The Consumer Financial Protection Bureau, created in the wake of the 2008 financial crisis, has been remarkably effective at reining in lawless banks. How effective? So much so, that Republicans now target the agency for destruction. And some Democrats may be willing to help them.
Wells Fargo, Repeat Offender
The CFPB was created as part of the Dodd-Frank financial reform to defend ordinary citizens from bad actors in the financial sector. For instance, the agency imposed a $100 million fine on Wells Fargo Bank last year after it came to light the bank pressured its employees to open at least two million false accounts in the names of current customers. The bank was also forced to settle a customer lawsuit for $110 million and was downgraded by the Office of the Comptroller of the Currency, a key regulator, for these predatory practices.
As law and economics professor William K. Black, Jr. told us last year, those actions amount to “two million felonies.”
According to reports, the practices that led to these offenses were deeply embedded in the bank’s organizational culture. $110 million may sound like a lot of money. But it’s “small change,” in the words of Bloomberg columnist Gillian Tan, compared to the enormity of its offenses. So are its settlements for past frauds – and there have been many.
Last August it was fined $3.6 million for misleading student loan borrowers and fraudulently dunning them for extra fees.
Wells Fargo paid a $1.2 billion fine for foreclosure fraud in the run-up to the 2008 financial crisis. The charges included “reckless” misconduct in generating loans and concealing information from federal authorities.
There were numerous other fines and charges, too, including:
A $75,000 fine for failing to report some large currency transactions. Banks who do that seem to be trying to curry favor with criminal clients, since the law is designed to spot illegal activity. (Wells Fargo bought Wachovia, which dealt extensively with murderous Mexican drug cartels; Wells Fargo did, too.)
A $43 million settlement for conspiring to fix interest rates on millions of credit card accounts.
A $3 million fine for improper sale of mutual funds.
An agreement, in which Wells Fargo agreed to buy back $1.4 billion worth of securities to settle allegations of investor deception.
$125 million to settle a lawsuit accusing it of deceiving investors,
A civil penalty of $85 million from the Federal Reserve for directing customers into high-cost subprime loans, even though they qualified for standard loans.
An agreement to pay $37 million or more over charges of municipal bond bid rigging.
A $175 million settlement over charges that it systematically discriminated against African-American and Hispanic borrowers.
An agreement to pay $1.2 billion over charges that it falsely claimed homes were qualified for government insurance protection when they were not.
Wells Fargo also joined four other major mortgage services in 2012 in a major settlement over mortgage loan abuses, reported at the time to be worth $25 billion. The following year Wells Fargo joined nine other lenders in an agreement worth $8.5 billion over charges of fraudulent and abusive foreclosure practices.
The Cop on the Beat
Two of the most recent Wells Fargo settlements, over the phony accounts and defrauding student borrowers, were prompted by pressure from the CFPB. Originally the brainchild of Sen. Elizabeth Warren, the CFPB has been extremely effective at reining in lawless financial institutions.
As of its five-year anniversary last July, the CFPB had returned nearly $12 billion to 37 million victims of illegal banking practices, according to a report from the Public Interest Research Group (PIRG). It had also written a number of new banking rules protecting millions of other consumers.
But lawmakers in Washington aren’t trying to tighten enforcement against serial lawbreakers like Wells Fargo. Instead, Sen. Ted Cruz (R-TX) has introduced a measure to shut it down, while other GOP efforts would strip it of funding. Other Republican initiatives would weaken the CFPB by stripping it of political independence and replacing its executive leadership with a commission.
Other proposed legislation would weaken its rule-making and enforcement authority, reduce its ability to track consumer complaints, and strip it of its ability to (in the words of Bloomberg Law’s Chris Bruce) “attack unfair, deceptive or abusive acts or practices.”
The Trump Administration, which has drawn heavily on Goldman Sachs for its senior staffers, has been openly fighting the CFPB. The administration wants to remove agency head Richard Cordray and make other staffing changes, and recently joined a lawsuit challenging the agency’s independence.
That lawsuit was originally filed by the PHH Corporation, a mortgage lender that was fined $100 million by the CFPB for accepting kickbacks from mortgage insurers. In joining with PHH, the trumpet ministration is allying itself with the financial industry and is endorsing a politicized interpretation of law.
Ted Olsen, who represents PHH, was one of four witnesses in an unusual congressional hearing earlier this month on the “constitutionality” of the CFPB. Only one of the four witnesses was arguably independent or friendly to the CFPB. According to one of the few press reports on the hearing, in an industry publication, that witness was barely allowed to present her findings.
Defending the Bureau
Without a strong and independent CFPB, we would probably not know that complaints against student loan services rose by 429 percent last year. Credit agency Experian would not have paid a $3 million dollar fine and been forced to stop lying to people about their credit scores. We would not have learned of abuses by student loan servicer Navient that cost borrowers as much as $4 billion over a five-year period.
And these are just some of the last month’s successes.
Republicans have “tried to destroy [the CFPB] so many times, they’ve lost their credibility, really,” Rep. Stephen Lynch (D-Mass) told TheHill.com. “That’s their end game here.” As Sen. Elizabeth Warren wrote in 2015 when Republicans first moved to undermine the bureau, “The quickest way to undermine an agency's effectiveness is to make it a commission -- which is why I want a single director and the banking industry doesn't.”
Senate Minority Leader Chuck Schumer has said that Democrats will not negotiate to weaken the CFPB. Unfortunately, not all Democrats are as resolute. Congressional Democrats Brad Sherman (CA), Michael Capuano (MA), and John Delaney (MD) all recently indicated that they were open to the commission proposal under certain circumstances.
The CFPB isn’t being targeted because it has failed. It has been targeted because it is succeeding. It must be defended at all costs.