Sunday , November 19, 2017 - 4:00 AM1 comment
Last week, the head of a governmental agency announced his resignation. I’m sure this doesn’t surprise anyone, since the last year has been chock-full of government officials resigning from their posts. The official who announced his departure was Richard Cordray, head of the Consumer Financial Protection Bureau.
The news impacts me greatly because I’ve seen firsthand the impact the CFPB has had on my clients. I’ve spent time exploring the influence and structure of the CFPB in the mandatory Continuing Legal Education classes attorneys take throughout the year. I’ve written about the agency in this space many times. In my column just a couple of weeks ago, I recounted how Congress and President Trump had repealed a regulation that would have prevented banks from forcing arbitration and allowed them to avoid class action lawsuits for deceptive practices.
Oddly, the CFPB has become a partisan punching bag. The CFPB was structured in 2010, after the financial crisis, to foster regulatory independence and prevent financial institutions from engaging in unfair and deceptive practices. Anyone who has struggled in a math class will understand how easily numbers can be used to deceive in a financial transaction.
Here's a quick example. You're interested in buying the new Tesla roadster, but high-speed electric cars are pricey. The purchase price is negotiable, but you'll still need financing. You are given two options: buy the car for $200,000 at 5.25 percent interest, payable over 10 years, or pay $180,000 at 8.9 percent interest. Which financing option saves you the most money? Well, buying the car at $200,000 at 5.25 percent interest saves you about $15,000. Just the opposite of what the purchase price looks like.
The Tesla example isn’t even deceptive, it's a straightforward calculation. But unless you put the amortization tables side by side, it's a calculation few people are able to do in their heads. The point of the example is to show the simplicity of maneuvering numbers to make a transaction look more appealing than it really is.
Now imagine if the numbers were intentionally being used deceptively. The CFPB’s entire statutory purpose is to root out, expose, and prevent unfair and deceptive practices by the financial world. Who could be against protecting you, me, your neighbors, family and friends from that?
Financial institutions, apparently. Rules against being unfair and deceptive throw a big wrench in a bank's ability to seamlessly take your paycheck straight out of your wallet without you feeling it.
One of the biggest criticisms of the CFPB is that it's made it harder for people to get loans, particularly home loans. My thoughts immediately go back 10 years. Do we have such a shortsighted view of history that we can’t remember when the entire global economy almost collapsed because it was too easy for people to get home loans with adjustable rates and balloon payments? We’ve been down this road before, folks.
Have we forgotten the S&L bubble in the early 1980s, resulting in consumers losing over $160 billion?
Then, 10 years later, the bubble moved from real estate to technology stocks. Reformed tax laws made investing in the stock market more appealing as capital gains taxes were lowered. Citigroup and Merrill Lynch were eventually charged with misleading investors. Worldcom’s accounting scandals crashed the telecom market. Again, deregulation and the improper incentives from the laws and government led to economic devastation.
Fast-forward another decade. In 2008, lax regulations in the mortgage world crashed the economy, leaving hundreds of thousands of people financially devastated.
Yet here we are, almost another decade later, and Congress is talking about changing tax laws to be more favorable to business while wiping out regulations designed to prevent fraud and deception. The price of homes is shooting back up, the stock market is on a roll and we forget that a solid economy is based on honesty, not greed or the ease of creating more wealth for the wealthy.
Since the CFPB’s inception, consumer bankruptcies across the country have fallen by nearly 50 percent. This is not a coincidence. People often don’t need bankruptcy protection if they aren’t being ripped off by financial institutions. Rules and regulations work. Everyone believes that, by the way. No one is going to say we don’t need laws against theft or robbery. So why would financial institutions get a pass for unfair and deceptive financial practices? When Wells Fargo comes out against the CFPB, why do we give that any more credence than the bank robber coming out against laws against robbery?
President Trump will be filling the position vacated by Cordray in the coming weeks. Will the replacement be a strong advocate for consumers? Trump’s appointees to other positions suggest little hope for that. The current secretary of the Treasury was known for aggressive foreclosure practices with OneWest Bank. The new head of the Office of the Comptroller of the Currency is Joseph Otting, another former official of OneWest Bank. A lawyer for banks during the financial crisis is now the head of the Securities and Exchange Commission and has brought fewer enforcement actions this year than in the last four. The fox has firmly entrenched itself back in the henhouse, and one of the last watch dogs on the job just stepped down.
We seem to be stuck in 10-year cycles of forgetfulness. I hope I’m wrong and deregulation madness doesn’t lead to another financial crisis and economic downturn. But history and human behavior suggest that I am not.
Those who stand to gain from their economic amnesia have a motive to forget. You and I, as consumers and citizens, do not.
E. Kent Winward is an Ogden attorney. Twitter: @KentWinward.
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