The Watchdog Protecting Consumers May Be Too Effective
The last thing on earth that corporations (and thus the GOP) wants is for consumers to be protected. Consumers are their prey, and if consumers are protected profits may fall. Gretchen Morgenson reports in the in the NY Times:
In its promise to roll back the Dodd-Frank financial reform act of 2010, the Trump administration hasn’t provided many details. It’s a safe bet, however, that the Consumer Financial Protection Bureau, the federal agency charged with protecting consumers from financial miscreants, will be a target.
Why would the president want to rein in the only federal agency dedicated to the consumer finance beat? Perhaps it has been a little too effective in pursuing wrongdoing by banks, consumer credit reporting companies, credit card issuers and student loan collectors.
While these activities have earned kudos from Main Street, the bureau has also made powerful enemies among financial institutions whose executives have the ear of Mr. Trump and other Republicans. According to a leaked memo that emerged late this week, Jeb Hensarling, the Texas Republican who heads the House Financial Services Committee, will move forward with legislation to weaken the bureau and its enforcement powers.
Republican lawmakers like Mr. Hensarling have been trying to hobble the bureau ever since its creation in 2012 under Dodd-Frank. But none of these efforts have gotten far.
With a new administration in town, the momentum against the bureau is building, said Quyen Truong, a partner at Stroock & Stroock & Lavan and a former assistant director and deputy general counsel at the C.F.P.B. Although she said that it’s unlikely the bureau will be eliminated, its structure as an independent agency whose budget does not have to be approved by Congress may be threatened.
Future rule-making could also come under fire, Ms. Truong said. “If the C.F.P.B. was to adopt new regulations,” she said, “there would be greater potential for Congress to put a stop to it by removing C.F.P.B.’s authority to adopt those rules or taking action after the fact to undo the regulations.”
Reducing the bureau’s power would deal a blow to consumers, because other federal finance regulators just don’t have their interests at heart. Entities such as the Federal Reserve Board and the Office of the Comptroller of the Currency are charged with monitoring banks for safety and soundness. Historically, this has translated to a regulatory focus on profitability at these institutions. And if those profits come at the expense of consumers, well, c’est la vie.
A 2009 research report from the Center for Responsible Lending, a nonprofit consumer organization, spoke to this issue. It said that the O.C.C. and the defunct Office of Thrift Supervision took the view that banks were “customers rather than entities to be regulated.”
Recall that in the Wild West run-up to the 2008 financial crisis, the Fed and O.C.C. were glacial about curbing reckless mortgage lending. It wasn’t until March 2007, just as the tsunami of subprime losses was cresting, that the Fed and other regulators published guidance urging lenders to consider a borrower’s ability to repay a loan.
And in a blinding glimpse of the obvious, the Fed also urged banks that “communications with consumers should provide clear and balanced information about the relative benefits and risks of the products.”
Even these tepid suggestions raised the banks’ ire: Their representatives called the guidance an example of regulatory overreach.
So it’s not surprising that the more aggressive stance taken by the C.F.P.B. has enraged big financial institutions and their supporters in Washington. Just last month, for example, it sued Navient, the giant student loan servicer, charging it with cheating borrowers, allegations the company denied. And in early February, the bureau sued a New Jersey-based legal funding company, alleging that it swindled first responders to the World Trade Center attack out of money they were owed from victim compensation funds.
One of the C.F.P.B.’s best features is . . .