Economic Regulation and the Middle Class.

Economic Regulation (Part 1): Greed is (Not) Good

August 23rd, 2017

In 1987, the movie “Wall Street” was released.  A tense scene depicted the character Gordon Gekko, the king of corporate raiders, explaining why he was dismantling an airline corporation and laying off its employees.  He simply said, “Greed is good.”  

I think of the actor Michael Douglas giving this speech when I see some of the pernicious scams perpetrated by the financial industry. 

My office recently sued a finance company that charged veterans 200 percent interest for small loans that required the veterans to sign away significant portions of their monthly pension for years to come. [1] We sued a bank that put unauthorized charges for identity theft protection packages on customers’ accounts. [2] We enjoined companies that signed people up for credit cards using the credit of other customers. [3]  We stopped student loan companies that promised students phony debt relief. [4]  And last month, we secured a court order that that should help to get an estimated $20 million in usurious loans wiped out.  [5]

With all this greed, it is troubling that the financial industry wants to abolish the federal Consumer Financial Protection Bureau (“CFPB”). The Bureau was established to be a consumer watchdog over the financial industry at the federal level.  The industry says the CFPB needlessly intrudes into the free market with unnecessary consumer protections.  Really?  Let’s take a look:

Mandatory Arbitration. Banks and credit card companies bury mandatory arbitration clauses in the fine print of their customer agreements.  These arbitration clauses deprive people of their right to have their day in court if the company treats them unfairly, such as charging them too much interest, failing to credit payments, or debiting unauthorized charges.   

The CFPB recently proposed a rule to restrict the placement of mandatory arbitration provisions in fine print contracts.  The financial industry doesn’t like the rule.  The industry wants to force people into arbitration before arbitrators picked by the industry.

In 2009, I sued the largest consumer arbitration company in the world, the National Arbitration Forum (“NAF”). NAF handled hundreds of thousands of cases throughout the nation each year. In almost every case, the consumer lost, and the bank won. Our investigation found that NAF hand-picked arbitrators who were favorable to the banks.  We also discovered that NAF had an ownership affiliation with a New York hedge fund group that owned the operations of the largest debt collection enterprise in the country. In the end, we barred NAF from handling consumer arbitrations. [6]

Congress then held hearings on the matter. [7]  I advocated for the CFPB to promulgate rules to abolish this slanted practice. The CFPB has now promulgated such a rule, but Congress wants to get rid of it.

Fake Accounts.  Last September, Wells Fargo agreed to pay $185 million to the CFPB to settle charges that the bank pressured employees to open more than 2 million fake accounts that weren’t authorized by customers. [8]  The customers were charged fees on accounts they didn’t know they had, and some customers were chased by collection agents for fees on accounts that they didn’t know existed.  To make matters worse, Wells Fargo forced consumers who complained they had fakes accounts created in their names into, you guessed it, mandatory arbitration.

Forced Automobile Insurance.  An internal report by Wells Fargo was published two weeks ago.  The report said that Wells Fargo illegally forced auto insurance on 800,000 borrowers who didn’t need it. [9]  The bank immediately offered to refund $80 million to borrowers.  The cost of the unnecessary insurance reportedly pushed almost 275,000 customers into delinquency, and nearly 25,000 vehicles were reportedly wrongfully repossessed.  

These actions by the CFPB are only the tip of the iceberg. Adam Smith, the so-called “Father of Economics,” said that fierce competition between purchasers and sellers is good.  But he never said that greed, avarice, and fraud were proper motivators in our economic system. 

The CFPB can play an important role in protecting regular folks from the excesses of Wall Street.  This is why I went to court to defend the constitutionality of the independence of the CFPB. [10]

If you agree with my observations in this report, I ask you to let your Congressional Representatives know that the CFPB is an integral part of a balanced economy.










[10]PHH Corporation v. Consumer Financial Protection Bureau, Amicus Brief, United States District Court for the District of Columbia Circuit, No. 15-1177, filed March, 2017.

Economic Regulation (Part 2):

An Upside Down Economy

August 29th, 2017

We need more balance in the economy.

Adam Smith, the so-called “father of economics,” claimed in the 1700’s that there was an "invisible hand" through which the economic accumulation of wealth by the elite would benefit the larger population because the elite would spend it on products and services produced by the people. Two hundred years later, the “invisible hand” theory of the 18th century became the foundation of modern-day "trickle down" economics.  

Part of the mantra of the Republican Party platform is that consumer protection regulations interfere with competition and the “invisible hand” that shares the wealth in a laissez-faire economy.

The entrepreneurial ingenuity of Americans is the best job-creator the world has ever seen.  But companies need to be held accountable for their actions when they are not being responsible.  Having served as Attorney General or Solicitor General of this State for over 15 years, I have seen a number of economic regulations that are not for the average person at all. 

Let’s take a look at a few of them:

Anti-Competition Covenants in Employment Agreements.

Decades ago, restrictive covenants were inserted into employment contracts to stop scientists, inventors, or high-level executives from usurping confidential information or inventions of a company. The employment contracts were generally between high-paid professionals, who were compensated for agreeing not to compete.

Not so today. An estimated 30 million Americans—or 1 in 5 employees—are now bound by noncompete clauses. Dog sitters, tree trimmers, laborers, hair stylists, day care workers, doctors, sales people, mid-level financial professionals, and even Jimmy John’s sandwich shop makers and Amazon warehouse workers have all been required to sign noncompete clauses that limit their ability to work for competing businesses.  So much for competition.

Today’s restrictive covenants are applied so broadly—and to so many jobs and industries—that they stifle competition.  They make it harder for employees to seek out better jobs for higher pay or start their own company.  When applied to low and middle-income jobs, noncompete clauses don’t protect trade secrets…but they do limit the upward mobility of employees and stifle wage growth.  Studies show that employees in states where these restrictions are banned make more money than people in states where the restrictions are permitted. 

Some states—like California, where there are lots of technology companies that have trade secrets—prohibit restrictive covenants in employment contracts.  Other states—like North Dakota, Oklahoma, Montana, and Colorado—severely restrict their use.  President Obama proposed that restrictive covenants should be abolished in employment agreements except in cases involving legitimate trade secrets.

Minnesota is one of the less enlightened states on this subject. Dozens of court decisions have been issued by Minnesota courts on the merits of restrictive covenants.  The courts generally permit them, because there is no state law restricting their limits. 

This should change.  Minnesota should join the growing list of states—both Democrat and Republican-leaning—that limit these restrictions to jobs that truly involve high-value trade secrets. 

If you have been subject to a noncompete clause that has gotten in the way of your ability to get a new job or start your own company, I hope you will tell your state legislators about it.  You can look them up online.


About 250,000 Minnesota homes and farms are heated with propane fuel. Propane consumers must either rent or purchase a storage tank to store the fuel.  Tanks are expensive to purchase and can’t easily be moved, so many people rent them. 

Customers who rent their tanks can’t shop around for the competing prices. This is because Minnesota law requires a customer who rents a tank to buy their propane from the company from which the tank is rented.  This would be like saying that a car owner can only fill their tank at one gas station.  What do you think would happen to prices?

The price of propane is not regulated and is usually subject to a long-term contract imposed by the supplier.  As a result, the consumer is trapped when fuel prices go up. After all, the supplier knows that few customers will go through the trouble and expense of changing propane systems just to buy propane at a cheaper price. 

Competition is stifled with such a one-sided regulatory scheme.  This market-lock unnecessarily drives up the cost of propane for the public.

I previously sued a large propane company for inserting into the fine print of its 20-some page contract language stating that its rates for propane were based on “our current market price.” [1]  As it turned out, the company’s “current market price” was not even close to a real “market price.” The matter was settled with a change in business practices by the company.

For-Profit Colleges.

Education is the gateway to economic mobility.  Nothing is more American than the idea that, through hard work and a good education, people can separate themselves from the circumstances of their birth. 

For nearly 200 years, universities were largely non-profit, religious, or governmental institutions that regulated themselves under the tight scrutiny of alumni, faculty, students, families, sponsoring entities, and communities.  A reputation for academic excellence was the primary regulator of scholastic achievement.

Over the last 20 years, for-profit colleges have mushroomed. The yardstick of success for too many for-profit colleges are dividends for shareholders, not academic success. Without government oversight, these companies focus on student recruitment by making overblown promises about job placements and degrees that are not accepted by occupational licensing boards or employers.  The result?

  • In 1970, less than 1% of students enrolled in a for-profit college.  Today, more than 12% do so [2]
  • As of 2013, students enrolled in for-profit schools received 25% of the financial aid and accounted for 44% of loan defaults.
  • Although many for-profit colleges promise high job placement rates, almost ¾ of their graduates earn less than high school dropouts.
  • The average tuition at for-profit schools is almost double that of four-year public colleges.

The Obama Administration proposed several rules to address predatory activity in this industry, including:

  • The “borrower defense” rule, where a student could have loans erased if the college tricked the student into enrolling through fraud.  The college would have to put up collateral to cover the costs of these loan discharges.
  • The “gainful employment” rule, which cuts off federal financing to colleges whose graduates do not earn enough money to pay off their student loans.
  • Abolishment of mandatory arbitration clauses in enrollment forms, which strip cheated students of their right to their day in court.

Unfortunately, one of the first actions of the new Administration was to backtrack on the enforcement of these regulations.[3]

Sensible government regulation of for-profit schools protects honest competition in the academic world.  If the government does not set, and enforce, standards to protect higher education students from being cheated of their futures, it fails its responsibility of improving the lives of its people. 

Given the retrenchment of the new federal administration, states need to fill the role of being the “competition cop” as it relates to higher education.

These situations—restrictive covenants, propane distribution, and for-profit colleges, are but three examples where government regulation should ensure fair competition. I hope to refer to other examples in future reports. 

The purpose of these reports is to give you some thoughts about Minnesota as I look to the future of this state.  As always, I appreciate your thoughts. 




Economic Regulation (Part 3):

I’m on board, Jack. Pull up the ladder!

September 7th, 2017

Liverpool is a port that is the birthright of some great slang.  One of the slogans is, “I’m on board, Jack. Pull up the ladder.”  This essentially means: “I’ve made it.  Who cares about you.” 

Unfortunately, it could be used to describe some occupational regulations in this country. 

In the 1950s, less than 5% of workers in the United States needed a license from the government to do their jobs. By 2008, over 30% of nation’s workforce was required to have an occupational license.[1]

We should require occupational licenses in jobs where a license is needed to protect the public.  For example, nobody would want to be operated on by an unlicensed doctor, fly with an unlicensed commercial jet pilot, or get a root canal from an unlicensed dentist.  We don’t want our children taught by unlicensed teachers, nor do we want unlicensed electricians working on power lines. 

A report from the Obama Administration notes that while some occupational licensing is necessary and important to ensure high-quality services, occupational licensing in other cases has morphed into a scheme where the main goal is to drive out competitors by setting rigid or unnecessary licensing standards.[2]

The Council of State Governments estimates that about 1,100 occupations are licensed by the 50 states.[3]  One report estimated that unnecessary licensing restrictions cost over 2.8 million jobs and added over $200 billion to the cost of services paid by Americans for personal services.[4]

It isn’t just the money.  Researchers have examined inconsistent requirements for licensure in various occupations.  Professor Morris Kleiner, who holds the AFL-CIO Labor Policy Chair at the University of Minnesota, notes that: “In Minnesota, more classroom time is required to become a cosmetologist than to become a lawyer.  Becoming a manicurist takes double the number of hours of instruction as a paramedic.”[5]

Licensing requirements for similar jobs within a state can vary a lot.  Michigan requires 1,460 days of education to become an athletic trainer, but only 26 days to be an emergency medical technician.[6]

There can also be big differences in the licensing requirements for the same job in different states.  Michigan requires three years of training to be a security guard.  Most states require 11 days or less[7].  Iowa requires 16 months of education for a cosmetologist.  New York requires less than 8 months.[8]

Around the country, there are a maze of different license requirements for hair braiders, cosmetologists, barbers, nail technicians, make-up artists, and estheticians.  Example:  a make-up artist must be licensed as an esthetician.  Yet, go into a department store and you will see customers getting makeup applied by people with no licenses.  Is the purpose of the license sanitation?  If so, what about the department store?  Is the requirement of licensure necessary to set a minimum level of expertise? If so, can the government judge the skill of a makeup artist better than a customer? 

The fact of the matter is that some licensing requirements inhibit economic mobility and make it harder to get a job or start a business, particularly for entry-level workers.  People like military spouses who frequently move from state-to-state can get caught up in a labyrinth of inconsistent requirements.

