Senator McConnell Says We Shouldn't Have a CFPB at All

By Ed Mierzwinski (U.S. PIRG)

Senator Mitch McConnell (KY) told Wall Street and other bankers yesterday that “If I had my way, we wouldn’t have the [CFPB] at all.”

McConnell has been leading a group of 43 Senators — under Senate rules, a minority of 41 or more Senators can block action — who are demanding gutting changes to the Consumer Financial Protection Bureau’s funding, authority, structure and independence as their price to confirm the CFPB’s well-qualified director, Rich Cordray, to a full term.

Of course, no one has forgotten the spectacular financial collapse caused by Wall Street shenanigans and a lack of regulation. It shouldn’t be that hard to recall; it happened just five years ago and the economy is still recovering. Even Senator McConnell and his Wall Street patrons haven’t forgotten; they simply don’t like Wall Street reform. They want a return to the old unregulated days when bankers could take risks without responsibility. The result? They destroyed the lives of millions of Americans who lost jobs or homes or retirement savings or all three.

That’s why the American Bankers Association (yesterday’s venue for McConnell), the Financial Services Roundtable, the U.S. Chamber of Commerce, the Securities Industry and Financial Markets Association and many, many other powerful special interests continue to attack and delay every new public protection enacted in the 2010 Wall Street Reform and Consumer Protection Act.

And while they are fighting the Volcker rule to limit risky betting by commercial banks using other peoples’ money, opposing full restitution to the homeowners that they wrongly foreclosed on (while bouncing some of the checks they actually do send them) and even challenging the extremely modest SEC rule that would require them to disclose the ratio between the pay of their CEO and their median (meaning half make more, half make less) employee , their strongest opposition is reserved for the very idea of the CFPB. What’s the CFPB? It’s our first and only federal financial agency with just one job, protecting consumers, no matter where they buy their financial products.

What are some of the protections we wouldn’t have at all, if Senator McConnell and Wall Street have their way and we didn’t have a CFPB at all?

Protections consumers wouldn’t have at all, if we didn’t have a CFPB at all: Nearly half a billion dollars in refunds from big credit card companies Capital One, Discover and American Express — all sued by the CFPB for unfair practices, including the marketing of supposedly-free useless credit card add-ons.

Protections veterans and servicemembers wouldn’t have at all, if we didn’t have a CFPB at all: A special team of advocates and investigators looking out for service members and veterans, and going after those who systematically target them with financial scams, illegally foreclose on them or hustle them into sleazy for-profit school contracts.

Protections consumers wouldn’t have at all, if we didn’t have a CFPB at all: The CFPB’s complaint system and public database of consumer complaints. The CFPB’s complaint system has been widely praised for delivering swift and serious results. In the early going, more than half of those using the system for credit-card complaints received monetary relief. The public database ensures a swift response to complaints (no company wants to be Number One on this list!) and enables academics and other researchers to probe the problems that plague financial markets and suggest priority solutions.

Protections senior citizens wouldn’t have at all, if we didn’t have a CFPB at all: An Office of Older Americans, helping them with investment choices and going after “clever scam artists or desperate family members targeting you because of your home equity or net worth.”

Protections consumers wouldn’t have at all, if we didn’t have a CFPB at all: A federal regulator with the authority to supervise (or examine) payday lenders, mortgage companies and private student lenders of any size, and, so far, also larger credit bureaus and debt collectors, with larger student loan servicing firms next on the CFPB’s radar. Being able to look inside the previously “black box” activities of these non-bank firms for possible future problems will help stop bad behavior and violations before they occur.

Protections students wouldn’t have at all, if we didn’t have a CFPB at all: First, all students wouldn’t have “Know Before You Owe” tools to help students understand and compare college costs and financial-aid offers. Second, students wouldn’t have a place to go with complaints about private education loans or for-profit school scams.

Protections consumers at risk of lending discrimination wouldn’t have at all, if we didn’t have a CFPB at all: An Office of Fair Lending to “ensure that all Americans have fair, equitable, and nondiscriminatory access to credit…[CFPB]  will use every tool at our disposal to protect American consumers.”

