Yes: It defends consumers against corporate wrongdoing
Some conservatives sure don’t like the Consumer Financial Protection Bureau. President Donald Trump called it “a total disaster.” Office of Management and Budget Director Mick Mulvaney, who just succeeded Richard Cordray as the CFPB director, referred to it as “a joke.” Columnist Jay Ambrose said the CFPB operates without oversight.
Why are these men upset? Because the CFPB has had the temerity to hold financial institutions accountable.
Before explaining what I mean, let’s look at Ambrose’s criticism. The CFPB has not been running loose. Twice annually, its director must appear before three congressional committees, and the CFPB must issue reports.
The U.S. comptroller general is required annually to audit the agency’s financial statements and conduct a study of several subjects, such as the impact of regulation “on the safety and soundness” of regulated businesses, and the cost of compliance.
To understand why Trump, Mulvaney and Ambrose don’t like the CFPB, pay attention to the two words they didn’t say: consumer protection. The bureau exists to protect consumers, and that necessarily means challenging financial institutions. In the world of the political right, financial institutions are good, and anything that lowers their bottom line — such as lawsuits over unfair business practices — is bad.
What has the bureau been doing that is so terrible? Last October, it sued two companies operating under the name “FDAA” for falsely presenting themselves as affiliates of the federal government. These companies used direct mailers that looked official and deceived consumers into believing that, in exchange for a fee, their debts could be eliminated.
The agency fined Wells Fargo Bank $ 100 million in 2016 for secretly opening more than 2 million deposit and credit-card accounts without authorization. Employees would transfer funds from authorized accounts to temporarily fund the new, unauthorized accounts. This allowed employees to earn additional compensation, while customers were sometimes charged overdraft fees because their original accounts suddenly had insufficient funds.
The tipping point was the CFPB’s decision last summer to invalidate arbitration provisions — which generally are forced on consumers — that also preclude consumers from participating in class-action suits. Take a look at your own credit-card agreements — you’re probably obligated to arbitrate disputes and barred from joining in classaction lawsuits. You didn’t know? Too bad.
The U.S. Chamber of Commerce and several financial associations filed suit in federal court late September, asserting that, because the CFPB is “unconstitutionally structured,” the rule had to be vacated. In other words, they filed suit to prevent consumers from filing suit. How’s that for irony?
Just over a month later, Trump signed a bill that repealed the rule. Executives from financial institutions breathed a sigh of relief and talked about how arbitration is a good thing for consumers — it’s usually not — and then did what business executives generally do: They criticized trial lawyers.
“Arbitration is a well- established and tested process that offers better results for consumers and helps avoid frivolous class- action suits,” said Independent Community Bankers of America President Camden Fine. According to Richard Hunt, Consumer Bankers Association president and CEO, the real beneficiary of the rule were “trial lawyers and their wallets.”
Maybe there were problems with how the CFPB was structured and perhaps there were other problems as well, but who else was looking out for how consumers were treated? No one.
Ours is a paternalistic system. Those at the top are deemed to know what’s best for the country and anything that challenges their position is bad. With Mulvaney now running the CFPB, order has been restored in favor of financial institutions. So sad.