Does consumer protection have a future?

Does consumer protection have a future?
© Greg Nash

Recent attacks on financial regulation reveal a collective amnesia about the 2008 financial crisis and, more importantly, ignorance of its continuing costs. Particularly with the election of Donald Trump, this is contested terrain, and no outcome is certain.

The economic costs of the financial crisis included more than five million homes lost to foreclosure, $20 trillion lost in household wealth and nine million lost jobs.

Those impacts continue today. Take, for example, the homeownership rate. It stood at 62.9 percent in the second quarter of 2016, the lowest it had been since 1965.

Fraudulent, unfair and deceptive practices by financial service providers created the crisis. The Obama Administration enacted significant policies to eliminate those practices, but the incoming Trump Administration can repeal many of those important policies.

The primary policy response to the crisis was the Dodd-Frank Wall Street Reform and Consumer Protection Act. The law created the Consumer Financial Protection Bureau (CFPB) and gave this agency several responsibilities, including enforcing consumer protection laws, writing new consumer protection regulations, educating consumers, processing complaints and more.

The Bureau is supposed to create free and fair markets and provide protection to everyday people against fraudulent, discriminatory and predatory practices. In its first five years of operation, the CFPB obtained more than $11 billion in restitution payouts from lenders who had victimized more than 25 million consumers.

The widely reported $185 million Wells Fargo settlement over creating more than 2.1 million deposit and credit accounts without consumers’ knowledge is just the latest of many settlements the CFPB has negotiated. In addition, the Bureau requires financial institutions to verify that borrowers have the capacity to repay loans, a seemingly obvious “best practice.” It has also processed more than 650,000 consumer complaints.

The Bureau has been the subject of constant attack since its beginnings, but those threats became far more concrete on Election Day. Donald Trump told Fox News in October that “we have to get rid of Dodd-Frank.” On its fifth birthday, Congressman Jeb Hensarling (R-Texas), who chairs the House Financial Services Committee, said the CFPB had made the banks less stable, the nation less prosperous and the population less free. He then introduced The Financial Choice Act, which would curtail the ability of the Bureau to meet its obligations. That bill would reduce its rulemaking authority (in part by repealing all guidance on auto lending), mandate a cost benefit analysis of all proposed rules, give Congress direct oversight of the CFPB’s budget (which currently comes from the Federal Reserve), replace the current director with a five-person commission and provide an off-ramp from Dodd-Frank rules for many financial service providers.

Fair lending advocacy groups have played a critical role in addressing consumer protection issues which were at the heart of the recent financial crisis. Organizations like the National Community Reinvestment Coalition, Center for Responsible Lending, Americans for Financial Reform, National Fair Housing Alliance and the Association of Community Organizations for Reform Now (ACORN) were critical actors in securing passage of the Community Reinvestment Act. That law has generated more than $6.2 trillion in loans for traditionally underserved markets and other reforms, including Dodd-Frank. The future of the CFPB and consumer protection generally may depend on their continuing advocacy.

As Massachusetts senator and the principal inspiration for the CFPB, Elizabeth Warren (D-Mass.) has concluded, “For me, the watchword is vigilance. Together, we must make sure the agency can do its job.”

Gregory Squires is a Professor of Sociology and Public Policy & Public Administration at George Washington University and co-author of the forthcoming book about the Consumer Financial Protection Bureau’s first five years, “Meltdown: The Financial Crisis, Consumer Protection, and the Road Forward,” to be published by Praeger in 2017.

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