Transparent CFPB Database Makes Banks Work Better

Last week, my organization released “Big Banks, Big Complaints,” a report documenting how the Consumer Financial Protection Bureau is helping bank customers solve disputes through its searchable public online complaint database. The views of U.S. PIRG and its coalition partners at Americans for Financial Reform mirror the CFPB’s: transparency helps good companies do better in the market; and bad companies will either need to become good, or lose customers.

Yet, in a story today, “Feds Solve Problems for Unhappy Bank Customers,” by Herb Weisbaum of CNBC, American Bankers Association lobbyist Nessa Feddis criticized our study by simply repeating the industry’s tired arguments that it had unsuccessfully used to try to kill the database itself when it was still just an idea. “No serious analyst would use this data to draw conclusions. This is data that is unverified, unrepresentative, incomplete and potentially inaccurate,” she told Weisbaum.

Actually, transparency works. The CFPB database is getting results. Indeed, just the other day, the industry trade paper American Banker (not affiliated with the ABA) ran a story, “Customers Are Now Banks’ Greatest Regulatory Threat.” Why? Because, as the story itself points out, if banks don’t handle their complaints quickly and well, their customers will complain to the CFPB. If they want to avoid public shaming or even enforcement action, industry lawyer Alan Kaplinsky told the American Banker, they would do well to “have a very good system in place from the get go to resolve a complaint quickly.”

We’re not surprised, not surprised at all. Our Tax and Budget Project regularly ranks states and municipalities on how transparent their disclosure of budget spending is to taxpayers. We’ve seen dramatic improvements in the quality of disclosure.

It’s a simple lesson that the smart banks will learn. Firms that behave better in the marketplace by handling complaints quickly or eliminating unfair practices will be rewarded with more, and happier, customers. Conversely, firms that persist in dragging out or ignoring complaints about unfair practices may make money in the short run, but ultimately, transparency wins out.

Last week, the CFPB announced a $20 million civil penalty against JP Morgan Chase, which was ordered to refund $309 million to more than 2 million consumers over the deceptive marketing of junky credit card add-on products, some of which were never even delivered to the people who had bought them. This wasn’t the CFPB’s first move against the add-ons, which range from credit card debt cancellation products (“Who will pay your card if you get sick or laid off … or die?”) to the more common credit monitoring and identity theft products. Last year, CFPB went after Discover and Capital One credit cards for deceptive sales of similar products. Our advice:  You don’t need any of them, but check your statements to make sure you haven’t already inadvertently been signed up to pay for them.

The CFPB’s enforcement actions help consumers just as the database does. While some banks will no doubt keep selling junky products, smart ones will to preempt the CFPB with their own enforcement action. No bank will want to be Number One in the CFPB database.

In any case, it is clear that the CFPB is getting results for consumers and making markets work better. As Scott Pluta, who heads the CFPB database project, told Weisbaum of NBC: The database may not be popular with the financial services industry, but it’s “making a real difference in people’s lives and in the marketplace.”

— Ed Mierzwinski

Originally published on

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


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.

Senator Warren’s Question: Why Is This Agency Different from Other Agencies?

At Tuesday’s confirmation hearing, Massachusetts Senator Elizabeth Warren had no questions for Richard Cordray, the nominee to lead the CFPB. “You’ve already testified 12 times [and] CFPB officials have testified more than 30 times,” she pointed out. “You’ve been an open book… and you’ve won widespread praise for both your balance and your judgment.”

Instead, Warren addressed her questions to the 43 Senators who have pledged to block a confirmation vote:

“What I want to know is why, since the 1800s, have there been agencies all over Washington with a single director including the OCC, but unlike the consumer agency, no one in the U.S. Senate has held up confirmation of their directors, demanding that the agency be redesigned.

“What I want to know is why every banking regulator since the Civil War has been funded outside the Appropriations process, but unlike the consumer agency, no one in the United States Senate has held up confirmation of their directors demanding that that agency or those agencies be redesigned.

