Consumers would probably miss the federal watchdog agency if Republicans close or disarm it, but only 17 percent are aware of it
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The Consumer Financial Protection bureau, the beat cop patrolling the financial industry, is fighting for its life amid an anti-regulation push in Washington.
Consumers would probably miss the watchdog agency, which has collected refunds for 27 million of them in the five years since it opened.
But few of them know it exists.
Comedian Jon Stewart joked about the bureau’s low profile when he interviewed director Richard Cordray in 2014. “You are in the consumer bureau of \u2026 commerce \u2026 and alcohol, tobacco and firearms,” the host of “The Daily Show” said, deliberately mangling the agency’s name.
The consumer bureau’s profile is rising now, as the political battle over its future heats up. Since the election, Republicans have stepped up efforts to replace its Obama-appointed director or put its budget – currently funded by the Federal Reserve – under congressional control. In February the fight escalated, as twin measures were introduced to close the consumer protection bureau entirely.
“The CFPB is arguably the most powerful, least accountable agency in U.S. history,” arch-foe Rep. Jeb Hensarling, chairman of the House Financial Services Committee, wrote in The Wall Street Journal Feb. 8. President Donald Trump’s administration has signaled support for restructuring the agency and its funding.
Putting money in consumers’ pockets
Consumer advocates say Republicans are mad because the agency is putting a leash on banks and other financial companies. Exhibit A: CFPB crackdowns have forced companies to refund $11.7 billion to consumers since 2011. Most of that was in the form of canceled debts and reductions in principal.
“The agency has consistently delivered for working families across this country,” Sen. Elizabeth Warren, the founder of the agency, said during a call with supporters in January. Republicans “better think twice about undermining financial reform, because the American people are watching.”
Another question in the CreditCards.com poll asked if respondents would support an unnamed federal agency that protects consumers from unfair, deceptive or abusive conduct – the CFPB’s mission. Eighty percent said yes, with about as many Republicans in favor as Democrats.
“There’s no question consumers want more oversight of Wall Street and predatory lenders rather than less,” said Rohit Chopra, a former CFPB assistant director who now is a senior fellow at the Consumer Federation of America. “So many consumers have had an experience where they feel cheated or ripped off.”
Cop on the beat
Congress created the bureau in the wake of slipshod mortgage practices that fueled the foreclosure crisis. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 formed the agency, based on ideas from Warren, who was then a Harvard Law School professor. It was charged with policing mortgage lending and other financial services.
The consumer protection bureau can issue rules that govern financial companies’ conduct, such as “know before you owe” rules against deceptive mortgage lending and the “ability to pay” rules designed to prevent home foreclosure.
Then there’s enforcement. Since opening in 2011 the CFPB has brought 179 crackdowns against companies including credit card issuers, mortgage brokers, student loan servicers and others. The Dodd-Frank act gives it broad power to prosecute conduct it sees as “unfair, deceptive or abusive.”
The CFPB also takes individual complaints about financial companies – handling more than 700,000 so far – and follows through to see how the beefs are resolved. The results, minus consumers’ names, are published on the agency’s website – to the ire of banks and other companies who say they’re being smeared.
|INTRODUCING THE CONSUMER FINANCIAL PROTECTION BUREAU|
|The federal agency, authorized by the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, opened its doors July 11, 2011. It is the only federal agency with a mission of protecting consumers in the financial sector.|
|Director:||Richard Cordray, former attorney general of Ohio|
|Total annual spending:||$575.6 million (Pay and benefits: $290.3 million)|
|Complaints acted on:||720,813*|
|Law enforcement actions filed:||179|
|Refunds obtained for consumers:||$11.7 billion|
|Number of consumers receiving refunds:||27 million|
|Sources: CFPB Semiannual report to Congress and the president, Sept. 30, 2016; agency publications and CFPB website|
*Excludes complaints referred to other agencies
Newcomer in Washington
Not yet 6 years old, the consumer protection bureau is still a green newcomer in Washington. The Federal Trade Commission, by comparison, which also has a consumer protection role, opened its doors in 1914. The Food and Drug Administration had its 110th birthday in 2016.
