The Miser’s 3 Things:
- Two people are claiming control over a powerful watchdog, each with dramatically different views about its future
- The agency provides advice to consumers, but also goes after financial institutions it deems to be bad actors
- President Donald Trump says the agency has been a “total disaster” for the economy and wants to remake it
“At the CFPB, two acting directors show up to take command; one brings doughnuts, the other well-wishes.”
That was the headline from The Washington Post about the bizarre battle for control of the Consumer Financial Protection Bureau, a watchdog agency created after the 2008 financial meltdown.
The standoff began when director Richard Cordray resigned Friday and named Leandra English as acting director. President Donald Trump countered by installing Mick Mulvaney, who currently heads the Office of Management and Budget, to the job. By Monday morning, Mulvaney and English both claimed control over the CFPB — Mulvaney by offering doughnuts in the Washington headquarters, English in an email to staff.
Now a court has to decide who’s really in charge.
Besides another incredible spectacle in Washington, D.C., there’s a lot at stake for millennials and their finances. To examine that, let’s go back to the agency’s beginnings.
Born out of the 2008 meltdown
Congress and President Barack Obama created the Consumer Financial Protection Bureau in 2010, after the worst economic crisis since the Great Depression.
For millennials, 2008-2009 happened during a key time in our lives. Major financial institutions teetered. The government allowed some to fail and bailed out others, while some companies were swallowed up by larger institutions.
The culprit for this trouble? The lending industry. Banks had loaned money to just about anyone who wanted it. Huge sums, too. People who had no business owning expensive houses suddenly got access to all the money they needed.
Many of these people didn’t read the fine print, and those that did probably didn’t understand it. Some financial institutions took advantage with predatory lending, offering terms that sounded good but ultimately made it impossible for the borrower to repay.
And what happened? People lost everything.
When the CPFB came into existence, it would have jurisdiction over banks, mortgage lenders, credit card companies and others that sold financial products to consumers. It would be independent from Congress, the White House, or Wall Street lobbyists. Obama put Elizabeth Warren — yes, that Elizabeth Warren — in charge of setting it up.
Warren made a now-infamous analogy: If the government regulates toaster makers so they don’t sell defective toasters that can burn your house down, why not regulate banks to make sure they don’t offer deceptive loans that could also put you out on the street?
(When I saw Warren speak in-person in early 2011 about the CFPB, she had already come under fire from lawmakers who believed that she would rule with an iron fist over Wall Street. Facing pressure, Obama later appointed Cordray as agency director instead of Warren.)
So what’s the CFPB do, anyway?
On the CFPB’s website these days, you’ll find things like a checklist to help you develop a strategy for repaying student debt, updates on the Equifax data breach, and even a topic called “Understanding a credit card bill.”
Important stuff, right? Especially for those who don’t have anywhere else to turn for free, independent financial advice.
Here’s where the agency gets controversial: It has broad powers to go after companies it believes have wronged consumers.
Most recently, it accused Citibank of misleading student loan borrowers and said the company had incorrectly charged late fees and added interest to the balances of students while they were still in school and eligible to defer their student loan payments. The agency ordered Citibank to pay $3.75 million to consumers and $2.75 in fines.
The CFPB says it has returned $11.9 billion to consumers since its creation. (Surely, “CFPB” is a different kind of four-letter word at some of the financial institutions it regulates.)
The agency also has power to create and enforce regulations on the financial industry independent of Congress and the White House.
The CFPB’s autonomy has led to charges that it’s a bureaucracy with no oversight. President Trump tweeted late last week that the agency “has been a total disaster” and that its regulations had left financial institutions “devastated” — without providing examples. Mulvaney, one of two people claiming the acting director position, once called the CFPB “a sick, sad” joke.
Some key questions loom:
Who will the courts put in control? If it’s Mulvaney, how will the Trump administration limit the agency’s activities? Will it continue providing financial advice and going after companies? Or will it be the Consumer Financial Protection Bureau in name only?
UPDATE: In late November, a federal judge gave control of the CFPB to President Trump’s choice, Mick Mulvaney.