The Caped Crusader of the Executive Branch
SEC. FTC. DOD. DOJ. OCC. HHS. FAA. EEOC. OPM. CFTC. CPSC. CFPB. To most sane people, they probably recall a poor combination of letters during a game of Words With Friends. For demented Beltway minds, however, each string of letters carries specific connotations in the vast alphabet soup of the federal bureaucracy. Most operate outside the notice of the rest of the country, quietly protecting our financial markets, inspecting the cars we buy, or upholding labor standards.
But that last acronym will climb atop the pile and enter the popular vernacular in the near future. The Consumer Financial Protection Bureau (CFPB, per D.C. shorthand) celebrated its one-year anniversary on Saturday. Depending on the outcome of the presidential election, the agency could grow into one of the most public and popular arms of the federal bureaucracy—or wither away into irrelevance.
Did you forget to blow out a candle for its first birthday this past weekend? Fear not, the Prospect has you covered. I’ll be reporting on the CFPB on a regular basis through the end of the year, keeping you up to date on its new policies and tracking the development of a nascent agency under constant threat from Hill Republicans and Mitt Romney—not to mention continual harassment from Wall Streeters who would prefer zero public scrutiny of their business practices. Read on here for a basic overview of the CFPB's origins, what it’s done over the past year, and where it might be headed.
Why should I, a lowly consumer, care about yet another arm of the federal bureaucracy?
World-weary reader, I understand your confusion at the myriad of overlapping rule makers. When the SEC levies fines on the big banks, it can be hard to relate that back to your daily life. But the CFPB is one to actually remember! That's because it is aimed directly to you, the consumer. The agency entered the legal code as a cornerstone of the Dodd-Frank bill, passed two years ago to combat the Wall Street excesses that sank the country into a recession. The CFPB is a perfect wedding guest, bringing with it a bit of the old and new: It co-opted outmoded, ineffective elements of the executive branch—fully consuming the Office of Thrift Supervision and stealing employees and tasks from the Federal Reserve and HUD, among others—as well as expanding into new territory. The agency can step in and make rules for most people who would lend you money (a few exceptions, such as car dealerships, were carved out when Congress created the CFPB). Its primary focus is on mortgages, credit cards, payday loans, and student debt. However, the CFPB isn't solely focused on blocking the lenders from taking certain actions; they also serve as an advocate for consumers who have run into trouble, confronting lenders on their behalf, and helping regular folks cut through the complex legalese that comes with any current contract.
Where did Congress get the idea for this agency?
The origins can be traced back to an article penned by Elizabeth Warren in 2007. Warren might be a household name these days (well, a name in households that read The American Prospect), but back then she was just a Harvard law professor. In her article in the journal Democracy, "Unsafe At Any Rate," Warren made the astute observation that the government won't let a toaster manufacturer sell you a piece of machinery that has a high chance of exploding through no fault of your own; shouldn't we offer the same guarantees to a family financing a mortgage or struggling with credit-card debt? The government can't fully protect you from making mistakes—after all, regulations don't prevent you from filling your toaster with paper and burning down your house. But it provides a guarantee—a luxury that consumers lacked in the financial sector—that you should be fine if you apply common sense. The 2008 Democratic presidential candidates latched onto the idea, and Barack Obama made a direct allusion to Warren's thesis when Jay Leno interviewed him during the campaign.
Is there any major, cultural touchstone summer event that could serve as a hackneyed metaphor for the CFPB?
Think of CFPB as Batman. Gotham (the financial services sector) is a decrepit mess, with lots of scummy criminals looking to rob hapless victims, while the well-intentioned cops (our old regulatory regime) are outmatched—or occasionally bought off with bribes or promises of high-paying jobs in the real world. In comes the new savior, a nimble and idealistic crusader that is not bound by the old framework, but can adapt to the situation as new needs arise.