“And what I want to know is why there are agencies all over Washington whose rules are final, subject to the ordinary reviews and oversight, while the CFPB is the only agency in government, subject to a veto by other agencies.  But unlike the CFPB, no one in the U.S. Senate holds up confirmation of their directors, demanding that those agencies be redesigned.

“From the way I see how other agencies are treated, I see nothing here but a filibuster threat against Director Cordray as an attempt to weaken the consumer agency.  I think the delay in getting him confirmed is bad for consumers.  It’s bad for small banks.  It’s bad for credit unions.  It’s bad for anyone trying to offer an honest product in an honest market.

“The American people deserve a Congress that worries less about helping big banks and more about helping regular people who’ve been cheated on mortgages, on credit cards, on student loans, on credit reports.  I hope you get confirmed.  You have earned it, Director Cordray.”

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Senators Hold CFPB Director Hostage to Specious Arguments and Unreasonable Demands

By Ed Mierzwinski

On Friday, 43 Senate Republicans — as they did in the last Congress — again sent the President a letter saying they would not confirm Richard Cordray to a full term as Consumer Financial Protection Bureau (CFPB) director unless the agency’s powers and independence were first gutted. Their intransigence means more market uncertainty that further delays recovery from the Wall Street-induced worldwide economic collapse of 2008. It also ignores the views of a growing number of responsible financial industry leaders who know at least three things the Senators either don’t know or don’t care about.

First, the financial industry now knows that the CFPB’s actions in Director Cordray’s first year as a recess appointee have been fair and balanced. He and the bureau have been accessible, careful and transparent.

Second, the banks and other firms know that delaying his confirmation — especially under the specter that a recent “radical” appellate decision concerning the National Labor Relations Board may eventually lead to voiding his recess appointment entirely — adds uncertainty to the marketplace that hinders their ability to make loans and offer new products that can build the economy. Senate approval of Cordray makes that uncertainty go away.

Third, the banks know that they lose and predatory payday lenders and other non-banks win if the director’s appointment is voided by the courts. Big banks are fully regulated by the CFPB regardless of whether it has a confirmed director. On the other hand, the bureau’s full powers over non-banks — including payday lenders, credit bureaus,  mortgage companies and others — may only be exercised with a director in place. That situation would create an unlevel playing field that harms consumers, markets and good actors, since the CFPB was intended to protect you no matter where you purchase your financial products (at a bank or a non-bank). (Note that at least one leading CFPB expert at the National Consumer Law Center believes the CFPB has all its authority regardless of whether it has a director.)

But those 43 Senators opposed to consumer protection don’t recognize any of these points. Instead, they are presuming that the court decision adds impetus to continue their reign of uncertainty. But as Public Campaign suggests, the $143 million in Wall Street campaign cash those opponents have received probably doesn’t hurt, either.

In 2008, Congress used taxpayer dollars to bail out the big banks. While the bailout saved Wall Street, it didn’t save the economy. In 2010, Congress finally enacted sweeping reforms intended to prevent another collapse with passage of the Wall Street Reform and Consumer Protection Act (more in U.S. PIRG’s Wall Street Reform Guide).

A centerpiece of that reform was establishment of the CFPB as the first federal financial regulator with only one job — protecting consumers. Since 2010, House and Senate opponents of consumer protection (although the Senate letter brazenly claims to be from consumer protectors) have attempted to turn back the clock and re-litigate the creation of the CFPB.

As Mike Konczal of the Roosevelt Institute explains in his blog, and Professor Arthur Wilmarth details in a law review article, arguments that the CFPB is unaccountable are specious. First, the new agency was given the same independent funding as the other bank regulators (actually, CFPB is already less independent, since only the CFPB’s funding has a hard cap ceiling, while the other regulators can raise additional funds without Congressional authority). Second, its single director structure is not unique; the most important of the other bank regulators, the Office of the Comptroller of the Currency (OCC), also has a single director. Further, only the CFPB’s decisions are subject to a unique veto power by other regulators. And, only the CFPB is subject to additional small business regulatory requirements before it can take action.

