Why It Matters Who Runs the Consumer Financial Protection Bureau
On Monday morning, two people reported for work at the Consumer Financial Protection Bureau as if they were in charge. One was Leandra English, a senior bureau staffer whom Richard Cordray, the C.F.P.B.’s former director, appointed as his deputy shortly before leaving the post, last week. The other was Mick Mulvaney, the White House budget chief, whom the White House tapped to replace Cordray on an interim basis. The showdown has all the elements of a ripping Washington news story: conflict, strong characters, a looming court case, and a whiff of battles to come in the elections of 2018 and 2020.
Donald Trump has personalized the issue by describing the C.F.P.B., which was created as part of the Dodd-Frank financial-reform act, of 2010, as “a total disaster.” Mulvaney himself has been a vocal critic of the bureau—he once called it a “sick, sad” joke. Democrats, for their part, suspect that they may be onto a winner, politically speaking, even if the courts find that Trump was within his powers to appoint Mulvaney over English. “This is about whose side president Trump is on—big banks, or working families,” Senator Elizabeth Warren told the Washington Post’s Greg Sargent. “So far in his administration, he has chosen the big banks time after time. Is he going to stand up for the working families who helped elect him?”
Somewhat lost in all the drama has been the actual work of the C.F.P.B., which has about sixteen hundred employees and an annual budget of roughly six hundred million dollars. Largely at the instigation of Warren, the Obama Administration established the agency in response to the great financial crisis of 2008-2009. After the collapse of the subprime-mortgage market, nobody could deny that financial products can be toxic. Warren’s vision of a Food and Drug Administration for the banking sector proved popular. To insure that Wall Street lobbyists and their lackeys on Capitol Hill couldn’t hobble the new agency’s operations, the authors of the Dodd-Frank bill made the C.F.P.B. an independent agency: it receives its funding from the Federal Reserve rather than Congress. This structure infuriated Republicans, but the mortgage meltdown had amply demonstrated the dangers of regulatory capture.
So how has the C.F.P.B. used its independence? Last September, in its biggest enforcement action to date, the agency fined Wells Fargo, the third-largest lender in the country, a hundred million dollars, after discovering that employees of the bank had opened more than two million bank and credit-card accounts in the names of customers without informing them or obtaining their permission. And the work the agency has done that hasn’t drawn news headlines has been significant, too.
Early last month, the C.F.P.B. issued a new set of rules to restrict predatory payday lending, an industry that leaves many hard-pressed American households saddled with escalating debts that carry extremely high interest rates. Research carried out by the agency showed that four out of five payday loans, which typically last for two weeks, are rolled over or re-borrowed. Lenders typically charge fifteen dollars for every hundred borrowed, which translates to an annual interest rate of almost four hundred per cent. Currently, the onus is on the borrower to adjudge his or her capacity to service a debt, but under the new rule “a lender must reasonably determine that the consumer has the ability to repay the loan.” Failure to do so will be deemed “an unfair and abusive practice,” which could open the lender to sanctions.
Also in October, the C.F.P.B. issued a report showing how it had dealt with more than fifty thousand complaints from student-loan borrowers. One of the C.F.P.B.’s innovations has been a dedicated phone line by which people can register complaints against financial companies. In egregious cases, the C.F.P.B. shares the complaints with other federal agencies and demands action. For example, when student lenders were refusing to grant interest-rate reductions to people in the armed services who were entitled to them, the C.F.P.B. enlisted the Department of Justice and the Federal Deposit Insurance Corporation, which took actions that returned money to seventy-seven thousand service members. In all, according to the C.F.P.B. report, “complaints by student loan borrowers have driven actions that have produced more than $750 million in relief for student loan borrowers and strengthened the student loan repayment process for millions more.”
The C.F.P.B. also pursues individual bad actors. Earlier this month, it announced that Provident Funding Associates, a Californian mortgage lender, was sending nine million dollars in recompense to African-American and Hispanic mortgage borrowers who had been “unlawfully charged higher interest or higher broker fees.” A week later, the C.F.P.B. filed a lawsuit against a debt-settlement firm, Freedom Debt Relief, which markets its services as a way for highly indebted people to discharge their financial obligations. In reality, the C.F.P.B. said, the firm “charges consumers without settling their debts as promised, makes customers negotiate their own settlements, misleads them about its fees and the reach of its services, and fails to inform them of their rights to funds they deposited with the company.” In the lawsuit, which the bureau filed in a federal district court in California, the C.F.P.B. demanded that Freedom Debt Relief pay civil penalties and also make payments to the customers who were mistreated.
Of course, the C.F.P.B. can’t prevent every misdeed in the financial industries. But its very existence has prompted some financial institutions, particularly large ones, to think twice before engaging in skeezy behavior. On the customers’ side of the counter, meanwhile, the C.F.P.B. has given borrowers somewhere to go if they think they have been overcharged or mistreated. Particularly in states where financial regulation is weak, the C.F.P.B. is often the only option.
If Mulvaney is confirmed as the C.F.P.B.’s acting boss, or if Senate Republicans confirm some other nominee who thinks like him, the agency’s future and usefulness will be called into question. “The agency will be headed by someone who fundamentally doesn’t believe in its mission,” Elizabeth Warren said. “This would change every calculation that every giant bank makes in the executive suite when deciding just how close to breaking the law they want to come. If the cop is pulled off the beat, then the profits from cheating people look far more attractive to the banking executives.”
To be sure, Warren has a vested interest here, given her close ties to the C.F.P.B. But she is also speaking truths that experience has confirmed. In an industry as opaque and complex as finance, there are endless little ways—and also some big ways—to raise charges and stiff the customer. In seeking to prevent and remedy such abuses, the C.F.P.B. performs an invaluable public service, and its presence has done nothing to prevent the banks from making healthy profits. Indeed, their bottom lines are almost back to where they were at the end of the great real-estate bubble. Trump’s claim that financial institutions “have been devastated and unable to properly serve the public” is an utter falsehood, as is his claim that, in appointing Mulvaney, he was acting in the economic interests of ordinary Americans. The C.F.P.B. showdown provides yet another illustration of the false populism that lies at the heart of the Trump Presidency.
