A Real Scandal Is the Senate's Consumer Bureau Obstruction

Forty–three Senators will soon get the chance to reconsider their assault on the Consumer Financial Protection Bureau. They should take a moment, along with the rest of us, to look at what this agency – created after the financial meltdown of 2008 to set basic rules of the road for the banking and lending world – has done so far.

Among other things, it has formed a team of investigators and advocates to guard members of the military against illegal foreclosures and other scams; warned auto lenders that they will be held accountable for practices that lead to more expensive credit for African–Americans, Latinos, women or seniors; and laid down rules to end the era of mortgages designed to rake in up–front fees before they self–destruct.

The Bureau has also filed criminal charges against two debt–relief companies over illegal advance fees extracted from borrowers at the end of their rope and returned nearly half a billion dollars to consumers cheated by credit card companies including Discover and American Express.

In short, it has begun to be what Elizabeth Warren envisioned when (before she became a Senator) she first proposed the idea: a financial watchdog with the sole mission of protecting consumers.

That is a mission that most Americans, regardless of party, can get behind. And the Bureau has won wide support for its thoughtful and open approach under former Ohio Attorney General Richard Cordray, who has held the job of Director since his recess appointment at the beginning of 2012. In January, when the Bureau came out with new rules for the mortgage industry, the head of the Mortgage Bankers Association praised not only the rules themselves, but also the bureau’s “deliberative, inclusive, transparent process.”

Nevertheless, with a vote on Cordray’s nomination to a full term set for consideration by the Senate (after the Banking Committee approved it on a party line vote), 43 of the 45 Republicans in that chamber have pledged to not even allow an up or down vote .

What gives? It’s nothing personal, they say; in fact, it’s not about the nominee at all. “I think you have done a wonderful job so far in carrying out your duties,” Senator Tom Coburn, R–Okla., told Cordray at his confirmation hearing.

No, their grievance is with the agency itself. Four years ago, they came up with a demonized vision of the Consumer Bureau at the behest of Wall Street megabanks and lenders big and small, who were battling for the right to go on enriching themselves through the sort of tricks and traps that it was meant to prevent.

The industry and its friends in public office argued that traditional bank regulators, in the words of the Financial Services Roundtable, “were best positioned to monitor and enforce consumer protection ” – despite their glaring failure to do so in the past. They denounced the Consumer Bureau, before it had even opened its doors, as an over–powerful regulator that would churn out pointless rules and trample on liberties . Senator Lindsey Graham, R–S.C., described it as “something out of the Stalinist Era.”

And now, stuck on auto–pilot, they are using their power to advise and consent (and filibuster) to demand “reforms” that would undermine the Bureau’s authority and independence.

Above all, they are after two changes that are a well–known Washington formula for gridlock and ineffectuality: they want the bureau placed under a commission chosen by party leaders and they want it funded through annual congressional appropriations rather than (as the law currently provides) out of a fraction of the budget of the Federal Reserve.

Cordray and the Bureau have mostly tuned out the attacks and gone about their business. Just in the past month, the bureau released a major study of payday lending and put out a report on student debt as a barrier to economic opportunity, incidentally giving more than 28,000 people the chance to tell their stories and propose remedies for those trapped in high–cost private education loans. Both these initiatives point toward sorely needed policy changes that the bureau can help bring about in months to come .

But in the long run, having a confirmed director matters. Cordray’s recess appointment runs out at the end of 2013, and faces a court challenge to boot. Under the terms of the Dodd–Frank financial reform law, which established the Bureau, it could lose some of its authority over nonbanks if it has to function without a director. That would put banks in the uncomfortable position of being governed by rules that their storefront competitors could ignore – a scenario that has led to speculation that bankers and bank lobbyists may eventually tire of this fight.

Certainly, financial consumers – all of us, that is – have a stake in persuading a crucial few of those 43 Senators to back away from their dogmatic stand. Majority Leader Harry Reid, D–Nev., had planned to bring the issue before the Senate later this week; now he has decided to put it off for a while. That should give the Consumer Bureau’s opponents extra time to contemplate the long–term implications of a course of action that promotes abusive lending, Wall Street greed and endless partisanship and obstructionism in a country that is fed up with all those things.

In the scheme of current Washington scandals, this is one that deserves far more attention than it has received. And attention is one key to setting it right.

Originally published on USNews.com


Student Loan Horror Stories, Revealed

In the anything-goes financial world of the early 21st century, student lenders, like mortgage lenders, convinced millions of Americans to take on heavier and costlier debt than they could handle or understand. Now the scary consequences are coming back to haunt us as an economy and a society.

Student-loan debt has doubled since 2007. At an estimated $1.1 trillion, it’s the nation’s second biggest form of household indebtedness, after mortgages. One in five families have such loans, with an average balance of $26,682 at last count. Many owe far more than that – more, in some cases, than they can imagine ever being able to repay.