The list goes on and on. It continues from here with major new protections for homeowners against unfair mortgage practices and even includes protections for consumers sending funds to families overseas. Find more about the protections that the CFPB provides to make markets work for both consumers and fair-dealing firms here at the Americans for Financial Reform page Ten Reasons We Need The CFPB.

I encourage readers to take a look at the CFPB’s latest Semi-Annual Report to Congress for more discussion of its accomplishments and ongoing investigations and projects. Director Cordray will present the report at an oversight hearing of the Senate Banking Committee next Tuesday, 23 April at 10am. You should be able to watch the hearing live here.

After you read the report or watch the hearing, I think you will agree that what Senator McConnell and Wall Street want — no CFPB at all — doesn’t serve the public interest, only special interests. It doesn’t serve consumers at all.

(Cross-posted from U.S. PIRG)

Loud Message to Federal Regulators: End Bank Payday Lending

Last month, AFR and many of its member groups were among the nearly 250 signers of a letter urging federal bank regulators to “move quickly to ensure that payday lending by banks does not become more widespread” and to tell banks already making payday loans to “stop offering this inherently dangerous product.”

On Tuesday April 9thpetitions bearing the same emphatic message – and the signatures of more than 157,000 Americans (gathered by CREDO and Color of Change along with AFR, NPA, and CRL) – were hand-delivered to the Federal Reserve, the Consumer Financial Protection Bureau, the Office of Comptroller of the Currency, and the Federal Deposit Insurance Corporation. Meanwhile, Illinois Senator Richard Durbin reinforced the pressure against payday lending with the introduction of his Protecting Consumers from Unreasonable Credit Rates Act.

While a growing number of states have moved to outlaw payday lending over the past decade, the problem has become harder to combat, with major banks – Wells Fargo. U.S. Bank, and others – beginning to offer their own payday-style triple-digit-interest loans dressed up with polite names like “Direct Deposit Advance.” At the same time, the Internet has empowered a new generation of payday lenders to target just about anybody from anywhere. (Some of these online hustlers have incorporated offshore or on tribal lands, as well as in states without usury caps.)

Bank payday loans pose a special threat because, as Liz Ryan Murray of National People’s Action pointed out this week on The Hill’s Congress Blog, people who would be sensible enough to “avoid sketchy storefronts with ‘get cash now’ signs” often “don’t realize their personal bank’s short-term loans could be so toxic.” Taking advantage of that bond of trust, bank payday loan products “are decimating the bank accounts of some of America’s most vulnerable residents,” Murray writes, noting that “a full 25 percent of bank payday loans are to recipients of Social Security.”

Senator Durbin’s measure would end payday lending regardless of its auspices, by establishing a nationwide interest-rate cap of 36 percent for all forms of consumer credit. Another bill – the SAFE Lending Act, introduced by Senator Jeff Merkley (D-Ore.) – zeroes in on the online and offshore predators.

But because these proposals face daunting odds in Congress, the problem remains, for now, in the hands of the prudential bank regulators – the Fed, the OCC, the FDIC, and the CFPB. Fortunately, they have the authority to call an immediate end to payday lending by the banks they supervise. It is time for them to use that authority, once and for all.

 

For more information, see these two recent reports from our allies, along with letters of support for the anti-payday-lending bills.

Banks Go A-Titter About Brown-Vitter

A leaked draft of the TBTF proposal being put together by Senators Sherrod Brown (D-Ohio) and David Vitter (R-La.) was evidently the cause of much mirth in big-bank circles. The proposal’s capital requirements were described as “comically high” by Rob Nichols of the Financial Services Forum, as quoted in Ben White’s Morning Money column on Politico.

But Tuesday’s column brought forth replies from a number of unamused observers. “The largest financial organizations contributed to the financial crisis because they were so poorly capitalized,” FDIC Vice Chair Thomas M. Hoenig commented. “Ask the eight million people who lost their jobs during the crisis how comical they think higher capital requirements are.”

