The Consumer Financial Protection Bureau, a brainchild of Elizabeth Warren, celebrates its fifth birthday as it faces a Republican threat
Almost, but not quite, lost in all of the noise surrounding the back-to-back presidential nominating conventions in Cleveland and Philadelphia in July was the fact that the Consumer Financial Protection Bureau (CFPB) celebrated its fifth birthday.
What does this have to do with election day? Well, depending on who wins, it might not get a sixth.
The CFPB, the watchdog agency charged with ensuring that the financial markets work for ordinary consumers and to police financial institutions, was the brainchild of Elizabeth Warren, then a law professor at Harvard.
Her advocacy of the financial interests of ordinary, middle-class Americans, and her understanding of the situation in which they found themselves even before the financial crisis wreaked further havoc on their personal balance sheets, catapulted her to political stardom, even as it won her a host of enemies among bankers.
Today, a sizable group of Democrats still quietly mourn the fact that Warren, now a Massachusetts senator, wont be their standard bearer in Novembers election, and wasnt chosen as Clintons vice-presidential candidate. Regardless of her official status, she may wield as much influence as the Vermont senator Bernie Sanders.
But while most Democrats celebrate Warren and her accomplishments, the Republicans deplore both the senator and the CFPB. Warren seems to have gotten under the skin of the Republican presidential nominee, Donald Trump. The two have traded barbs on Twitter.
And as for the CFPB, well, Republican language turns downright Trumpian. Ted Cruz dubbed it a runaway agency that doesnt do much to protect consumers; the Republican partys platform described it as a rogue agency that should be abolished or overhauled if those consumers are really going to be protected.
I interviewed Warren in July 2009, when the CFPB was still merely a proposal, and I doubt that any of these reactions or overreactions would come as much of a surprise to her today.
The big banks want things to go back to the way they were, she said then, in the immediate aftermath of the financial crisis, and only a few months after the stock market had begun to struggle back to life. They made billions of dollars from consumers who didnt fully understand the products these banks were selling. That whole process brought this economy to the brink of collapse and must be changed. We all have an interest in a safer consumer credit market.
And while hardball Washington politics meant that when it came time for Barack Obama to nominate the first head of the CFPB, he tapped Richard Cordray, the former attorney general of Ohio, rather than Warren, who stood beside the president and Cordray at the Rose Garden ceremony. It had been made very clear that, if Obama had nominated her, the Senate would never have confirmed her in the role.
That didnt stop the CFPB from becoming what Jennifer Lee, a partner in the banking and financial services practice of Dorsey and Whitney (and herself a former CFPB enforcement attorney) describes as one of the most powerful and aggressive agencies in the country. Its accomplishments, she argues, are voluminous for a baby agency.
Lee says one of the reasons the CFPB has been successful is the way it has responded to its track record. With each successive new development, the agency gets emboldened to do more, she explains. The current appetite for increased enforcement is not going to change.
Thats clearly true. Even as the Republicans were rattling their freshly sharpened sabers, the agency announced a new line of attack. This time, it plans to crack down on abusive debt collection practices, tightening the rules that govern the industry. The goal is to ensure that debt collectors are pursuing those who actually owe the debt, that they arent harassing debtors, and that they abide by statutes of limitations barring them from trying to collect on older debt. That would make a significant difference to the estimated one in three Americans who have an a debt that has reached the stage where its in the hands of a collection agency.
So far, the CFPBs pursuit of financial institutions, from banks to payday lenders, that have relied on a lack of financial sophistication or understanding on the part of consumers to take advantage of them has resulted in the payment of about $11.7bn to more than 27 million of those consumers directly. Another $500m or so has been generated in penalties. The largest of those settlements was with Ocwen, the countrys biggest nonbank mortgage loan servicer, under the terms of which the company refunded $2bn to 185,000 borrowers whose mortgages were underwater. Ocwen took advantage of borrowers at every stage of the (mortgage) process, Cordray said at the time.
This is pretty much what Warren hoped the agency would accomplish when she drew up the blueprint for it following the financial crisis.
Any market in which a credit card agreement is more than 30 pages long and mortgage documentation runs into the hundreds of pages none of which is designed to be easily read and understood by the consumer is a broken market, she said. Not all banks suffer from this: smaller banks, for instance, that offer more straightforward products get drowned out by multimillion dollar advertising campaigns for credit cards and mortgages by bigger institutions that may not offer consumers such favorable terms. She saw part of her mission as levelling the playing field. Its not a surprise that the biggest banks with the most powerful lobbyists seem ready to declare all-out war on a readable contract and other minimal consumer protections.
Unsurprisingly, the same groups are still at war today with the CFPB, which carries on Warrens mission.
Even before the November election, warning lights were flashing. Jeb Hensarling, the Republican member of Congress who chairs the House financial services committee, has declared he wont rest until he tosses post-financial crisis reforms like the Dodd-Frank Act on to the trash heap of history. Hensarling is also a fierce opponent of the CFPB, which has calls a dangerously out-of-control agency.
Hensarlings plan to repeal Dodd-Frank and replace it with a patchwork quilt of lightweight, bank-friendly rules, unveiled in June, would gut the CFPB. It would deprive the agency of the right to scrutinize some kinds of lending altogether (such as auto loans), and it would politicize the entire process. Right now, the CFPB is about as independent as any Wall Street agency can be: its head is appointed by the president and left to get on with his job, with independent funding received from the Federal Reserve.
If Hensarling gets his way, the CFPB would become completely accountable to Congress, having five commissioners appointed by party leaders, and having to fight for an annual budget. In other words, the same politicians who receive lobbying funds from Wall Street would be deciding who runs the agency that protects consumers from Wall Street and how much money that agency should get. That hasnt always worked out terribly well for the SEC, which has battled for its budget, and which is still waiting for the Senate to confirm two nominees to its five-member commission.
So lets celebrate the CFPBs fifth birthday, and its success in fighting for the interests of the ordinary borrowers and debtors against the big financial institutions that seem to have the decks stacked in their favor.
Lets also hope that the Republicans remember that there is tremendous bipartisan support for financial regulation, and for the agency in particular. Turning it into a scapegoat to make the banks happy could prove to be a very costly error for all concerned.