Borrowing from Professor Kleiner’s proposals, Minnesota should take a hard look at any standards whose aim is just to stifle competition and fence out new people from an occupation. 

I don’t claim to have all the answers, but the purpose of these reports is to provide some thoughts about Minnesota as I look to the economic vitality of this state.  Please let me know what you think.




[3] Furman Testimony.pdf



[6] footnote 2. 

[7], p. 4.

[8],p. 4

Citizens United and Corporate Contributions

July 25th, 2017

Elections shouldn’t go to the highest bidder.

That was the point I made in a friend of the court briefthat I filed in the United States Supreme Court in 2010 in the case called Citizens United.  Unfortunately, the Court disagreed and overturned 100 years of law, saying that corporations can spend billions of dollars to influence our elections. 

Despite widespread criticism of the ruling—and despite more friend-of-the court briefsfiled by me and my colleagues in subsequent cases—the Supreme Court has continued to leave in place the Citizens United ruling.

In the wake of Citizens United, here’s what we see:

  • 50 organizations spent over $1 billion in federal elections in 2016. [1]
  • As many as 80% of S&P 500 corporations have made political contributions, directly or through their PACs, according to reports. [2]
  • More than 80 families each contributed over $1 million in the 2016 Presidential race. [3]Just 100 donors together contributed over $150 million in the Presidential race. [4]
  • In Minnesota, $45 million was spent on state campaigns in 2016. [5] More than $1 million was spent on some local legislative races in Minnesota.
  • The Koch Brothers Network plans to spend up to $400 million on the 2018 elections. [6]

History is repeating itself. 100 years ago—facing public backlash over corporate corruption and influence peddling—many states, including Minnesota, banned corporate contributions.  100 years later, following Citizens United, corporate and big money spending once again threaten to stifle our democracy and drown out the voices of real voters. 

We should have a Constitutional Amendment to overturn Citizens United.  Without such an amendment (or a new Supreme Court that reverses the ruling), the courts will notpermit the government to ban corporate electioneering.  But I believe the courts wouldpermit the State or Congress to regulate some aspects of corporate electioneering if it can show it has a compelling interest and the regulation is narrowly tailored to achieve that interest.

While we work toward a Constitutional Amendment to overturn Citizens United, we should consider taking common-sense steps like these:

  • Require corporations to secure approval of the majority of their shareholders before they may engage in election activity.  This would give shareholders the right to say “no” to such expenditures.
  • Require corporations to disclose to their shareholders their specific expenditures on elections before the election.  This would allow shareholders to “vote with their feet” if they disagree with the spending.
  • Make sure that corporations do not deduct from their taxes money spent on electioneering.
  • Make sure that corporations controlled by foreign nationals do not participate in election spending and require them to file disclosures that certify their ownership.

I hope you will let your state legislatorsand members of Congressknow that despite the Supreme Court ruling, there appear to be some steps the state and federal governments can take to limit corporate influence on our political process.  I also hope you will share with them your own ideas for how to get the money out of politics.







Arbitration: Justice With A Thumb On The Scale

October 30th, 2017

This year, the Consumer Finance Protection Bureau (“CFPB”) adopted a rule to significantly limit arbitration provisions in consumer financial contracts.  Last Thursday, the U.S. Senate overturned the rule and shut the door on consumers’ access to the courts.  The U.S. House has already rejected the CFPB rule, and now it is up to the President to make the final call.

With all due respect to Congress, this action is wrongheaded and should be reversed. 

What is an Arbitration Provision?

Over the past 10 years, thousands of corporations have inserted arbitration provisions in their contracts with consumers.  These provisions essentially create a private judicial system where, according to the New York Times, the arbitrator commonly considers the corporation to be the client.[1]  The arbitration system has its own rules, largely determined by individual arbitrators, whose ultimate decision rarely can be challenged in a court of law.  Absent the rule of law embedded in statutes and our rules of judicial procedure, the arbitration process can become stymied to the point of corruption. 

Problems with Arbitration.

The following passage from the New York Timesbest describes the problems with arbitration:

Winners and losers are decided by a single arbitrator who is largely at liberty to determine how much evidence a plaintiff can present and how much the defense can withhold. To deliver favorable outcomes to companies, some arbitrators have twisted or outright disregarded the law, interviews and records show.