The cold statistical facts can be found in recent reports from, among other sources, the Pew Research Center and the Federal Reserve Bank of New York. For a glimpse of the human consequences, though, you can’t beat the more than 28,000 statements that went up on the Consumer Financial Protection Bureau website last week. Here’s just a sample:

I graduated 6 years ago and have been making monthly payments ever since, but my balance never, ever seems to go down…

Between my federal student loans and alternative loans I am projected to pay 79% of my gross monthly income, starting next month…

When I first went to the Financial Aid department they told me that I could take out Federal Loans but that it would be a lot easier, with less hoops to jump through, if I took out private loans…

Sallie Mae attached a $4000 PENALTY to one of our loans — But I have no idea which loan is what–or what loan is whose…

I am 70 years of age and must keep working in order to afford to continue to pay for my student loan…

I was young and I had NO idea…

The Bureau did the country a large service when it asked for this input in February. Thanks are also due Public Citizen, U.S. PIRG and Young Invincibles, among other groups, for their role in spreading the word and gathering a body of testimony that puts flesh and blood on a number of disturbing trends:

  • Five or 10 or more years after college, student-loan debt is causing young adults to avoid buying cars and homes.
  • Student loans go a long way toward explaining why, between 2007 and 2010, the number of 18-to-34-year-olds living with their parents increased by roughly two million.
  • They have led many young workers not to contribute to 401(k) plans, even at the sacrifice of matching money from employers.
  • They are making it hard for many graduates to pursue careers such as teaching that don’t generate enough income to repay debt.
  • They’re discouraging people from starting businesses and other forms of risk-taking.

“Are these the shadows of the things that Will be, or are they shadows of things that May be, only?” Ebenezer Scrooge inquired of the Ghost of Christmas Future. The question might also be asked about where the United States is going with its current system of financing higher education.

The Consumer Protection Bureau sought policy ideas for current as well as future student-loan debt. Its report groups the responses under several broad headings, including a “Road to Recovery” for people trapped in unmanageable private student-loan debt, and a “Refi Relief” program that would allow borrowers who have dutifully made payments to refinance at rates that reflect current interest levels and their own improved creditworthiness.

But it will take action by many arms of government – Congress, state legislatures, and the Departments of Education and Labor, along with the Bureau itself – to turn the nation away from what Kevin Carey of the New America Foundation describes as “a big social experiment that we’ve accidentally decided to engage in” – the experiment of sending a generation of young people “out into their professional lives with a negative net worth. Not starting at zero, but starting at a minus that is often measured in the tens of thousands of dollars.”

And any meaningful policy response will require continued organizing and action on the ground. The good news is that the organizing has begun, and that a huge national problem is on the way to getting the attention it deserves.

Originally published on USNews.com.





Day of the Deregulators

(Originally published on USNews.com – 5/7/13)

Wall Street will be watching the House Financial Services Committee today – and counting on the rest of us to have our attention elsewhere.

The committee will consider a package of proposals to roll back important reforms adopted after the 2008 financial crisis. Most of these bills involve derivatives – the complex financial instruments that were the proximate cause of the meltdown. If approved, they would let the biggest banks go on enriching themselves, and endangering the country, with taxpayer–subsidized bets.

Take the Swap Jurisdiction Certainty Act. In the name of simplicity, the bill generally permits the foreign subsidiaries of American banks to follow the derivatives–trading rules of other nations. What the proposal’s supporters don’t say is that the rest of the world is way behind the U.S. in setting such rules and that a couple of clicks on a computer keyboard is pretty much all it takes for the typical megabank to route a transaction overseas, potentially escaping serious oversight.

This would be a huge loophole. “During a default, risk knows no geographic border,” Gary Gensler, chairman of the Commodity Futures Trading Commission, said in a recent speech.

A second bill, the Swaps Regulatory Improvement Act, would undermine Section 716 of the Dodd–Frank financial reform law, which tells banks to segregate their most exotic derivatives transactions from taxpayer–guaranteed deposits. The bill would restore banks’ right to conduct these complex and dangerous deals inside units that benefit from deposit insurance and access to Federal Reserve support.

The House bills threaten the authority of the Securities and Exchange Commission as well as the CFTC. Existing law requires the SEC to consider the economic impact of its rules; indeed, financial companies have won a number of lawsuits on cost–benefit grounds. But the SEC Regulatory Accountability Act would shift the odds even more in Wall Street’s direction by saddling the commission with new cost–benefit–analysis procedures that it would have to follow not only for the rule it adopts but for all “available alternatives.” The net effect would be to add a set of near–impossible obstacles to a process that is already tortuously slow.

These proposals – the ones enumerated here and others – present a textbook case of how a powerful industry pursues goals that run sharply against both the public interest and public opinion. Money and muscle loom large in the tale, needless to say. We got a glimpse of Wall Street’s inside game with the recent disclosure of a February skiing bash in Utah, where the new Financial Services Committee chairman, Jeb Hensarling, R-Texas, was joined at a weekend fundraiser by representatives of a number of financial companies and Wall Street groups. (Around the time of his ski trip, the direct and indirect contributors to Hensarling’s political action committee included Visa, MasterCard, JP Morgan, Capitol One, Credit Suisse, UBS, U.S. Bank, and the payday lenders Cash America and CheckSmart.)

Disguise is another key element of the strategy. Americans overwhelmingly support tough financial regulation, so the banks have broken their agenda into mini–bills with mind–numbing names like the Business Risk Mitigation and Price Stabilization Act and the Swap Data Repository and Clearinghouse Indemnification Correction Act.

Persistence is a piece of the puzzle, too. Three years after the legislative fact, the financial lobby is still battling to undo the progress of Dodd Frank. And making more headway than it should.

Many of the bills before the Financial Services Committee were approved by the House in 2012, and they could be headed for approval in 2013. But every vote cast will matter; the more nays there are in the committee and on the House floor, the easier it will be to prevent these bills from moving in the Senate, where reform forces will have to hold the line again this year as they did last year.

The challenge is to spread the word and hold legislators accountable, convincing Senators and House members alike that a favor for Wall Street will be noticed – and remembered – on Main Street.