Regardless, the Senate opponents again want to condition Cordray’s confirmation on further limiting the CFPB’s authority to protect the public. First, they want the CFPB to be the only bank regulator subject to the highly-politicized Congressional appropriations funding process. That makes Wall Street lobbyists more powerful. Second, they want to convert its single director to a 5-member commission. That’s a debatable policy question, but it has already been asked and answered. Finally, they want to strengthen the existing one-of-a-kind authority of the other regulators to veto CFPB’s decisions. Again, we’ve been there and done that.

Holding Director Cordray’s nomination hostage to unreasonable policy demands can have only result: greater uncertainty that harms consumers, banks, the economy and the democratic process. In 2010, all these demands were considered and defeated. Yet, the minority of Senators persist in their unreasonable demands to tie the confirmation to policy changes, despite growing evidence that their views are those of an ever-diminishing minority.

It’s worth noting that most of those advocating or “predicting” a deal to weaken the CFPB are not bank employees or even staff of industry trade associations. Instead, they’re self-interested lawyers and lobbyists (who prefer and profit from endless political and legal uncertainty) and their friends on Capitol Hill. This situation arises for only one reason – because a minority of Senators, nearly all of whom who voted against financial reform and against the CFPB’s creation, are now trying to hold the President’s well-qualified nominee hostage to their efforts to nullify the law and eviscerate a duly created, badly needed, effective consumer protection agency.

Any Senators who oppose a simple up-or-down vote on this nomination – or who try to bargain for weakening changes in the CFPB – are playing politics with the pocketbooks of the American people and the safety of our economy. There should not be any negotiating with those who hold that dangerous and untenable position.

By the way, several Senators who signed the letter linking Cordray’s confirmation to their unreasonable political demands, including John McCain (AZ), Roy Blunt (MS), Susan Collins (ME) and Richard Burr (NC), have argued that they will oppose a filibuster on Chuck Hagel, the nominee for Secretary of Defense.  Blunt, who opposes Hagel, went so far as to say, according to the New York Times:

“For a cabinet office, I think 51 votes is generally considered the right standard for the Senate to set, and at that level, I think he makes it,” Senator Roy Blunt of Missouri, a member of the Republican leadership, said Friday on Fox News, even as he announced his opposition to Mr. Hagel.”

Why propose to use the 60-yeas-required filibuster rule to fight one nomination and not the other? Why Cordray but not Hagel? Their inconsistency has no justification except to continue the reign of uncertainty they have placed over the CFPB’s efforts to protect consumers and markets.

Kudos to President Obama and Senate Banking Chairman Tim Johnson, who’ve both pledged to fight for Cordray’s confirmation without accepting the demands in the opponents’ letter. The opponent-senators face a simple choice: they can change their views and allow an up/down vote on Richard Cordray’s nomination -– or they can continue to demand the unreasonable policy changes that were defeated in 2010. Their insistence on weakening the CFPB serves Wall Street, but not consumers who want protection no matter where they purchase their financial products. Their insistence on weakening the CFPB serves payday lenders, but not the banks that will be regulated no matter what.

Take a look at the CFPB’s website and at what it has done for consumers and markets in the year-and-a-half since it started work in July 2011 and the year since it has had a director. It is taking complaints from financial customers, fining banks that break the law and returning ill-gotten gains to their customers, cleaning up the mortgage marketplace, providing mortgage and student loan customers with “know before you owe” tips, protecting servicemembers and their families from rip-offs and even regulating the previously-mysterious credit scoring marketplace. It’s doing all this with a refreshing candor and transparency and outreach to the public and financial firms, while submitting to innumerable oversight hearings on Capitol Hill. The CFPB should be allowed to go forward, under current law and under the direction of Richard Cordray, who deserves immediate Senate approval for a full term.

Cross-posted from US PIRG