John Minchillo/AP Photo
Former CFPB director Richard Cordray sees a "third wave" of harm from the pandemic hitting consumers.
First Response
On Tuesday, Sen. Sherrod Brown (D-OH) and four colleagues on the Senate Banking Committee registered their dissent to the Consumer Financial Protection Bureau’s response to the coronavirus crisis. CFPB “has used this pandemic as an opportunity to protect big banks, payday lenders, debt collectors, and other corporate interests,” the Senators wrote.
It’s been striking. CFPB has urged banks to offer consumers small-dollar loans with no restrictions on interest rates; eliminated reporting requirements proving anti-discrimination compliance for mortgage lenders and banks; lifted enforcement of the Fair Credit Reporting Act; and told mortgage servicing companies that they did not have to contact borrowers who fell behind more than a month on their payments (as is required by law). The one benefit for consumers? An educational initiative about low-dollar savings accounts, presumably for all the extra savings people have lying around these days.
“They’re looking at this as a business crisis where they need to give leeway, but the problem in the consumer market is, if you give leeway, the burden will fall on consumers,” said Richard Cordray, the first director of the CFPB. Cordray, who has stayed mostly out of debates over consumer financial protection in the year and a half since his departure, wrote an unusual white paper this week with former colleagues Diane Thompson and Christopher Peterson, outlining steps that the CFPB must take in response to the pandemic.
Cordray sees three waves to the crisis. Obviously there’s the public health catastrophe, followed by the induced macroeconomic coma of shutting down businesses nationwide. “The third wave we’re now seeing is the consumer harm that proceeds from that,” Cordray said. “I think it’s a key moment to protect the people of this country from the by-product of this depression.”
He has precedent in recent history. Cordray was attorney general in Ohio during the financial crash, and he tried, often in vain, to mitigate the foreclosure wave that engulfed that state. He was the first to sue a mortgage servicer for issuing fraudulent documents to foreclose on borrowers (Cordray lost re-election in 2010 and his successor settled the case).
This time around, there are more tools to protect borrowers, including in the CARES Act. Congress put a moratorium on “federally-backed loans” (owned or backed by various government and quasi-governmental agencies, this is a bit more than half of all outstanding mortgages), and borrowers on those loans can obtain up to a year of forbearance to skip payments. But many banks are not treating this as an extension of the loan, adding a balloon payment owed immediately when the forbearance period ends. This just traps borrowers in debt and threatens their equity. With the scope of the economic pain, it risks far more than the 10 million foreclosures we saw in the financial crisis.
Worse, CFPB’s guidance to hold harmless servicers for violation of foreclosure prevention rules means that borrowers are ignorant of their rights. It’s difficult for a borrower to ascertain that they hold a “federally-backed” loan, let alone what that means for them. Already, we’re seeing dozens of anonymous complaints in the CFPB’s consumer database from borrowers, claiming their servicer is giving them the run-around and not providing effective relief.
Cordray wants CFPB to enforce the CARES Act and work to have the protections cover more loans, while making sure mortgage servicers do their jobs. “Mortgage servicers build their models in a skimpy way, they won’t be able to deal with any kind of high volume,” he said. “CFPB needs to hold their feet to the fire.” Incredibly, servicers asked for a bailout (which the Federal Housing Finance Agency’s Mark Calabria dismissed as “spin”), money that would finance distributions to investors without helping homeowners.
Renters get even fewer federal protections (we actually need a rent moratorium). At the state and local level, there have been scattered benefits, but they are harder to decipher. Cordray envisions CFPB as an “information clearing house,” letting consumers in every part of the country know their particular rights. He also wants CFPB to work with state officials to police the industry, and serve as a conduit for consumers to communicate with lenders. “This would help companies abide by the law” by letting them know their jurisdictional responsibilities, Cordray said, pitching it to the CFPB’s current obsessions.