But after securing billions of dollars in refunds through crackdowns against high-profile companies – including such heavyweights as Wells Fargo and Citibank – why isn’t it better known?
“When regulatory agencies are working well, the public may not even know it,” said Chopra, a Warren protege who was among the bureau’s first employees. “When you take a pill and don’t get poisoned, you may not know the FDA was overseeing clinical trials for that class of drug.”
One key factor: Most of the refunds ordered by the agency are paid by the companies directly to their customers, leaving the agency in the background. For example, Capital One, Citi and 10 other credit card issuers agreed to refund $2.8 billion to customers for shoddy marketing of “debt protection” insurance and other add-on products. The refunds came in the form of credits to customers’ accounts, or checks mailed by the banks.
Chopra said the consumer bureau avoids “political gimmicks” like sending checks out in its own name. Credits on customers’ bills are the fastest way to reimburse them. However, “It’s not the most effective PR strategy,” he added.
Agency’s power draws enemies
The consumer bureau may be getting more PR conscious now. Cordray appeared Feb. 8 on MSNBC’s “Morning Joe” after calls for his removal. He emphasized the agency’s law enforcement role, including its record $100 million fine against Wells Fargo for opening sham accounts.
If the agency is doing a good job for consumers, why are so many in Congress dead set against it?
Opponents view it as overly powerful and arrogant. When New Jersey mortgage company PHH Corp. appealed a $6.4 million CFPB fine, Cordray upped the penalty to $109 million.
A federal appeals court sided with PHH, saying the bureau’s structure gave it an unconstitutional amount of power. The ruling – now under appeal – said that the president should be able to remove the director, as a way of restoring oversight. Currently, Cordray can only be removed for cause before his term expires in mid-2018.
Supporters argue that the agency’s insulation from politics is vital so it can stick up for consumers in the face of powerful business interests. The fine against PHH, one of the nation’s largest home lending companies, was for taking kickbacks from mortgage insurance companies after it steered borrowers to them. Cordray raised the fine based on PHH’s total income from the kickback scheme, instead of a portion.
The enforcement power “is something that has to be kept separate from partisan politics, or big-money special interests who would try to squash it as much as they can,” Cordray said during a January news conference.
When regulatory agencies are working well, the public may not even know it.
|\u2014 Rohit Chopra|
Consumer Federation of America
Policy analysts expect the fight will end with a compromise that takes some of the bureau’s power and perhaps shifts control of its funding to Congress. President Trump will pick its next director in mid-2018, if not sooner, giving consumer advocates a reason to accept limits on the director’s power. Hensarling has a bill in the works to broadly reshape the agency. He has not introduced it yet, however, making policy analysts wonder if the details are subject to negotiation.
Republicans in Congress already have the ability to block new regulations the agency might try to issue, using the Congressional Review Act. Closing the CFPB’s doors, however, would be a bigger deal.
“They need 60 votes in the Senate to close it,” said Robert Pozen, senior fellow at the Brookings Institution and senior lecturer at the Massachusetts Institute of Technology management school. “I don’t think they have that.” Moreover, existing banking agencies are not equipped to take on the consumer watchdog role.
Replacing the single director with a bipartisan board – one Republican reform idea – would give it a broader base of support, said Pozen, a former Fidelity Investments vice chairman who served on President Bush’s commission to strengthen Social Security. The leadership structure would follow the tradition of other independent agencies such as the Federal Trade Commission, lending the new agency greater legitimacy.
“Both sides will bark very hard,” he said, “but there are obvious compromises.”
CreditCards.com commissioned Princeton Survey Research Associates International to obtain telephone interviews with a nationally representative sample of 507 adults living in the continental U.S. Interviews were conducted in English and Spanish from Feb. 16-19. Statistical results are weighted to correct known demographic discrepancies. The margin of sampling error is plus or minus 3.8 percentage points.