Camden Fine of the Independent Community Bankers Association offered a riff onJohn Kerry’s famous line: ‘They voted against [the Dodd-Frank Act] before they voted for it,” adding, “And that is really ‘comical’.”

AFR had this to say: “It’s not surprising that the Financial Services Roundtable would try to belittle the Brown/Vitter draft requiring additional capital, since it’s a lot more profitable for banks to get implicit backing from taxpayers than to raise their own capital from the private sector. But they shouldn’t be able to get away with the myth that additional capital would constrain bank lending.

“Capital requirements don’t place any restriction on the amount of lending banks can do. They simply require that this lending be funded by private sector risk capital so that taxpayers aren’t on the line if banks take losses. Especially since the Brown-Vitter proposal would give banks a full five years to raise the added capital, it makes no sense to argue that banks wouldn’t be able to lend. And the minimum capital levels in the draft are hardly ‘comical’ — they are in the ballpark of capital levels called for by experts like Sheila Bair, and below levels typically held by banks before the creation of the public safety net.”

“Wall Street’s bragging about having ‘record high’ equity ignores that it is still way too low to avoid another financial collapse or massive taxpayer bailouts,” said Dennis Kelleher of Better Markets.

Car Buyer’s Best Friend: Car Dealer?

Surprise, surprise: the nation’s auto dealers do not approve of the Consumer Financial Protection Bureau’s crackdown on a loan compensation system that rewards dealers for sticking car buyers with unnecessarily high interest and fees.

But the dealers assure us they are not looking out for themselves. A joint statement by the National Automobile Dealers Association (NADA) and the National Association of Minority Automobile Dealers (NAMAD) laments the potential loss of “a financing model” that “has been enormously successful in both increasing access to, and reducing the cost of, credit for millions of Americans.” The dealers go on at some length about the threat to convenience, competition, and consumer choice; by contrast, they have not a word to say about any possible impact on their own bottom line.

Here, then, are a few salient facts that, while nowhere to be found in this high-minded document, were rightly examined and considered by the CFPB before it decided to issue a guidance bulletin on potential violations of the Equal Credit Opportunity Act (ECOA):

  1. The practical effect of the indirect-financing system that the dealers defend is to create incentives for charging higher interest and/or fees than borrowers would otherwise qualify for.Typically, a third-party lender determines the least costly loan that it would be willing to give, and offers to pay the dealer extra for convincing the borrower to pay extra.
  2. It adds up to a lot of extra. Markups resulting from what a layperson might call dealer kickbacks (but which are politely known in the auto lending field as “reserves” or “dealer participation programs”) add an estimated $25.8 billion in hidden interest alone over the lives of the loans involved. Research also shows that the mere presence of a dealer interest rate markup increases the odds that borrowers will fall behind on their payments or have their cars repossessed.
  3. Repeating a well-documented pattern of the subprime mortgage era, the cost of these dealer markups falls disproportionately on Latinos, African-Americans, women, the elderly, and other historically disadvantaged population groups.
  4. Needlessly expensive auto loans, like needlessly expensive mortgage loans, aggravate the persistent divide in average wealth between white and Latino and African-American households. Nationally, the average auto loan stands at $26,691, and total auto loan debt has reached $783 billion, more than Americans collectively owe on credit cards and edging up toward what they owe on mortgages.

The CFPB has put the lenders on notice: if their commission arrangements lead to higher costs for car buyers of color and other protected groups, they could be found in violation of the fair-lending rules of the Equal Credit Opportunity Act.

The lenders say: don’t punish us for the sins of dealers. The dealers, for their part, protest that while they “strongly oppose any form of discrimination in auto lending,” they should not be punished on the basis of “a theory of discrimination that is based on a statistical analysis of past transactions – not intentional conduct…”

Another way of putting all this is that the lenders and dealers have, between them, constructed a loan-making apparatus expertly designed to cheat, and to cheat certain classes of people disproportionately, regardless of anyone’s provable intent. The CFPB is to be commended for finding a way to confront that outrage with the authority it does, in fact, possess.