Beyond mortgage companies and landlords, small-time scammers have popped up to get a piece of the mounds of relief money Congress just appropriated. One big target, Cordray noted, is the $1,200 direct payments that will go to millions of Americans. “You have scammers saying, ‘if you want to get the $1,200 you need to work through us, provide us your bank information,” he said. “Or if you want to get the money faster. Or we’ll give you a short-term loan.”
In addition, debt collectors will intensify their harassing tactics, preying on the vulnerable. Auto repossessors will see the opportunity to get their hands on vehicles. Some states have outlawed this behavior, but again, there’s no central repository to know what rights people have. Meanwhile, credit reporting bureaus are supposed to code defaults during the pandemic as a “natural or declared disaster,” but CFPB has to police that, and Cordray questions whether that will happen.
There isn’t much time for CFPB to change course, Cordray believes. “I could see this coming several weeks ago,” he said. “The third wave is here now, it’s arriving. There need to be active steps to head it off.
Odds and Sods
Brittany Gibson talked to voters in Wisconsin who suffered through that farce of an election yesterday.
New readers might notice that I have not relayed statistics on tests completed and confirmed cases and hospitalizations and deaths. I find them largely unreliable and impossible to compare. Low case counts could be due to few tests; hospitalizations could be due to how jurisdictions tell people to avoid hospitals; deaths are only coded from confirmed cases, and as this piece shows there’s a tremendous amount of excess mortality that’s surely due to COVID-19 but isn’t being counted that way. It’s hard for me to look at charts and curves that may or may not be flattening without thinking that the data used to create them is so substandard.
I feel compelled to point out, however, that there were nearly 2,000 confirmed deaths from COVID-19 in America yesterday, which is especially staggering when you consider that it’s probably an undercount. No country has seen this many daily deaths, and it brings home what an absolute tragedy this is.
The Fed Solution
Let’s check in on the Paycheck Protection Program (PPP) for small businesses, or on second thought, let’s not. The Small Business Administration’s onboarding system for the loans crashed on Monday. Bank of America employed a third-party vendor called Intralink to upload documents, and the extremely fake-looking emails it’s sending prospective borrowers to upload all their financial information has them wary. SBA still hasn’t released the form to get non-approved lenders into the system. And small business owners, particularly restaurateurs, have discovered that this won’t help them or their employees.
So a bit of work to go. And on top of the bad food, such small portions! Congress is already aiming to add another $250 billion to the program as early as this week, though Speaker Pelosi seems determined to make it impossible to administer (how do you guarantee certain subsets get to the front of the line in a nationwide program with hundreds of lenders?). Pelosi and Schumer’s demands for an “interim relief” package today include $250 billion for small business, $100 billion for hospital supplies, $150 billion more for state and local governments and a 15 percent increase in food stamps. Once again, this bill fails to mandate vote by mail in November, giving away even more leverage.
But I’m not certain there needs to be another appropriation for small businesses. Now that the Federal Reserve has committed to either lending directly to banks making the loans, or buying the loans outright… isn’t that the end of it? The banks make the loans, the Fed buys the loans, or supplies the capital that covers the loans, and Bob’s your uncle. This cuts out the SBA, the obvious weak link in the chain, and ensures the program can meet demand. If you want to make the terms the same, fine. If not, fine too. The Fed signaled with its purchase program that it would intervene to support small businesses. So let them!
Today I Learned
- Boris Johnson given “oxygen support.” (Washington Post)
- Jesse Eisinger on the bailouts. (Pro Publica)
- This pandemic has thrived on our social and economic gaps, seen in the toll it’s taking on the African American community. (Axios)
- The Wuhan lockdown is lifting after 11 weeks. It’d be a benchmark if our lockdown was at all as dedicated as theirs. (CNN)
- New Zealand flattening the curve into a pulp. (Stuff.co.nz)
- So much for that strong oversight: Trump fires the inspector general running one of the three watchdog entities. (Politico)
- SEC chair Jay Clayton wants companies to disclose their reasons for seeking bailout funds. Good. (Wall Street Journal)
- The entire major league season played in Arizona? (Washington Post)
