If there ever were a year that even the most hard-core economic libertarian might be convinced of the occasional value of government regulation, this is that year. And how! Had banking regulators done their job in 2005, 2006, and 2007 as the subprime balloon inflated, billions of dollars and thousand of jobs would have been saved, and a massive amount of financial upheaval might have been avoided.
Given what happened instead, you’d think the regulators would lately be bringing a new seriousness to their jobs.
You would be wrong. Wednesday afternoon, officials from the Federal Deposit Insurance Corp. and the Federal Trade Commission hosted what must be one of the oddest press conferences in the annals of financial regulation. At the event, the FDIC and FTC announced they’ve issued enforcement actions against CompuCredit Corp. and a handful of banks and are jointly seeking over $200 million in fines for what the regulators describe as “deceptive marketing practices” related to credit card solicitation.
The actions are the culmination of an investigation by the FDIC (the FTC came in later) that’s gone on for more than two years. In my view, they represent a huge abuse of regulators’ authority.
There are two reasons why. First, what the heck was the FDIC doing, at the moment many of the banks it regulates were blowing themselves up via crazy subprime mortgage lending, spending two years parsing words with CompuCredit’s marketers? And second, as you’ll see in a minute the charges the FDIC came up with are utterly bogus. The government’s case is a sham, and represents, at bottom, regulatory showboating on a sizable scale.
This is a shareholder talking
I’ll get to the details in a minute, but before I do, a disclosure. I have more than a passing interest in one of the companies in the FDIC’s complaint, one that’s supposedly on the hook for $150 million of the $200 million the agency is seeking: CompuCredit. As regular readers know, the portfolio I manage is the company’s eighth-largest shareholder. You’ll be forgiven for thinking, therefore, that what follows is a long-winded instance of a sad-sack of a shareholder crying into his beer.
Forget it. I’ve been following this case closely for awhile, and know what’s gone on in some detail. And I’m pretty aware, too, of what counts as an acceptable practice in card lending and what doesn’t. As you’ll see, the “deceptive practices” the FDIC is complaining about are nowhere close to the line of what’s unacceptable—just the reverse!—a fact that the FDIC itself once acknowledged.
If this case reflects what’s lately top of mind with federal regulators, the poor fools haven’t learned a thing. The agencies aren’t any better equipped to prevent disasters now than they were before the subprime blowup. Heaven help us all.
