Senators Tim Kaine and Angus King. Both senators were among the seventeen Democratic caucus members who voted in favor of a financial dergulation bill on Tuesday. “This bill wouldn’t be on the path to becoming law without the support of these Democrats,” said Sen. Elizabeth Warren (D-Mass.) following the vote. Photo: flickr
Sens. Elizabeth Warren and Bernie Sanders are not impressed.
Trump said Friday that OMB director Mick Mulvaney, seen here in 2013, would serve as acting director of the CFPB. Critics, however, say that’s not lawful, as it should be the individual named by outgoing director Richard Cordray—Leandra English. (Photo: Gage Skidmore/Flickr/cc)
A battle appears to be brewing between the White House and the Consumer Finance Protection Bureau (CFPB), with each having named a different individual to serve as acting director of the agency, and President Donald Trump’s appointment denounced as “legally dubious.”
The showdown gained steam on Friday afternoon when Richard Cordray, who had been leading the CFPB since its inception, tendered his expected resignation, saying he was leaving at the end of the day. Another key event that day was the CFPB naming Leandra English as deputy director of the agency. She had been serving as the agency’s chief of staff. Continue reading →
So what would you miss if the agency suddenly disappeared or got gutted?
In short, a lot. We base this conclusion on the work the three of us have done in recent decades. One of us (Sovern) has been writing about consumer law for more than 30 years, while the other two of us direct a legal clinic that represents elderly consumers. We’ve seen the worst of what financial companies can do, and we’ve also witnessed how the CFPB has begun to reverse the tide.
Life before CFPB
If you are one of the more than 29 million consumers who have collectively received nearly US$12 billion back from misbehaving financial institutions because of the CFPB’s efforts, you already know its value. But even if you are not, you have probably benefited from the bureau’s existence.
Before Congress created the bureau, there was no federal agency that made consumer financial protection its sole mission. Rather, consumer protection was rolled into the missions of a bunch of different agencies. And, as we saw during the financial crisis, regulators often gave it a back seat.
The Office of the Comptroller of the Currency regulates banks but was so preoccupied with ensuring lenders were safe that it failed to protect consumers from their predatory subprime mortgages – so much so that it prevented states from doing so too. And now President Trump has put a former bank lawyer in charge of it. The Federal Trade Commission, which is tasked with fighting deceptive business practices, lacked the power to prevent such dangerous lending.
This meant consumer protection on financial matters fell through the cracks.
But as early as 2010, before the CFPB was set up, regulators at the OCC were increasingly aware of what was happening at Wells Fargo thanks to hundreds of whistleblower complaints. The OCC even confronted the bank, yet failed to take any action despite many red flags, according to an internal audit.
Besides protecting consumers, however, Congress had a second motive in creating the bureau: to help prevent the kind of mortgage lending that helped cause the Great Recession.
To that end, the bureau has adopted rules that help consumers to understand their mortgages – something that often wasn’t possible under the previously misleading mortgage disclosures. It also issued regulations to prevent consumers from taking out mortgages that they couldn’t repay. And after borrowers take out a mortgage, CFPB servicing rules establish the procedures servicers must follow when communicating with borrowers, correcting errors, providing information and dealing with loan modification requests.
Two of us have personal experience with one of the bureau’s new mortgage rules, which powerfully illustrates the value of the CFPB.
In 2014, Alice, a client of our law school clinic, was struggling to pay the mortgage on her home – which she had refinanced a few years earlier – after a stroke forced her into retirement. Our clinic helped her apply for a modification of her loan.
But within weeks, instead of acknowledging Alice’s application, the loan servicer summoned her to court to begin foreclosure proceedings in violation of CFPB servicing rules. Fortunately, our clinic was able to rely on those rules in getting the foreclosure action dismissed. Alice got her loan modified and remains in her home.
