Leaving consumers high and dry

The Consumer Financial Protection Bureau, conceived of as an agency to protect consumers, as its name implies, now seems to have a different mission. In January, the bureau dismissed a case it had brought against payday lenders accused of charging borrowers 950% interest — or more than four times the 200% interest rate New York recently indicted loansharking members of the Luchese organized crime family for charging. Similarly, the bureau, which brought 42 enforcement actions, or nearly four a month, during 2016, has announced exactly one in the nearly six months since President Trump appointed his budget director, Mick Mulvaney, to run the agency.

And that one was against Wells Fargo, which had already been punished by multiple regulators and drawn a Trump tweet saying it would pay severe penalties.

Mulvaney once called the bureau a “sad, sick joke” and co-sponsored a bill to eliminate it. The solution he has adopted to run an agency he thinks should not exist is to “be a good bureaucrat,” and do what the law requires — but no more. Mulvaney even extends this strict-construction approach to congressional testimony: He explained that he did not have to answer questions from the members of Congress because the statute said he had to “appear” before them but said nothing about responding to their queries — though he did so.

A problem with this grudging approach is that no legislature can write statutes to prohibit all the ways businesses devise to take advantage of consumers. When the bureau, then led by Obama appointee Richard Cordray, fined Wells Fargo $100 million for opening millions of unauthorized accounts, it did not rely on a statute that said banks cannot open sham accounts, because there is no such statute. Instead, the bureau used the more general authority Congress had given it to punish banks for unfair and abusive practices.

But a Consumer Financial Protection Bureau that interprets those powers as applying only to Wells Fargo will not provide consumers needed protection against other financial institutions. And not even Wells Fargo would have to worry if the Republican-controlled House of Representatives gets its way on a bill it passed to do away with the bureau’s power to sue financial institutions for unfair and abusive practices.

You might think that consumers could still sue on their own behalf. But Congress and the Trump administration blocked a rule from going into effect that would have given more consumers access to court. The result is that arguably the two most important restraints on much financial institution misconduct — the federal government and consumer lawsuits — have largely disappeared.

Because the Consumer Financial Protection Bureau maintains a public database of complaints, injured consumers can still complain to the bureau. For example, when Gene DeSantis, who wrote some of New York’s consumer laws while serving as counsel to the Assembly consumer protection committee, had a problem with a bank charging him late fees for not paying bills he had never received, his repeated complaints to the bank hit a brick wall. The bank’s arbitration clause prevented him from suing, and the amount at issue was too small to bother going to arbitration over.

But when DeSantis complained to the Consumer Financial Protection Bureau, the bank gave him the relief he sought. If an expert like DeSantis needed the bureau, we all do. But now Mulvaney reportedly plans to keep complaints to the bureau private, saying the statute requires him to receive complaints but not to make them public. Without that public disclosure, and the consequent damage to their reputations, financial institutions have nothing to fear from the complaint database, especially as the bureau seems not to be bringing enforcement actions based on the complaints — or much else.

Elections famously have consequences. One consequence of the 2016 elections is that a golden age of consumer protection has come to an end. Consumers now have a watchdog that nitpicks a statute to do as little as possible to protect them — and interprets the law to protect banks rather than consumers. Consumer protection will be on the ballot again this year. Perhaps this time, voters will pay attention.