You might have guessed that I don’t have a ton of respect for our nation’s regulatory apparatus, particularly in the finance space. Too often, regulators listen to their Wall Street friends over the nuances of the law, are slow to identify abuses and slower still to crack down on them, and when they finally get around to accountability measures, give the lightest slaps on the wrist possible. This makes sense for them, as they wouldn’t want to upset their future employers with rules and regulations and enforcement actions that cut into their profits. The common phrase used is “regulatory capture” – at this point, I’m not sure they have to be captured. Everybody knows the deal.
Which is why the activity of the Consumer Financial Protection Bureau in its initial stages is such a revelation. Anything from the federal government which actually succeeds in changing bank behavior is rare indeed.
The new federal agency charged with enforcing consumer finance laws is emerging as an ambitious sheriff, taking on companies for deceptive fees and marketing and unmoved by protests that its tactics go too far.
In the 14 months it has existed, the Consumer Financial Protection Bureau has launched dozens of enforcement probes and issued more than 100 subpoenas demanding data, testimony and marketing materials – sometimes amounting to millions of pages – from companies that include credit card lenders, for-profit colleges and mortgage servicers.
The bureau’s actions have many banks, payday lenders and credit card companies racing to adjust. They’re tightening their record-keeping and budgeting for defense lawyers, according to attorneys and trade group executives who work with them. The companies themselves are reluctant to discuss the bureau because they don’t want to be seen as criticizing a regulator that is still choosing its battles.
That last sentence may be the most unheard-of out of them all. Who ever heard of a bank reluctant to criticize a regulator for fear that they may target them? This just doesn’t happen in Washington.
Other financial institutions are unhappy because the CFPB has decided to define as illegal practices that other regulators never had a problem with. I cannot think of a more welcome criticism for a federal agency.
Richard Cordray, the head of the agency, spoke before the Senate Banking Committee today, and he said that his enforcement action in the Capital One case, where he was able to get a full refund to consumers for the credit card issuer’s abusive practices with add-on services, should serve as a warning to other companies that CFPB stands ready to take action. Indeed, issuers like American Express and Discover have stated in public filings that they set aside money for enforcement actions of their own on these kinds of issues.
Cordray also promised a regulation on prepaid debit cards, which have become popular, and he said that they would continue to write a rule on qualified residential mortgages (QRMs), though they would slow down the work between now and the end of the year. The agency is also investigating mortgage insurance kickbacks, high-cost auto loans, loan modification and foreclosure rescue scams, and for-profit colleges.
CFPB doesn’t have the authority to bring criminal charges; those get routed through the Justice Department, which is presumably where they would go to die. However, through civil enforcement and diligent casework, CFPB has become a feared regulator in just over a year. “We want to make it more expensive to break the law than to abide by it,” said Kent Markus, the head of CFPB’s enforcement office, to the AP.
If you want a good reason to support Elizabeth Warren, incidentally, keep in mind that she not only invented, but stood up and staffed this agency, which is so far performing extremely well.