Protecting the vulnerable
This reveals how the bureau is particularly important to protect vulnerable consumers, like the elderly, who are frequently targeted by fraudsters and predatory lenders because of their cognitive and other impairments and because they often have accumulated substantial assets. The CFPB is the only federal agency with an office specifically dedicated to protecting the financial well-being of older adults.
The House of Representatives has passed a bill that would cripple the CFPB by, for example, taking away the power it used to fine Wells Fargo for opening illegal accounts and concealing its complaint database from public view. In other words, it would force the bureau to sit idly by as financial institutions lie to consumers. Even if the bureau survives, it may be less protective of consumers when its current director, Richard Cordray, leaves. His term expires next summer, and he may step down even sooner. Then we might see a former banker or bank lawyer put in charge, just as has happened at the Treasury Department and comptroller’s office.
Nearly every American has or will have a loan or bank account, a prepaid card, credit card, a credit report or some combination of those, and so has dealings with a financial institution policed by the CFPB. But few of us read the fine print governing these things or can understand it when we do. That gives the companies that write these agreements the ability to draft them to suit their own interests at the expense of consumers.
Similarly, we do not always know when a financial institution takes advantage of us, just as Wells Fargo customers did not always know that it had opened unauthorized accounts that lowered their credit scores.
Consumers need protection from misbehaving companies. If the bureau is eliminated, significantly weakened or starts protecting banks rather than consumers, all consumers will suffer.
This is an updated version of an article originally published on July 10, 2017.
Along with three co-authors, Jeff Sovern received a $29,510 grant from the American Association for Justice Robert L. Habush Endowment and by a grant from the St. John’s University School of Law Hugh L. Carey Center for Dispute Resolution in 2014 to study arbitration. It resulted in an article. Along with Professor Kate Walton, he received a grant from the National Conference of Bankruptcy Judges Endowment for Education to study debt collection, resulting in another article. He is a member of the National Association of Consumer Advocates.
Ann L. Goldweber is affiliated with NACA as a member.
Gina M. Calabrese is affiliated with the National Association of Consumer Advocates, New Yorkers for Responsible Lending, and the Association of the Bar of the City of New York (former chair, Committee on the Civil Court).
Student debt in the U.S. has reached more than $1.3 trillion. The Department of Education recently announced it would not work with the CFPB to hel students with complaints about their student loan servicers. (Photo: Tom Woodward/Flickr/cc)
Calling the move “outrageous and deeply troubling,” consumer advocates and opponents of skyrocketing student debt spoke out Tuesday against the Trump administration’s decision to end the working relationship between the Department of Education and the government watchdog tasked with helping oversee the federal student loan program and protect borrowers.
At the direction of Congress, under the Dodd-Frank financial reform act, the Department of Education has shared information with the Consumer Financial Protection Bureau (CFPB) since 2011 in order to provide assistance to borrowers with complaints about Federal student loans. But the Department, now run by Secretary Betsy DeVos, informed the Bureau in a letter last week that it was ending the relationship.Continue reading →
Consumer Financial Protection Bureau architect Sen. Elizabeth Warren (D-Mass.), seen here in 2016, said the new rule from the agency “will allow working families to hold big banks accountable when they’re cheated.” (Photo: New America/flickr/cc)
A new rule by a federal watchdog—hailed as having “paramount importance” for protecting consumers from Wall Street predators and curbing corporate abuses—is under direct attack by Republicans just days after being issued.
The rule from the successful and broadly-supported Consumer Financial Protection Bureau (CFPB) bans companies from using mandatory arbitration clauses, which makes consumers give up their right to file or join class-action lawsuits. In other words, it blocks “rip-off clauses” that are “a fine-print trick that banks and predatory lenders use to evade accountability and conceal illegal behavior,” as advocacy group Public Citizen put it, noting that they are also used by many corporations. Continue reading →
Campaign finance reform advocates protest outside the Capitol building in Washington D.C., 2011. (Photo: takomabibelot/cc/flickr
While it is conventional wisdom that money influences politics, researchers released a report Tuesday aiming to answer the longstanding question of exactly how much political spending it takes to sway a Congressional vote.