“What rules of evidence apply?” one arbitration firm asks in the question and answer section of its website. “The short answer is none.”

…some have no experience as a judge but wield far more power.  And unlike the outcomes in civil court, arbitrators’ rulings are nearly impossible to appeal.

When plaintiffs have asked the courts to intervene, court records show, they have almost always lost. Saying its hands were tied, one court in California said it could not overturn arbitrators’ decisions even if they caused “substantial injustice.”

Unfettered by strict judicial rules against conflicts of interest, companies can steer cases to friendly arbitrators. In turn, interviews and records show, some arbitrators cultivate close ties with companies to get business.

Some of the chumminess is subtler, as in the case of the arbitrator who went to a basketball game with the company’s lawyers the night before the proceedings began. (The company won.) Or that of the man overseeing an insurance case brought by Stephen R. Syson in Santa Barbara, Calif. During a break in proceedings, a dismayed Mr. Syson said he watched the arbitrator and defense lawyer return in matching silver sports cars after going to lunch together. (He lost.)

Other potential conflicts are more explicit. Arbitration records obtained by The Times showed that 41 arbitrators each handled 10 or more cases for one company between 2010 and 2014.

“Private judging is an oxymoron,” Anthony Kline, a California appeals court judge, said in an interview. “This is a business and arbitrators have an economic reason to decide in favor of the repeat players.” [2]

It should come as no surprise that consumers lose 94% of the cases in arbitration.[3]

The Axis Powers of Arbitration.


In 2009, the National Arbitration Forum (“NAF”) was the largest consumer arbitration firm in the country.  It arbitrated over 200,000 consumer cases per year.[4]  NAF claimed to the public that it was an “independent and neutral” arbitration service.  What it didn’t mention was that it was owned by a New York hedge fund that also controlled Mann Bracken, the largest collection law firm in the country at the time. Mann Bracken in turn had ownership affiliation with Axiant, one of the largest collection agencies in the country. 


The affiliated companies—which I nicknamed the Axis Powers—circulated a confidential memo that described their operation as a “legal ecosystem” beyond the reach of traditional courts.  They churned out decisions almost always in favor of their clients, who were mainly credit card companies, banks, and other lenders. 

The Axis Powers were very clever in hiding their affiliation with each other.  It took almost a year of investigative work by my office to establish connections between the companies.  I took action against NAF, arguing that it committed fraud by not disclosing the conflicts of interest between the parties.[5]  In the end, NAF agreed to cease any more arbitration business in the consumer field.[6]

Eventually, upon the culmination of our case, all three companies dispersed, with Mann Bracken and Axiant filing for receivership. 

Our actions against the Axis Powers received positive recognition in Congressional hearings[7], from legal commentators,[8]from the national media,[9]from consumer groups,[10]and from federal agencies[11]for exposing the conflicts of interest inherent in forced arbitration cases.  

I hoped our work was a watershed moment in reigning in the abuses of arbitration. The American Arbitration Association soon announced it would no longer handle consumer arbitration cases.[12]  Bank of America announced that it no longer would force consumers into arbitration.[13]  Other financial institutions began to step back from forced arbitration too.

It seemed that we had obtained a big victory for the little guy. 

Judicial Review of Arbitration Provisions. 

Enter the U.S. Supreme Court.

Vincent and Liza Concepcion, induced by an offer of a free cell phone, purchased cell phone service from AT&T.  The Concepcions then were billed $30 bill for the phone, which AT&T refused to take back.  The Concepcions went to court to demand a return of the charge on behalf of themselves and others who were similarly duped.  The cell phone contract, however, required all disputes to be resolved by arbitration.  In 2011, a little over a year after my case against the Axis Powers, the U.S. Supreme Court ruled that the AT&T arbitration provision effectively removed the jurisdiction from the courts to hear the case.[14]  In the end, very few consumers were willing to bother with a $30 claim.[15]

Similar decisions soon followed.

The Impact of the ConcepcionDecision.

The result is that tens of millions of Americans have lost a fundamental right to their day in court.  Enough background.  Let’s look at the real lives impact by forced arbitration.

A 94-year-old woman at a nursing home in Pennsylvania had a head wound, but the nursing home allegedly left in bed while the wound festered until she died.  The family sued for negligence, but the court threw the case out, saying that because of a provision buried the admission papers, the family had to go before a private arbitrator instead.[16]

A woman from Alabama sued a car company over severe injuries caused by allegedly faulty brakes.  Due to a provision in the purchase agreement, the case was thrown out of court, to be decided by a private arbitrator. 

