In Defense of the Consumer Financial Protection Bureau
By Brian Young, National Consumers League
In its short tenure, the Consumer Financial Protection Bureau (CFPB), under Director Richard Cordray has done an excellent job of preventing consumers from harm and helping wronged consumers get the recourse they deserve. The American people have seen the great work the Bureau has accomplished, and it is not surprising that the CFPB enjoys support from both sides of the aisle. Unfortunately, given the success of the CFPB as a consumer watchdog, it is also not too surprising to see the very industries and actors the CFPB has been charged to regulate, amass support for its weakening or even outright dismantling in Congress.
Earlier this month, the House of Representatives passed the Financial CHOICE Act, the first step in the latest effort to dismantle one of the most successful consumer protection agencies in America’s history. Given the amount of rhetoric from the CFPB’s detractors, it’s worth setting the record straight about the history, structure, and success of the agency.
In 2008, the United States experienced the worst financial crisis since the Great Depression. As the dust settled, there was a much-needed examination of factors contributing to the collapse. One of the things we learned was that consumers were often preyed upon or tricked into predatory loans.
Predatory lenders, including sketchy mortgage companies, payday and car title loan companies, and “no credit needed” car dealerships helped create an environment where consumers could become ensnared in an inescapable cycle of debt. Another cause of the crisis was bureaucratic paralysis due to too many agencies sharing consumer protection responsibilities. As a result, agencies often felt they did not have the authority to protect consumers from financial predators.This created an environment where unsavory lenders were emboldened to engage in loan shark tactics. Absent strong consumer protections, when the stock market crashed, many Americans had no choice but to default on their loans, making the crisis worse. In the wake of trillions of dollars in losses, the American people vowed to never allow such a situation to happen again.
The ensuing wave of consumer and policymaker revulsion coalesced in the creation of the Consumer Financial Protection Bureau. By any objective measures, the CFPB has been a runaway success in its mission to protect and empower consumers. So far, the CFPB has returned almost $12 billion to nearly 29 million wronged consumers. Consumers at Bank of America, Citibank, and JPMorgan Chase received $1.7 billion in refunds after they were charged for needless and unwanted services. Likewise, it was the CFPB that investigated and provided $100 million in financial relief to consumers when Wells Fargo defrauded its customers.
While the CFPB has had many big wins for consumers, it has also become a leader in mediation between harmed consumers and lenders. Since its formation, the CFPB, has collected over 1 million complaints. After collecting each complaint, the CFPB will work with the consumer to provide a resolution, typically within 15 days. The CFPB then takes that complaint information and puts it into a searchable database. This database allows consumers, government agencies, and advocates to identify emerging trends and work with industry and policymakers to stop harmful practices.
The CFPB has also been incredibly effective at preventing consumers from becoming victims in the first place. For instance, the CFPB created rules to prevent loan-shark style payday and car-title lenders from sucking consumers into unmanageable debt spirals. Likewise, the Bureau severely limited the prevalence of last dollar scams, which prey on consumers who are on the verge of bankruptcy. The CFPB has also been active in helping consumers navigate large, once-in-a-lifetime purchases like home mortgages. A few years back, the Bureau created rules ending “booby trapped mortgages.” The CFPB added protections that forced lenders to seriously consider a borrower’s ability to repay a loan, as well as a requirement to provide consumers with “know before you owe” disclosures that inform homebuyers how much they need to budget for their mortgage before they sign on the dotted line. It is because of these initiatives that home buyers have a much better understanding of how much they will end up paying.
Thanks to these and other successes, it is no wonder that an overwhelming majority of Americans (even a majority of Trump supporters) approve of the work the CFPB is doing and do not support efforts to weaken the agency. Unfortunately, the CFPB’s consumer protection success has created powerful enemies in the banking and financial services industry.
Opponents of the CFPB, emboldened by the results of the 2016 elections, are challenging the very structure that made it successful, starting with its funding source. The CFPB was created to be independent of the highly politicized appropriations process in Congress. Similar agencies including the Federal Reserve, Comptroller of the Currency, and FDIC are also funded independent of the appropriation process for the same reason. The creators of these financial institutions understood the importance of insulating critical financial protection agencies from the pressure of politics.
The CFPB’s detractors also argue that the agency is not accountable, which is simply not true. The CFPB is accountable to the Financial Stability Oversight Council, which has the authority to veto the Bureau’s rules. In addition, the CFPB reports twice a year to Congress and is accountable to the Federal Reserve’s Inspector General, as well as the Government Accountability Office. All of these agencies have conducted audits of the CFPB on numerous occasions. Detractors of the CFPB wish to either undermine the bureau’s ability to receive funds or splinter the agency’s leadership structure.
These baseless attacks must not be allowed to go on unchecked. The work the CFPB does is too important to let unscrupulous lenders dismantle it with anti-consumer legislation like the Financial CHOICE Act. As this bill progresses to the Senate for consideration, rest assured, this is an issue we take very seriously at NCL, and we will not rest until we have done everything we can to prevent the dismantling of the CFPB.