Last week, the CFPB ordered Bank of America to refund $727 million to consumers for deceptive marketing of credit card add-on products, including identity theft protection and payment protection/debt cancellation insurance. I've written extensively about just how tawdry and junky these products are.
It's the CFPB's 5th such case against a big credit card company. Total refunds to consumers for all five cases, including the 4 others against Capital One, Discover, American Express and JPM Chase, total nearly $1.5 billion dollars. Add the refunds to consumers from CFPB's two other cases for different credit card violations, against AmEx and GE Capital Retail Bank, and refunds directly to consumers from credit card wrongdoers alone total $1.6 billion. The CFPB is certainly getting results for consumers. The PIRG-backed Americans for Financial Reform has a running chart listing all the CFPB's enforcement actions.
But since tomorrow is tax day, it's also important to recognize that taxpayers also benefited from CFPB's action. CFPB's consent agreement ordered BofA not to take a tax writeoff (nor seek indemnification) on the $20 million civil penalty it also was required to pay into the CFPB's Civil Penalty Fund:
73. The Bank shall treat the civil money penalty as a penalty paid to the government for all purposes. Regardless of how the Bureau ultimately uses those funds, the Bank shall not:
(a) Claim, assert, or apply for a tax deduction or tax credit with regard to any federal, state, or local tax for any civil money penalty that the Bank pays pursuant to this Order; or
(b) Seek or accept, directly or indirectly, reimbursement or indemnification from any source, including, but not limited to, payment made pursuant to any insurance policy, with regard to any civil money penalty that the Bank pays pursuant to this Order.
U.S. PIRG has long urged federal agencies to include similar language in their consent orders. Voluntary consent decrees, where a company "neither admits nor denies wrongdoing," must include such "no writeoff" language. If they do not, the company is likely to be able to claim a tax writeoff. U.S. PIRG Education Fund's report "Subsiding Bad Behavior" has more.
A U.S. PIRG examination of CFPB consent orders finds that paragraph 73 from the BofA order has been a "boilerplate" provision of all its settlements since the middle of FY 2013. Other agencies, including SEC and EPA, are getting the message, too. The CFPB also makes all its consent orders public (not all agencies do). But as U.S. PIRG's recent Fact Sheet No Tax Write-Offs for Wall Street Wrongdoing shows, not every bank regulator has gotten the message yet.
To protect taxpayers, as well as maximize the deterrent effect of civil penalties, U.S. PIRG's basic recommendation is that all government agencies should:
- Make all settlement payouts non-deductible by default, including standard language in all agreements to that effect.
- Publicly disclose all settlements on agency websites and include information about any portion that corporations have not been barred from deducting on their taxes.
- Require corporate filings to the Securities and Exchange Commission to explain whether any settlement payments were written off.
- Ensure “truth in advertising” by requiring regulators and corporations to disclose the after-tax amounts of settlements, a more accurate portrayal of the penalty a company will really pay.