Ask any good conservative about the now five-year old Consumer Financial Protection Bureau, and they’ll tell you that it’s killing our economy and a top contender for most hate-worthy federal agency — one that makes the IRS seem like a wonder of modern governance.
In the wake of President-elect Trump’s historic win, most insiders think the CFPB is about to get a “haircut” by decapitation on the sharp edge of a guillotine. I think that’s a huge mistake.
First of All, Why Does It Exist?
For those who saw “The Big Short” and thought in a “victory to the swiftest kind of way” that it was perfectly all right for a stripper to use liar loans to buy five houses and a condo, it is my hope to sell you on why the CFPB should be left alone by the incoming administration.
The CFPB, as it evolved from the cold letter of the law, is charged with protecting consumers — even real estate moguls who moonlight as exotic dancers — from the kinds of predatory practices that brought about the financial meltdown of 2007-2008. The most fundamental reason we need an agency like the CFPB is to carefully monitor the financial sector (and be proactive when necessary) so that we can avoid another bank meltdown, which cost taxpayers trillions, not billions as most people believe.
The agency is tasked with policing financial products (and practices) that take advantage of, or prey on consumers. It has jurisdiction over a host of consumer favorites like credit reporting agencies, payday lenders, debt collectors, foreclosure companies and student loan servicers as well as banks, credit unions, credit card companies, and many other financial services organizations operating in the United States.
About Those Liar Loans…
When the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 was signed into law by President Obama, one provision in particular, “Title X,” mandated the creation of a regulatory agency known as the Bureau for Consumer Protection. It’s now the Consumer Financial Protection Bureau, or CFPB for short.
Exotic financial instruments derived from mortgages promoted by predatory lenders and brokers, taken out by unqualified dreamers and “freeloaders” (as they were known in certain financial circles) — folks who should never have been approved based upon their actual incomes and ability to pay — were in no small measure what led to not only the Great Recession but also the inclusion of the CFPB in the Dodd-Frank omnibus legislation. So, the first order of business, and indeed one of the agency’s first major accomplishments was the establishment of a rulebook for mortgages and other financial products and services to help consumers to more easily understand the true costs and risks associated with financial products offered to them.
The CFPB then focused on predatory payday and private student loans, as well as a host of unfair practices throughout the consumer financial industry. I believe we can all agree there is a difference between good salesmanship and predation. I think we can also agree that those who would exploit consumers — playing upon ignorance, confusion, or fraud — shouldn’t be allowed free rein to do whatever they please.
The CFPB has the power to ban financial products deemed “deceptive, unfair, or abusive” and it can impose significant penalties on companies that take advantage of consumers. To date, the CFPB has levied more than $5 billion in fines, including a record $100 million against Wells Fargo alone in September ($185 million all in). As of this summer, the CFPB had helped 27 million consumers get paid nearly $12 billion in remedies from financial companies.
While the fines are “disliked” (I use the term advisedly), it’s the associated costs of adjusting to and complying with the new rules that have garnered the CFPB the ire of U.S. Chamber of Commerce and the financial industry. Compliance is a dirty word, of course, in any business sector. It is estimated that Dodd-Frank cost businesses $24 billion in compliance-related expenses and 61 million paperwork hours, a cost that was presumably passed on to the consumer, which is why the arguments against the CFPB hold water.
My counter-argument is simple: the cost-benefit still winds up helping consumers and businesses more than it harms them by creating a level playing field where small businesses can be creative and compete against the big guys (in an “apples-to-apples” environment) by coming up with new products that save consumers money and bring business their way.
To Kill, Maim, or Benefit?
Republicans got busy trying to to scuttle even the concept of the CFPB well before its inclusion in Dodd-Frank when that all-time favorite lawmaker of progressives, Senator Elizabeth Warren, first floated the idea of a single-director agency with a ton of power and no Congressional oversight.
One of the main complaints that lobbyists working to shutter the CFPB have against the agency is that it has too much power vested in its single-director — former Ohio Attorney General Richard Cordray. That feeling was only compounded when President Obama installed the former Attorney General during a recess of the Senate. Cordray was subsequently confirmed by the Senate.
The popular refrain from the Right is that the agency should have a 5-member commission of political appointees. It’s a horrible idea. Making government bigger in this instance will give rise to partisan squabbling and no action. There’s an old saying that a camel is a horse designed by committee. And lest you think the director is Roy Rogers unchained and the single-director approach is unsupervised, there are plenty of checks, balances, and levels of oversight that temper the decision making process.
