2. If so, should our laws allow what happened to happen? If so, we are done.

            3. If not, what can society do to reduce the incentives of companies to engage in this type of activity? Assume most types of non-pun itive public shaming will not work.

          • 1.Yes.

            2.No, but it’s worse than you imagine. Not only did our laws allow it to happen, it was only possible because of those laws. The FDA has given the Epipen manufacturer a monopoly on an off patent drug and an off patent device by government force, by refusing to approve a number of existing and proposed alternatives, at least two of which are already available and in use in Europe.

            3. What can society do to stop this type of price gouging? Easy, get the government out of the business of deciding who can/cannot compete in certain markets. The FDA should have minimal regulatory authority over generics for previously approved off-patent drugs and medical devices.

          • Allen,

            I’m sorry, but you dodged the question a bit.

            Don’t people – individuals – seek to make the most money from their jobs in order to provide for themselves and their families? As I don’t think you can dispute that, are those individuals acting “unethically” as well?

            To set up the answers to your questions, no, the maker of the Epipens did nothing wrong, legally or ethically. Your supposition that they have a duty to decrease the price of a product because the product “saves lives” can be applied to many products. For example, cell phones save lives. Should we demand that makers of cell phones lower their prices? Guns save lives. Should we demand that gun makers lower their prices? Even more to the core point, should we regulate the prices of food?

            Exactly who gets to set those prices? Who gets to say what is an “ethical” amount of profit? You? A group? The government?

            The rub here is that those folks are going to look at pricing based upon their pocketbooks. In your mind why is it that people looking to keep the most money in their pockets by regulating prices acceptable and ethical, but allowing a company to sell a product at the rate they want to keep money in their pocked “unethical?”

            Now to the questions:

            1) The maker did nothing wrong.
            2) Government regulations of prices is always a disaster or a disaster waiting to happen. As for “being done,” I am fairly sure that the world got along without Epipens and we weren’t “done.”
            3) What kind of activity are you talking about Allen? The type of activity of research and innovation in products?

            The saying used to be “make a better mousetrap and the world will be a path to your door.”

            You seem to be saying “make a better mousetrap and society has the right, the ability and the “ethical duty” to steal the mousetrap and the profits from you.”

          • Matt,

            Your answer does not work here. The FDA did not prohibit other companies from producing the drug. It has been on the marked almost a century. The patent is on the delivery device. Epipen built a better mousetrap.


            The question as to whether people have a right to make as much money as they can is an interesting one. Certainly, when we are talking about a car salesman, the answer is yes. It gets more murky when we talk about things that are necessary, such as criminal defense work or, maybe, guns. And it gets simply too complex when we talk about things that are essential, like medicine and health care. When one lives in a society, one has a duty to society. The philosophical question is what the duty encompasses. Society has to make these choices.

            I do not think that there is anything illegal about raising prices in the way Epipen did. They have a monopoly and are using it. But that does not make what they did ethically and morally right. There is a difference between raising prices on non-essential items and raising prices on a product that saves lives.

            My guess is that, if you were a parent of a child with nut allergies and you had a limited budget, you would think this was unethical.

            As for what we should regulate. Well… the government provides the poor with cell pjhones and food. More importantly, there is competition for cell phones and food. There is no competition for Epipens because they have a statutorily approved monopoly (on the delivery system).

            I am not for government price controls, even in Epipens. I am for developing incentives for companies not to misuse their monopoly powers to the detriment of society. Research and innovation would not provide a solution in this case. In this case, if Mylar is given a monopoly, they should endeavor to use that monopoly in a moral way.

            Finally, I would note that there is an alternative to Epipens. You can buy the drug for $1.00, get some syringes, and use when necessary. The problem is that this may lead to improper dosage, which is dangerous.

          • Allen,

            Society has to make these choices.

            “Society” is made up of individuals. The individuals will make decisions based on what is best for them and not necessarily for others. If “society” really felt as you think, they would band together and pay for the Epipens. Instead, the individuals have no skin in the game because they aren’t paying for the Epipens. All they are saying is “take the product from a company.”

            That is not moral in any sense of the word.

            My guess is that, if you were a parent of a child with nut allergies and you had a limited budget, you would think this was unethical.

            You would guess wrong,

            I see nothing of value from stealing from a company because of my lack of ability or effort to pay for things. I see no value in teaching my child that the way to obtain things is to steal them.

            Well… the government provides the poor with cell pjhones and food.

            I would argue that is wrong a well Allen. Using an example of wrongful activities does not make other wrongful activities right.

            Research and innovation would not provide a solution in this case.

            Actually you are wrong. There is another delivery system in the pipeline that has been there awhile and is awaiting FDA approval. So what you get back to is not only are you supporting stealing the work of a company, you are supporting the lack of the government to act in a quick and judicious manner.

            In this case, if Mylar is given a monopoly, they should endeavor to use that monopoly in a moral way.

            And that is another rub. You say that because they built a better mousetrap, they have some sort of moral obligation to “society” and individuals who want to take it and the profits that generate salaries, research and development and repayment to investors. I find nothing “moral” about theft Allen.

            Many people like you would argue that Mylar has the “moral duty” to pay certain wages and provide certain benefits and yet you are eager to deny them the ability to do so because you want to take away the profits and the incentives making a better mousetrap.

            People will always say that something is needed for life or quality of life. It is easier to take that item from someone rather than to earn it.

            There is not an object or a service that cannot be argued is “life saving.” I would suspect that you would look to regulate prices on everything and everyone except for your job and your profession.

          • “Your answer does not work here. The FDA did not prohibit other companies from producing the drug. It has been on the marked almost a century. The patent is on the delivery device. Epipen built a better mousetrap.”

            Nope, My answer still works. The delivery device has been off patent for over a decade. Epipen went on the market in 1980. Patents only last 20 years, so it’s been off patent since 2000.

    • “So long as we keep saying that companies have one purpose: to make money for shareholders . . . ”

      Yeah, I agree it’s stupid to say that.

      It’s the equivalent of saying the Red Sox show up night after night at Fenway “to keep score for the fans.”

      • I don’t understand the comparison to the Red Sox. Are you referring to the employees (players, managers, etc.) or the owners? And who are the fans? Certainly, they are not the owners. Instead, they are the customers.

        The Red Sox players, like all employees, provide a service to the teams customers, in turn the customers pay for the service. The team owners hope that the payments exceed the costs. So, yes, the Red Sox exist solely so the owners can make money. It is an ancillary benefit that the egos of the players and owners are inflated by wins. Everything other than making a profit is ancillary when discussing for profit companies.

        What we should do as a society is make it more expensive for companies to act like jerks than otherwise. Companies get benefits from appearing to be good guys. All those things Walmart does for their communities comes back in the form of customers.

  • Actually, I am not sure WF isn’t susceptible to large class actions, notwithstanding any waivers with customers—these were products that the customers didn’t sign up for. Hence, I am not sure that an arbitration clause would act to insulate WF from a class action.

  • Good points, Allan, but first we’ll just make sure the damages go to arms-length charities. Since the lawyers are motivated by doing public good, it won’t affect their crusade for truth and justice in the least.

    • Let the class members collect the damages. Give the legal fees to arms length charities.

      • Actual damages to the members, punitive damages to charity.