Richard Cordray

Americans fork over billions to financial firms for nothing. Incredibly perhaps, there is one government agency that actively seeks out their scams and returns truckloads of dollars to customers: the Consumer Financial Protection Bureau (CFPB). Richard Cordray, its founding Executive Director, has written its (young) biography, Watchdog, an unexpectedly rewarding telling of its adventures in slaying corporate dragons.

Americans don’t look at financial products like they do consumer products. For consumer products there are reviews and forums, advice and manuals, both print and video. For financial products, purchasers are on their own to navigate the legalese, try to read the fine print and be ignored by customer support. In Richard Cordray’s words, “financial products have expanded far faster than their explanations.” In Watchdog, he uses numerous sad examples of individual cases to show the need for a consumer financial watchdog with teeth. Far too many readers will be able to relate.

Worse than the financial thicket is the fact there is no education for financial well-being. Schools teach numeracy, but not financial literacy. No one is prepared for their first student loan, their first car loan or their first mortgage. Everyone makes the same mistakes, learning the hard way, and costing themselves insane money as punishment. Things like payday loans, with their interest rates of over a thousand percent, plus hidden fees for hidden conditions, and of course, no recourse through the courts, put tens of millions of Americans in jeopardy every year. The finance companies do their shareholders proud, milking this ignorance for all it’s worth. As an example, Cordray cites a payday loan firm manual that instructs agents to NEVER tell the customer about the fees. They expect the consumer to have to roll the loan at least ten times, putting them in debt for life.

It is so bad that employers have a word for it: presenteeism. Presenteeism is a condition where people are on the job physically, but mentally elsewhere over financial worries that critically need to be dealt with. The company gets low productivity while the employee faces bankruptcy.

These are the issues the CFPB tackles.

Consumer debt has grown from $300 billion in the early 60s (as credit cards were coming into vogue) to $13.8 trillion today. The whole country has become finance-based, as American incomes have not kept pace with expenses and material desires. There is a neverending stream of new ways to borrow, one more expensive than the next. The CFPB team, anchored by (pre-Senate) Elizabeth Warren and Richard Cordray, hired the best and the brightest – including a Nobel Prize winner – to determine the causes, the effects, regulations and resolutions. Their accomplishments are household talk, even if the CFPB doesn’t enter the conversation. It should.

It was the CFPB that got finance companies to offer free credit scores on statements. It went after mobile phone operators for billing for free services and other bogus charges. The Wells Fargo disasters, in which the company signed up customers for additional plans without their knowledge, or charged them fees they did not deserve, raised a very public ruckus that even Congress noticed. The CFPB exposed it, fined the bank, got some restitution for customers and forced it to restructure its marketing. The bureau also put together a truly comprehensive packet of regulations for payday loans, but Congress turned it away.

Fortunately by that time, CFPB had earned the trust and co-operation of states attorneys-general. With federal friends in place, the states have regulated where the federal agency has faltered. In numerous adventures, the states have joined the bureau in battles, taking action on consumers’ behalf while the courts ruled against them. For example, the Supreme Court ruled against class actions where companies have forced customers to accept private arbitration. As Cordray points out, this prevents daily crime from being stopped by group efforts, costing the unwary billions every year. These problems never even surface in the media because companies keep damaged customers apart and the problems secret. Now that there is a CFPB, those complaints at least have a shot at the light of day.

The main takeaway here that the CFPB has so energized the whole sector that states are feeling much stronger about attacking abusive practices. Together, they have and continue to resolve issues on for-profit colleges, student loan servicers, banks, debt collectors, credit reporting companies, mortgage lenders, and mortgage servicers, securing far-reaching changes in industry behavior and considerable money back for consumers. The bureau and the states leverage each other, to the benefit of consumers.

The bureau is one of very few that deal with individuals. In 2018, it took on and resolved individual complaints from 330,000 victims, and saved millions more billions of dollars, in both new regulations and restitution as part of fines and settlements with finance companies.

The bureau’s processes are incredibly laborious and detailed, looking for every possible scenario and dealing with it. The object is to make new regulations bulletproof from a usually hostile Congress, as well as from companies ready to sue at the mere whiff of restriction on their money machines. The bureau has been so effective that other government agencies send it their cases, because their own agency could not be effective. Cordray says his bureau has taken complaints that have festered for months and solved them in a week. Such is the bureau’s clout in the financial sector.

Here is sampling of what the CFPB faces daily: “Debt collectors illegally tacking on $200 to every account they acquired, quoting balances that exceeded 600% of the amount owed, and faking calls and emails to make it appear that the communications were coming from law-enforcement officials, court officers, and government agencies. We resolved an enforcement action against another company for illegal practices such as altering caller ID information to pretend that debt collection calls were coming from pizza deliverers, flower shops, or even family and friends. We also sued bad actors who harassed and deceived consumers in a scheme to collect phantom debts. After buying personal information from debt brokers and lead generators, they used it to falsify debts and threaten people with arrest, wage garnishment, and fictitious “financial restraining orders.” Other companies claimed to provide debt- relief services that helped consumers consolidate, reduce, and pay off their debts, but some took millions of dollars in unlawful up-front fees and never delivered on their promises. We brought several cases against debt-relief firms that preyed on desperate student loan borrowers in this manner.” The book is a heartening collection of these accomplishments, sadly necessary in a wild west marketplace.

The bureau’s online presence not only takes detailed complaints from millions of consumers, but is a library of what to look out for in finance. The principal driver is “Know before you owe” which unifies everything the bureau is about. Between educating the public and forcing divulgence of fees, it could be a financially and mentally healthier country for millions.

It has not been smooth sailing. For one thing, the Trump administration has tried its best to destroy the bureau, putting Mick Mulvaney in as head (when one was already there) to embarrass and dismantle it. He actively tried to mess up its processes and portfolios, but ultimately had to admit it is not going away. Congress, through the Dodd-Frank Act, created the bureau under the Federal Reserve, where the president cannot meddle, by say, slashing its budget or filling its management ranks with ideological appointees.

Nor was it any picnic getting Cordray to his post. The mere presence of Elizabeth Warren as the bureau’s guiding light caused Republicans to freeze everything about it. It took a recess appointment and then a congressional battle when that term ended to get and keep Cordray at work. Lobbyists, of course, work the electeds to prevent any restrictions at all on their client firms, so just performing its mandate is a constant struggle.

The unfortunate fact is the country desperately needs a CFPB in this era of unlimited financial products – and abuse. It would be wonderful if it could do its job well enough to put itself out of business. In the mean time, Watchdog serves an important, impressive purpose in demonstrating how effective government agencies can be, with concrete resolutions and real dollars kept in the hands that earned them. At very least, readers will learn what they’re up against.

David Wineberg… (more)