Will Trump Kill the CFPB? Created in Response to the Financial Crisis, the Consumer Financial Protection Bureau Has Returned Nearly $12 Billion to Consumers-Which May Be Exactly Why It's Now under Threat

By Servon, Lisa J. | The American Prospect, Summer 2017 | Go to article overview

Will Trump Kill the CFPB? Created in Response to the Financial Crisis, the Consumer Financial Protection Bureau Has Returned Nearly $12 Billion to Consumers-Which May Be Exactly Why It's Now under Threat


Servon, Lisa J., The American Prospect


It began by comparing a mortgage and a toaster. That's how then-Harvard Law School professor Elizabeth Warren made the case for a government consumer financial protection agency akin to the Consumer Product Safety Commission created under President Nixon in 1972. Warren's 2007 article "Unsafe at Any Rate," a reference to Ralph Nader's 1965 book Unsafe at Any Speed, planted the seed for what would later become the Consumer Financial Protection Bureau (CFPB), an agency charged with making "consumer financial markets work for consumers, responsible providers, and the economy as a whole." Her persuasive argument made the need for such an agency crystal clear to ordinary consumers:

   It is impossible to buy a toaster that has a
   one-in-five chance of bursting into flames
   and burning down your house. But it is
   possible to refinance an existing home with
   a mortgage that has the same one-in-five
   chance of putting the family out on the
   street--and the mortgage won't even carry
   a disclosure of that fact to the homeowner.
   Similarly, it's impossible to change the price
   on a toaster once it has been purchased.
   But long after the papers have been signed,
   it is possible to triple the price of the credit
   used to finance the purchase of that appliance,
   even if the customer meets all the
   credit terms, in full and on time. Why are
   consumers safe when they purchase tangible
   consumer products with cash, but when
   they sign up for routine financial products
   like mortgages and credit cards they are
   left at the mercy of their creditors?

The financial crisis of 2008 presented the perfect opportunity for Warren's idea to take hold. The crisis revealed gaps in the regulation of financial products and services that left consumers exposed and vulnerable. When Congress debated how to respond, consumer protection issues emerged as a clear theme. Such practices as subprime mortgages were not just problems for individual consumers; they contributed to systemic risks that led to the near collapse of the economy. The protection of consumers was therefore integral to financial reform. So Congress had good reason to establish the CFPB when it passed the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010.

In its short life, the agency's enforcement actions have returned nearly $12 billion to 27 million consumers who were bilked by financial services firms engaging in illegal practices. The CFPB has outlawed the practice of directing mortgage-seekers to high-interest loans, cracked down on unscrupulous student loan providers, and created a division dedicated to dealing with consumers' complaints, handling over one million grievances to date. Despite these accomplishments, our nation's newest federal agency faces challenges to its power and very existence.

THE REPUBLICAN ROLLBACK

On February 3, Donald Trump signed the Presidential Executive Order on Core Principles for Regulating the United States Financial System, putting the first nail in the coffin of an agency that had the support of both the Bush and Obama administrations. While the order promised to "empower Americans to make independent financial decisions and informed choices in the marketplace," the White House signaled Trump's intention to roll back an "unaccountable and unconstitutional new agency that does not adequately protect consumers," as Press Secretary Sean Spicer described the CFPB.

When the president signed that executive order, his chief economic adviser, Gary Cohn, stood right behind him. This is the same Gary Cohn who presided over an imploding Goldman Sachs in 2007. Cohn is one of five former Goldman Sachs executives who have top posts in the Trump administration.

Bank stocks jumped in response to the executive order, a sign of who stands to benefit from a relaxation of the rules. A few days later, on February 6, a leaked memo from Representative Jeb Hensarling, chairman of the House Financial Services Committee, detailed plans for a bill called the Financial CHOICE (Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs) Act. …

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