Judging from the political firestorm surrounding the creation of the U.S. Consumer Financial Protection Bureau in 2010 and the appointment of its director last month, you’d have thought it was a government plot to kill our jobs and steal our freedom.
In truth, the work of providing some reasonable federal oversight of everyday consumer financial products and services — bill collecting, personal credit ratings, residential mortgages, telemarketing, payday lending, check cashing, student loans — is remarkably ordinary.
Last week, for example, the CFPB published a 17-page proposal in the Federal Register, describing how it wants to define “larger participants” in the debt-collection and credit-rating markets. It also asked for comments from the public and business. A final rule is expected by mid-July.
This prosaic exercise in governance was required by the Dodd-Frank financial reform law in which Congress authorized the CFPB to regulate, among financial other entities, “larger participants” in the markets for consumer financial products offered by non-banks. The law left defining “larger” to the CFPB.
Once a definition is finalized, CFPB will be able to research, propose, implement and enforce for the first time national standards to ensure fairness and protect consumers from the Wild West, no-rules approach that too often has led to deceptive and abusive practices in these multi-billion-dollar industries.
That’s when the financial industry will really start to fight, of course, and the fight will be about money, no matter how many times you hear the words “freedom” and “job-killing.”
Money surely was the basis for furious industry lobbying against Dodd-Frank and the CFPB, assisted by the congressional Republicans who do industry’s bidding. They lost that battle when the law was enacted in 2010, but they extracted significant concessions, one of which limited CFPB’s reach until it had a director.
Republicans worked to keep that from happening. They opposed President Barack Obama’s first choice, Elizabeth Warren, a Harvard law professor and consumer activist who had pushed for the creation of the CFPB. A Treasury Department advisory appointment, which did not require Senate confirmation, allowed Warren to oversee the agency’s first year of operation, much of which involved building an organizational structure. She has since left Washington to run for a U.S. Senate seat from Massachusetts.
After Republicans vowed to oppose any nominee for CFPB director, no matter how qualified, Mr. Obama used his presidential recess appointment authority in January to elevate Richard Cordray, a former Ohio attorney general heading CFPB’s enforcement department, to the position of director.
Under Cordray, the CFPB has lost no time pursuing initiatives to create reasonable national standards for financial product markets that have had none for too long. On Wednesday, for example, it announced an investigation into bank overdraft fees.
The CFPB approach to regulation was evident in remarks delivered by Cordray at a recent hearing on payday loans in Birmingham, Ala. He acknowledged that 19 million American households are using the services — and paying $7.4 billion in fees each year for the privilege.
“We recognize the need for emergency credit,” Cordray said. “At the same time, it is important that these products actually help consumers, rather than harm them.” Seems pretty basic.
Properly crafted rules covering financial products will protect consumers and the honest, responsible businesses that sell them. Only the scammers — in industry and government — need to worry.
St. Louis Post-Dispatch (Feb. 24)