Friday, June 12, 2015

It's A Bird, It's A Plane....It's The Consumer Financial Protection Bureau

By Keenan Mann

There's a classic scene from the original Superman movie released in December of 1978.  In it, Lois Lane is dangling from a helicopter that is precariously perched, some fifty stories high, on the edge of the Daily Planet newspaper building.  After a few moments of struggling, Ms. Lane loses her grip and starts plunging to the ground as the assembled crowd watches helplessly.  I think you know what happens next, but since some things never get old, I've included a clip of that scene below for your viewing pleasure:

Lois Lane's perfectly timed and utterly practical reply to her hero has been etched in my memory ever since I first heard it all those years ago.

But, of course, that was just a movie.  In real life, there are no super heroes, although you wouldn't think so from reading the synopsis of the Consumer Financial Protection Bureau on it's website. I found myself there recently after reading an article that described how a federal appeals court had rejected a challenge to the constitutionality of the CFPB.  The article, "Challenge to Consumer Financial Protection Bureau Rejected by Appeals Court", was written for the Wall Street Journal by Brent Kendall.  It read in part:

"The decision was the latest loss for debt-relief firm Morgan Drexen Inc., which sued the CFPB in Washington in 2013, just weeks before the agency brought an enforcement action against the firm in a California federal court. The firm claimed that part of the Dodd-Frank financial-overhaul law that created the CFPB was unconstitutional. Among its arguments, the firm alleged the law delegated too much power to the bureau and allowed the agency to be funded outside the normal appropriations process.....In the California case, the CFPB alleged Morgan Drexen illegally charged tens of thousands of customers improper upfront fees for debt-relief services."

CFPB to the rescue!

Oh, and here's the synopsis on their website:

Creating the Consumer Bureau

Beginning in 2007, the United States faced the most severe financial crisis since the Great Depression. Millions of Americans saw their home values drop, their savings shrink, their jobs eliminated, and their small businesses lose financing. Credit dried up, and countless consumer loans—many improperly made to begin with—went into default. Today, we’re still in the process of recovering.

For many decades, rising wages and growing savings meant that American families tended to carry only modest amounts of debt. But wage stagnation that began in the 1970s—combined with rising expenses for housing, health care, transportation, child care, and taxes—pushed more families into debt. At the same time, households saw a significant increase in access to credit, and many of the old rules regulating credit were gone. In the 2000s, there were widespread failures in consumer protection and rapid growth in irresponsible lending practices. Many lenders took advantage of gaps in the consumer protection system by selling mortgages and other products that were overly complicated.

This left many Americans with loans that they did not fully understand and could not afford. Although some borrowers knowingly took on too much debt, millions of Americans who behaved responsibly were also lured into unaffordable loans by misleading promises of low payments. Honest lenders that resisted the pressure to sell complicated products had to compete with their less responsible competitors.

Even those who avoided the temptations of excessively risky credit were caught in its web. Those who never took out an unaffordable mortgage nonetheless saw the values of their homes plummet when neighbors lost homes in foreclosure. Those who used credit cards and home equity lines of credit judiciously saw across-the-board increases in interest rates on credit cards and contraction of outstanding lines of credit. And those who had saved regularly saw their retirement funds lose significant value and their cities and states cut back on services to make up for their own revenue losses. The costs of irresponsible lending were borne by tens of millions of American families.

In June 2009, President Obama proposed to address failures of consumer protection by establishing a new financial agency to focus directly on consumers, rather than on bank safety and soundness or on monetary policy. This new agency would heighten government accountability by consolidating in one place responsibilities that had been scattered across government. The agency would also have responsibility for supervision and enforcement with respect to the laws over providers of consumer financial products and services that escaped regular Federal oversight. This agency would protect families from unfair, deceptive, and abusive financial practices. The President urged Congress to give the consumer agency the same accountability and independence that the other banking agencies have and sufficient funding so it could ensure that powerful financial companies would comply with consumer laws.

In July 2010, Congress passed and President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Act created the Consumer Financial Protection Bureau (CFPB). The CFPB consolidates most Federal consumer financial protection authority in one place. The consumer bureau is focused on one goal: watching out for American consumers in the market for consumer financial products and services.

In other words, the CFPB is saying, "Easy American consumers, I've got you."  But, knowing what we know about the over 100 trillion dollars of all-in liabilities that our government has, we should all respond to that reassurance as Lois did to Superman with, "Who's got you?"

And besides, even Superman, who was faster than a speeding bullet, more powerful than a locomotive, and able to leap tall buildings in a single bound, finally came to understand that even he couldn't save everybody all the time.  In one of the more poignant and meaningful scenes in the movie, upon realizing he had arrived too late to save Lois' life, Superman flew out into space and started circling the earth in a clockwise direction (since the natural rotation of the earth is counterclockwise).  When he was flying fast enough, he actually reversed the rotation of the earth and turned back time.  In doing so he was able to alter the sequence of events that led to Lois' death. The point of it all, to me anyway, was that you don't have to go around saving people if you set them out on the right path to begin with.

In the real world context that would mean arming people with practical knowledge about the benefits and perils of financial literacy and illiteracy.  And that would mean letting them know, for instance, that for-profit businesses exist to make a profit (which is perfectly fine).  It would mean teaching them about the effect of fees and interest rates on the money they borrow and the services they purchase. And, once they came to understand those very simple concepts, it would mean letting them know that if they freely chose to avail themselves of products and services that came with exorbitant rates and fees, they should not look to the government to save them because, unlike Superman, it couldn't do so without harming someone else.

Our politicians really should start to ask themselves whether they would be serving us better by creating faux hero agencies like the CFPB or by helping to create citizens who don't need heroes.

Of course, that would require those politicians to consider, in earnest, being something other than self serving, so don't look for that question to get asked any time soon.


No comments:

Post a Comment