Columnist George Will recently (and not for the first time) urged Congress to “abolish the Consumer Financial Protection Bureau.” His reasons may seem to come from his conservative philosophy, but merely pander to the powerful Wall Street interests that left our economy in ruins just a few years ago. As a counterbalance, let’s discuss some recent speeches and statements by CFPB Director Richard Cordray on his vision for the bureau and some of its current work, including – on this Veteran’s Day – its efforts to protect military families from financial predators.
As I sit here taking the usual election year phone calls from reporters (but not George Will) asking me what threats face the CFPB in the next Congress, I’ve been looking at all the work that the young agency (it just turned three) has accomplished to make financial markets work better. Rather than focusing on numbers, such as “recovered over $4.6 billion in refunds to consumers from unfair financial practices,” I quickly realized I needed to look no further than two recent major speeches given this October by its director, Richard Cordray. Each talk deserves much more discussion and consideration in the media and review by editorial writers. Perhaps they have not been reported on because they were given in Michigan; it’s an important state but Ann Arbor is not New York City, nor is East Lansing Washington, DC. After discussing those important speeches, I will comment on the CFPB's defense of military families.
On October 10, Director Cordray gave a speech at the Michigan State University explaining in thoughtful detail why the 40th anniversary of the Equal Credit Opportunity Act should be added to the university’s “60/50” celebration of the 60th anniversary of the Supreme Court’s landmark decision in Brown v. Board of Education and the 50th anniversary of the Civil Rights Act. As Cordray points out, of course, Dr. King’s campaigns for civil rights always included a call for economic justice. In East Lansing, Cordray goes on to explain the role of the ECOA in fighting discrimination:
"For the principle of “fair lending” that underlies this statute is crucial to upholding and enforcing the kinds of economic rights that ensure freedom and equality to the people who constitute our society. One of those rights is the right to access credit on fair and equal terms – to borrow money now for repayment at a future date, so as to have the use of it for purposes of one’s own choosing. Our pursuit of happiness is enhanced when the government helps to ensure that the opportunities that free markets and fair lending make possible are available to us all."
Later in October, at the University of Michigan Law School, he explained the consumer bureau’s enforcement strategy against four obstacles that hurt consumers in the financial marketplace. He described the “4 D’s” that harm consumers: Deceptive marketing, Debt traps, Dead end markets, and, finally, circling back to the theme of the MSU speech, Discrimination.
“Deceptive Marketing: We faced an epidemic of false or misleading information in the lead-up to the financial crisis. As a result, too many homebuyers ended up with complicated mortgage products that could not be made to work, products they often did not understand. These products were doomed to fail, and chances are that if consumers had known better, they would have avoided them.[…] But cleaning up deception in the marketplace also requires some tough action. So we have adopted a number of other regulations to protect consumers in the multi-trillion-dollar mortgage market. […] We also have taken strong enforcement actions against a growing number of credit card companies that misled millions of consumers with deceptive sales pitches.
Debt Traps: Payday lending is one area we see as a potential debt trap for consumers. We issued a report earlier this year which found that payday loans put many consumers at risk of turning what is supposed to be a short-term, emergency loan into a long-term, expensive debt burden. […]This summer, we took action against ACE Cash Express, another large payday lender, for pushing payday borrowers into a cycle of debt. And, just last month, we sued an online payday lender, the Hydra Group, which was running an illegal cash-grab scam.
Dead Ends: These problems occur in markets where consumers cannot exert their influence by “voting with their feet” – markets like debt collection, loan servicing, and credit reporting. […] […] But some debt collection practices have long been a source of frustration for many consumers, generating a heavy volume of complaints at all levels of government. […]In the credit reporting industry, we have used our authority to improve practices that will better ensure the accuracy of information contained in people’s credit reports and their ability to get errors corrected. We also are pushing hard for the Open Credit Score Initiative, which is providing tens of millions of Americans with free credit scores and raising their awareness of how they are affected by a credit reporting system that judges their creditworthiness.
Discrimination: The fourth D we are taking on, perhaps the most damaging of them all, is discrimination. The greatest challenges some consumers face are rooted in unlawful treatment based on prohibited characteristics like race or national origin. So we are seeking economic justice and the right to equal treatment in the financial marketplace based on individual merit and responsibility.”
These are important speeches, worthy of a closer read. You can find them, and other remarks by Director Cordray, here.
Improving the Military Lending Act
Also, recently, the director commented strongly in favor of the Department of Defense’s proposed strengthening amendments to the Military Lending Act. On this Veteran’s Day, it is important to understand that financial predators threaten veterans, servicemembers and their families right here at home. While the bipartisan Military Lending Act of 2007 took steps to protect them, payday lenders and others of their ilk have carved loopholes in it. The Pentagon’s proposed amendments will make a big difference in closing loopholes and expanding the coverage of the law’s protections. For example, in addition to limiting interest rates on a wider variety of covered products, the proposal will also ban forced arbitration clauses in any financial contract with a soldier, veteran or family member. As Director Cordray explains:
“As one of the agencies charged with enforcing the Military Lending Act, we have seen firsthand how lenders use loopholes in the rule to prey on members of the military. They lurk right outside of military bases, offering loans that fall just beyond the parameters of the current rule. This proposal would shut down the predatory lending to the military that has flourished through exploiting legal technicalities. By broadening the types of credit covered under the law, this proposal would carry out the will of Congress by enabling the CFPB to stop lenders from harming servicemembers in ways the law was intended to stop.”
Unfair financial practices that harm military families don’t simply hurt individuals, as if that weren’t bad enough. If soldiers and sailors are worried about financial problems at home, unit preparedness and "operational readinesss" is harmed. Worse, servicemembers who owe unpaid debts see their credit reports and credit scores harmed, which can result in loss of security clearances, which harms unit preparedness even more. As the CFPB’s Assistant Director for Servicemember Affairs Holly Petraeus explains:
“I commend Secretary Hagel for taking this important step to make the Military Lending Act more effective. High-interest loans to the military have been a problem for many years. This problem reached a crisis as payday and other lenders began thronging outside the gates of military installations in ever-increasing numbers. In 2006, Congress acted against this threat to military financial and operational readiness by passing the Military Lending Act. This law was designed to protect active-duty servicemembers and their families from high-cost loans by capping rates at 36 percent. Unfortunately, less than a decade after that law was passed, those who would profit by charging exorbitant rates to the military have found it all too easy to evade the original intention of the Military Lending Act. Taking advantage of loopholes, lenders have continued to charge military families annual percentage rates as high as 500 percent.”
You can take a moment to make a quick comment to Defense Secretary Chuck Hagel in favor of a strong Military Lending Act on U.S. PIRG’s action page. If you want, you can read the full proposal, read other filed comments and file a longer, more detailed comment here at Regulations.gov. Comments are due by November 28th on the proposal to strengthen the Military Lending Act.
The work that the CFPB does protecting our defenders is just one reason that the idea of the CFPB needs no defense.