An employee on a cruise ship who was allegedly drugged and raped by two crew members was told that she could not take her employer to court for negligence and an unsafe workplace because of an arbitration provision in her employment contract.[17]

The parents of a baby who suffered deformities during delivery could not file a claim in court because of an arbitration clause in the hospital admission papers.[18]

Our Petition to the Consumer Bureau.

A few years ago, I filed a petition with several colleagues from other states to request that the Consumer Financial Protection Bureau ban arbitration clauses in financial contracts.  The CFPB promulgated such a rule earlier this year.  The CFPB rule put some real limits on the impact of the Supreme Court decisions mentioned above.

Unfortunately, as noted above, the U.S. Senate last week voted to overturn the forced arbitration ban.  The House previously voted to undo the rule, and the bill is now on its way to the President’s desk.

How Do We Level the Playing Field?

Arbitration can be an appropriate way to resolve disputes when the arbitrator is fair and both sides want to arbitration.  But too often, large corporations force arbitration through fine print contracts and then stack the deck in arbitration to get the outcome they want against the “little guy” who has no clout.  If you want to read more about how this occurs, look at this recent City Pages article.

Because the courts have repeatedly held that federal law preempts state law on arbitration, only Congress can now stop this practice.  It is not likely that the President or the Congress will change their position on the CFPB rule.  Having said that, under the theory of “give an inch, take a mile,” we also shouldn’t make it easy for the federal government to strip people of their legal protections.

I hope you will tell members of Congress and the Presidenthow you feel about the CFPB rule on arbitration.




















State Needs To Make For-Profit Colleges More Transparent

March 12th, 2015

(as published in the Star Tribune )

The history of American higher education is a tour of enlightened self-regulation. Professors, alumni, parents, and students nurtured a higher education system which made our citizens the living pillars of our democracy. Each generation's children had the opportunity to climb the ladder of economic opportunity.

But things have changed. Billboards, television commercials, and radio broadcasts now herald a different culture for higher education, with for-profit colleges purporting to be the vanguard.  Let's look at the results to date.

For-profit colleges enrolled just  2 percent of students but accounted for 44 percent of student loan defaults in 2013 nationwide. The U.S. Department of Education determined that 72 percent of for-profit college graduates earn less than those who drop out of high school. Nearly 90 percent of for-profit graduates have student loans. Taxpayers ultimately pick up the cost of federal loan defaults when these students can't find jobs.

Some for-profit "career schools" have saddled students with tens of thousands of dollars of loan debt by misrepresenting job placement rates and the transferability of credits, and by enrolling students in programs that will not even qualify them for employment in their field. Seven of the top eight for-profit colleges that receive GI Bill benefits are under investigation by state or federal regulators for deceptive recruiting or other potential law violations, according to a U.S.  Senate Report. Attorneys  General in over 25 states have  sued, settled with, or are investigating for-profit colleges for their recruiting, marketing, enrollment, and/or job placement practices.

Against this backdrop,  the Attorney  General's  Office drafted  SF 696/HF 234, a bill pending at the State Capitol. The measure would give students better information about job placement rates, graduation rates, and limitations on credit transferability. In short, a pretty innocent bill that would cost taxpayers no money but would interject some transparency and basic fairness for students.

Yet, the bill faces a steep climb at the Capitol. Few deny that students are getting hurt. Instead, detractors claim that in 2014 the Minnesota Legislature allowed Minnesota regulators to largely outsource their oversight of out-of-state online for-profit colleges to the school's home state via an "agreement." The "agreement," however, was never designed to fix-nor does it fix-the abuses carried out by for-profit schools. It merely is an excuse to protect the industry by claiming that the state cannot regulate how online schools treat Minnesota students.


The tsunami of student loan debt has crushed the hopes and dreams of far too many young people. Minnesota has a responsibility to defend these students against abuses by for­ profit colleges.

State and federal laws require companies that sell securities to inform potential investors of significant information about the company and the investment-including its risks-so that they can make informed judgments about whether to invest. We should require no less for our students. After all, these companies are selling their programs as investments too-investments in young peoples' futures.