Past regulatory regimes have been limited by their narrow structures; they write a rule and immediately the banks find technicalities to circumvent it to their advantage. Unlike Batman, the CFPB is fully within the scope of the government, but it shares a bit of the vigilante streak, working outside the bounds of past regulators. Thanks to its wider purview, the CFPB can swat down lenders when they skirt past the intent of a rule's exact language. Meanwhile, the agency’s money flows independent of the congressional appropriations process (instead, its funds are determined by the Treasury Department), which gives the CFPB the ability to act without fear of bank lobbyists convincing Congress to overturn its rules.
All right, so they got to work a year ago? How come I haven't heard all that much about them?
While the CFPB technically began operating on July 21, 2011, they couldn't really get to work until January 4 of this year. That's when President Obama used a recess appointment to put Richard Cordray, former attorney general of Ohio and Warren’s enforcement chief, in place as the agency's first director—much to the chagrin of congressional Republicans who claimed they were not in recess over the holidays after all. Thanks to the way it was structured in Dodd-Frank, the CFPB couldn't begin to take any big steps until their leader was in place. Republicans had put a stranglehold on the agency by refusing to confirm Cordray. While the agency was staffing up and beginning to reach out to consumers, CFPB couldn't write new regulations or take enforcement actions until Cordray walked in the door.
Lemme guess, Republicans still hate the idea?
You betcha. They opposed the concept during Congressional negotiations around Dodd-Frank and have taken to extreme measures to cripple the agency ever since. Rather than admit defeat after Dodd-Frank passed, Republicans vowed to block any nominee to head the agency. Forty-four senators penned a letter to the Obama administration vowing to filibuster unless the CFPB was restricted to replace the director with a bipartisan five-commissioner board—a model that has debilitated other agencies, like the Federal Election Committee, from any meaningful stabs at enforcing their rules.
Since Obama one-upped their brinkmanship with Cordray's recess appointment, Republicans have been left with few options to block the CFPB. There's a lawsuit challenging the constitutionality of the CFPB, but the suit appears to have little legal standing (of course, people said the same thing when lawsuits against the Affordable Care Act were winding their way through lower courts). House Republicans still introduce bills to hamper the agency from time to time, but since the CFPB's money flows through the Federal Reserve, they can't block Cordray from hiring a full complement of staffers.
So what have they done thus far?
The CFPB made its biggest splash last week, when it issued its first enforcement action. The agency fined Capital One more than $200 million fine for violating federal law in its marketing. Some two million consumers with Capital One credit cards will receive $140 million in compensation.
The agency has done quite a bit in fact, particularly over the past several weeks. In the last month alone the CFPB has:
· Launched a database of credit card complaints, publicizing which companies receive the most grievances and which are the best at responding when a problem arises.
· Proposed a new, simplified mortgage form. Once implemented, lenders will have to lay out all of key pieces of information in an easily understandable three-page document, dispensing with the endless pages of fine print that make current contracts unintelligible to anyone without an MBA.
· Created regulations to help protect borrowers with high-risk mortgages and increase the number of loans that qualify in the high-risk category. (Between 2004 and 2010, just 36,000 total home loans qualified for these extra protections.)
· Placed credit reporting agencies—the organizations with the catchy jingles that calculate your credit rating—under government review for the first time. Consumer advocates had long agitated for this, as people had little recourse if a reporting agency accidentally confused two people with similar names and gave one of them a damaging score.
· Released a report detailing the state of the student-loan market, and highlighting the risks in private loans.
Can anything stop our consumer crusader now?
Cordray's recess appointment stands until the end of 2013, so the agency is good for the moment. But the presidential election hangs on the horizon, and Mitt Romney is no fan of Elizabeth Warren's baby. In May, Romney's economic advisor, Glenn Hubbard, told the Wall Street Journal that a Republican presidency would result in a dismantled CFPB, with responsibilities redistributed to preexisting regulators and the CFPB's power to regulate being neutered.
(If there's one thing we know about comment trolls, it's that they're lazy)