Fifty Shades of Green (pdf), published by the Roosevelt Institute, analyzes “the role political finance has played in securing the privileged positions of both high finance and big telecom” by examining how lawmakers evolved in supporting efforts to weaken the Dodd-Frank financial reform bill and net neutrality. Continue reading →
In yet another Wall Street giveaway, President Donald Trump on Friday afternoon took executive action to chip away at Dodd-Frank financial regulations and roll back rules aimed at reducing corporate tax avoidance.
Lisa Gilbert, vice president of legislative affairs for watchdog group Public Citizen, described the orders signed Friday at the Treasury Department as “nothing more than special favors for the same Wall Street banks that crashed our economy in 2008 and put millions of Americans out of work.” Continue reading →
Despite Dodd-Frank’s stated goal of reining in reckless banking, Washington, D.C. regulators keep giving Wall Street the green light. (Photo: GLing526/flickr/cc)
With several key promises of the Dodd-Frank Wall Street Reform and Consumer Protection Act still unfulfilled, “Americans cannot be comforted that Wall Street will not wreak havoc again,” according to a new report from the watchdog group Public Citizen.
“Major portions of the law have yet to be codified into specific rules,” Naylor explained. “Many enforcement dates are set well into the future, and certain rules are not yet being implemented and enforced to the fullest extent of the law.”
Dodd-Frank, signed into law five years ago Tuesday, “promised that America would never again be held hostage by banks that are too big to fail, but that promise remains unfulfilled,” Public Citizen said in a statement. “Instead, industry-captured regulators and members of Congress hungry for campaign contributions from Wall Street continue to delay and dilute the law.”
In fact, of the 390 rules required by the law, fewer than two-thirds have been completed; 60 rules have yet to be finalized, while another 83 have not even been proposed, according to a tally by law firm Davis Polk.
The report specifically looks at the status of key Dodd-Frank provisions including the Volcker Rule, which bans proprietary trading or short-term speculation; the “living will” stipulation empowering regulators to break up big banks that don’t provide a “credible” plan for an orderly resolution under the bankruptcy code should they fail; and restrictions on banker pay schemes that reward excessive risk-taking.
In all three areas, regulation has been stalled or stymied, Public Citizen declares—a reality the report attributes to the revolving door between Wall Street and Washington, D.C.
“Regulators and lawmakers who put Wall Street interests ahead of public interests aren’t fulfilling the law’s intent,” said Lisa Gilbert, director of Public Citizen’s Congress Watch division. “Instead of rolling back key provisions, our officials should be taking full advantage of this important Wall Street reform law to protect Main Street financial markets.”
Of course, Public Citizen points out, “the Wall Street reform law, even if well implemented, was not a complete answer to financial challenges.”
As Campaign for America’s Future co-director Robert Borosage wrote in an op-ed on Tuesday:
The banks still “frankly own the place,” in Sen. Richard Durbin’s immortal words, Sen. Elizabeth Warren has only begun to unveil the revolving door between Wall Street and it regulators that often neuters the law. Wall Street continues to deploy legions of lobbyists to avoid sensible regulation. It remains the leading source of dough for the leading presidential candidates in both parties. The Wall Street Journal reports that in the first month of reporting, Clinton raised about $300,000 from people working in the six biggest banks, while Bush pocketed $144,000 from Goldman Sachs employees alone. And that’s not counting the big money donations for their superPACs.
“That’s why all progressives should be pushing for greater reforms,” Borosage wrote, “even while fending off efforts of the bank lobby to cripple the Consumer Financial Protection Bureau, to cut budgets of regulatory agencies, and to weaken or repeal core elements of Dodd-Frank.”
Sen. Elizabeth Warren, who has decried recent attempts to water down Dodd-Frank, spoke with the advocacy group Americans for Financial Reform about the legislation in an interview published Tuesday: