The CFPB's first director, Rich Cordray, has published a book, "Watchdog: How Protecting Consumers Can Save Our Families, Our Economy, and Our Democracy," explaining efforts to set up and run the Consumer Financial Protection Bureau. I recommend reading the book!
The first few chapters tell the story of how the new agency was established as part of the Wall Street Reform and Consumer Protection Act of 2010, enacted after light regulation of reckless Wall Street bank practices led to the financial collapse of 2008 and the ensuing Great Recession. Then-professor Elizabeth Warren, who'd proposed the idea of the agency in 2007, was tasked by President Obama to set it up and made Cordray, a former Ohio Attorney General, one of her first hires as director of enforcement. (Now-Senator Elizabeth Warren wrote the foreword to "Watchdog.")
The president then made Cordray a recess appointment as director; after a two-year fight in the Senate he was finally confirmed to a 5-year term as director. Under Cordray's tenure, the CFPB returned over $12 billion to over 31 million consumers harmed by big banks, payday lenders, for-profit schools, debt collectors and credit bureaus.
Last Tuesday, after Cordray attended the Supreme Court oral argument in a case where the debt collector Seila Law is challenging the CFPB's constitutionality (U.S. PIRG Education Fund is a friend of the court
defending the CFPB's structure), he came over to Americans for Financial Reform for a discussion and book-signing. AFR is the coalition we helped establish to fight for passage of Wall Street reform; AFR continues to represent consumers, civil rights, labor and other groups in the ongoing fight against financial special interests. I was privileged to moderate a panel discussion of the book with Director Cordray. The panel also included Lisa Donner, AFR director, and Graciela Aponte-Diaz, the Center for Responsible Lending's Director of Federal Campaigns.
I am about halfway through Watchdog, and wanted to point out that the book is not simply for Washington insiders, but uses the (anonymized) stories of numerous consumers to explain the importance of a new agency with just one job, protecting consumers from the tricks-and-traps of the financial marketplace.
But for either an insider, if that is what I have become (sheesh!), or any consumer, the bulk of the book explains how the bureau effectively uses its tools differently than previous bank regulators. For example, Chapter 4 explains that the previous bank regulators, which had both confidential supervisory authority and public enforcement authority, generally preferred to handle violations confidentially. Only the Federal Trade Commission, which did not have supervisory authority at all, or any powers over banks, generally used enforcement authority, then against non-bank financial players including payday lenders and debt collectors.
The CFPB could go after both banks and non-banks. And, as Cordray explains, it would use enforcement and penalty authority that the bank regulators had long been reluctant to use. Its first big enforcement cases took on the tawdry practice of credit card add-on fees of $5-20/month for useless products. The actions returned several billion dollars directly into the pockets of consumers from big banks including Capital One, Discover, Citibank, Chase and Bank of America (one of my blogs has more on several of these early cases).
From Watchdog: "These actions were notable for several reasons. They highlighted bad marketing practices where the banks were taking advantage of people. They also demonstrated how a profit of a few hundred dollars per customer could add up to billions of dollars across the entire marketplace...Maybe most important, these actions showed that we were willing to take on big banks and stand up for consumers."
The next chapter explains how the Bureau used its consumer complaint system to give "people a voice that matters...There were many ways we could help ordinary people deal with big financial companies. One of the most important would be getting someone to pay attention to their problems." The Bureau's Consumer Response unit was therefore designed as a "constituent service" model, modeled after Congressional office caseworkers. Cordray and the team realized that Consumer Response was the "crown jewel" of the agency because it put "the voice of the consumer right at the heart of the agency." Among other benefits, Cordray writes, "It helped us avoid both an ivory tower mentality and the problem of agency capture."
Of course, the chapter goes on to explain how making its database of complaints public helped "attach a bullhorn to the complaint." Cordray says that the public database helped the bureau "prioritize issues for attention" and also noted that others, including U.S. PIRG (thanks for the shoutout!), could "dig into it and analyze it in ways that would yield further insights." (Our growing series of reports derived from the database.) In 2019, following a long siege by industry opponents of the public database, new CFPB director Kathy Kraninger announced she would both keep it public and enhance its usability (our release).
"Watchdog" goes on to explain much more about the CFPB's battles with banks such as Wells Fargo and its efforts to enact stronger rules of the road. While some rules have succeeded, industry's friends on Capitol Hill have successfully repealed its ban on certain mandatory arbitration practices in consumer contracts and new director Kraninger has initiated a still-ongoing walkback of its payday lending consumer protections. Of course, the book also tells of the success of the bureau's special tasks to protect students, military servicemembers, older Americans and persons at risk of discrimination.
Cordray concludes "Watchdog" with a chapter on the successes of the CFPB and need for a CFPB:
"I believe government can and should strenuously defend and enhance the dignity and worth of every individual. Promoting and safeguarding a marketplace that serves consumers is essential to that goal."
There's much more to tell in this robust description of the genesis and growth of an important and continuing chapter in the history of consumer protection. Alas, this is only a blog entry. Go out and read the book!
Photo credit: T.J. O'Neill.