The agency needs to stay focused on the crimes it was tasked to stop and prevent, not some Monty Python-esque spitting match. If “The Big Short” illustrated anything, it was that the Wild West of complex finance requires a sophisticated sheriff.
Imagine police work, take for example the response to a robbery in process, handled by a committee. The robbers would get away before the committee members got out of bed to discuss the matter. An organization’s speed, agility, and ability to be nimble in the face of ever-evolving wrong-doing are essential to stopping crime. This is the main reason we need a single-director CFPB.
While there have been countless attempts to kill the CFPB — many of them just for show — President Obama stood firm in his support of the agency, and there was no real threat. That changed this fall.
In an October 11 decision, a federal appeals court ruled that the president should have the authority to fire the director of the CFPB other than for cause. The agency is currently appealing the Court’s decision. “Other than the President,” Judge Brett Kavanaugh wrote for the 2-1 majority, “the Director of the CFPB is the single most powerful official in the entire United States Government, at least when measured in terms of unilateral power.” Anticipating the Left’s response, Judge Kavanaugh added, “That is not an overstatement.”
Speaking to Common Dreams, an famously liberal website, an attorney specializing in protecting companies that face CFPB scrutiny said of Richard Cordray, “He's one of the biggest problems in terms of individuals in the government that have strangled industry. Trump thinks over-regulation is a big problem, so firing Cordray is something I think he'd do the first week."
Richard Cordray is not the problem. The bank lobby simply doesn’t want anyone to tell banks what they can and cannot do. And, with President-elect Trump heading to the White House, Cordray and the agency are imperiled.
The single-director agency was designed to withstand election cycles. Unlike the FTC, which has the same 5-member executive committee opponents want to see in place at the CFPB, a single director with a five-year term puts the oversight of the agency beyond the reach of a single administration. Given October 11 federal court decision, it is anyone’s guess if the agency will be killed by commission or a Trump appointee.
In the aftermath of the 2007-2008 financial crisis, the CFPB seemed like a good idea to everyone in the consumer advocacy/protection world — but there were never any takers among conservative lawmakers, and the agency has been under siege since its inception as a result. Under a Trump Administration, it seems highly likely the CFPB will cease to function the way it has. While this may seem like a win for conservatives, it is not.
This election illustrated many truths about the State of the Union, and one big take-away is that regular Americans are tired of feeling like the deck is perpetually stacked against them by insider s— a financial elite that rules every moment of their lives by saddling people with inescapable debt.
In a world where we’re all just one misfortune, hospital stay, job loss, or bad decision away from financial ruin, it’s not a bad idea to have a powerful agency focused on the specifics of that debt culture and more broadly financial services — identifiable practices that take advantage of consumers — one that is dedicated to creating more transparency in the way our financial lives work. In the final analysis, such a presence has been and will continue to be a win for legitimate business and consumers.
The CFPB was directed by Dodd-Frank to set up an Office of Service Member Affairs (OSA). Assistant CFPB Director Holly Petraeus has served brilliantly and passionately as its leader. Anyone with family in the military knows that while many companies and organizations go the extra mile to help men and women in uniform, there are predators out there who target them.
Since it’s inception, the OSA has secured $92 million in debt relief for service members and other consumers harmed by Rome Finance, an operation that offered too good to be true loans that exploded into uncontrollable debt. It forced US Bank and partner companies to return $6.5 million to service members because of a failure to accurately represent all the fees and associated costs for those who participated in the Military Installment Loans and Educational Services (MILES) auto loans program. Smaller skirmishes with crooked practices have helped protect service members from unfair expenses and practices.
It’s frankly a mystery to me that an organization that has done so much to protect our men and women in the armed forces, as well as millions of consumers, could be heading for the chopping block. President-elect Trump would be well-advised to leave it alone and allow it to continue to do the excellent job it has been doing to protect all of us — all of us, that is, except for the criminals and finance world elites who have made us their day job for far too long.
Adam K. Levin is a consumer advocate with more than 30 years of experience and is a nationally recognized expert on security, privacy, identity theft, fraud, and personal finance. A former Director of the New Jersey Division of Consumer Affairs, Levin is chairman and founder of IDT911 (IDentity Theft 911) and co-founder of Credit.com. Levin is the author of Amazon Best Seller "Swiped: How to Protect Yourself in a World Full of Scammers, Phishers, and Identity Thieves." Read more of his reports — Go Here Now.
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