Protecting Consumers: Fighting Efforts to Roll Back Wall Street Reform
John Carey
Passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) in July 2010 was an important step toward reining in abusive and reckless practices that were at the heart of the financial crisis. But passage of the law did not end Wall Street’s efforts to prevent needed change. Financial industry special interests and their friends on Capitol Hill have only redoubled efforts to undermine the law and stop any further progress.
Civil rights groups and consumer advocates believe that after decades of deregulation driven by the interests and power of big Wall Street banks, it is long past time to remake the financial system so that it is fair, accountable and secure, and so that it serves the real economy rather than draining resources from it.
Deceptive and abusive mortgage lending was a fundam-ental cause of the 2008 financial crisis and the worst recession since the Great Depression. Year in and year out, tricks and traps on credit cards, student loans, overdraft fees, and payday loans, to name just a few, cost working families tens of billions of dollars.
Wall Street spends millions of dollars lobbying Congress and the regulators to fight reform because the status quo is so profitable for them. According to the Center for Responsive Politics, Wall Street interests spent more than $475 million on lobbying in 2010, and are on pace to match that total in 2011. One major target has been the new Consumer Financial Protection Bureau (CFPB), the sole federal regulator focused on protecting consumers in the financial marketplace. The CFPB was a centerpiece of Dodd-Frank and was fiercely championed by the civil and human rights community and consumer advocates, including Americans for Financial Reform (AFR), a coalition of more than 250 national, state and local organizations working for strong Wall Street reform.
Building the Consumer Bureau
In September 2010, President Obama
appointed Elizabeth Warren as assistant to the president and special advisor to
the secretary of the Treasury to help build the CFPB. She is credited with
conceiving the idea for the agency and has a long track record of fighting for
consumer protections and economic security for working families.
Treasury Secretary Timothy Geithner set a “transfer date” of July 21, 2011, on which authority from other bank regulators would transfer to the bureau and it would begin to function as a full-fledged agency. By January, the CFPB was making strides toward putting an agency in place that could dramatically improve the financial services marketplace for tens of millions of families. As part of its progress, the CFPB began building a strong and committed staff, which included former Ohio Attorney General Richard Cordray as director of enforcement and Holly Petraeus to establish the Office of Servicemember Affairs.
Congressional Attacks on the Consumer Bureau
When Congress established the landmark agency, its clear
intent was to create a bureau with the independence and authority to stand up
for Main Street and take on Wall Street. One key element of this independence
is a nonpolitical funding process, with the bureau funded through the Federal
Reserve rather than subject to an annual congressional appropriations process
that Wall Street and finance industry interests can try to hijack to block
regulation they don’t like. But that didn’t stop opponents of the bureau from
trying to undermine its funding.
A controversial provision was inserted into a House bill to continue government funding for 2011 that would have effectively slashed the CFPB’s budget in its initial year of operations by 40 percent—from $143 million to $80 million. After strong protests from consumer and civil rights groups, the measure was defeated. Other proposals sought to take away its stable funding altogether and make the bureau vulnerable to political manipulation.
The House Financial Services Committee also passed several bills designed to weaken the CFPB. One proposal would have replaced the CFPB director with a commission, reducing its accountability and effectiveness; another would have made it easier for the other bank regulators—whose failure to protect consumers caused such devastating problems—to block the bureau’s action; yet another would have delayed the transfer of any powers to the CFPB until a director was confirmed by the Senate. As AFR said in a letter to the committee, “These bills would virtually guarantee that the CFPB would be a weak and timid agency without the will or ability to curb the kind of financial abuses that caused the nation’s worst financial crisis since the Great Depression.”
In July, the full House passed H.R. 1315, the Orwellianly named Consumer Financial Protection Safety and Soundness Improvement Act, incorporating changes of this kind that would have cut the CFPB off at the knees. The Obama administration threatened to veto the bill and Senate Banking Chairman Tim Johnson, D. S.D., declared the bill would not be heard in the Senate.
Some senators also took aim at the CFPB. Sen. Jerry Moran, R. Kan., proposed a measure to gut the CFPB, and Sen. Jim DeMint, R.S.C., introduced an amendment to repeal the Dodd-Frank Act outright. Neither was successful.
Consumers Get New Cop on the Beat
On July 18, Obama officially nominated CFPB enforcement chief
Richard Cordray to head the CFPB. Cordray received enthusiastic support from a
wide array of organizations and individuals across the country, ranging from
community, faith-based, and labor organizations, to business leaders and law
enforcement officials. Advocates noted that Cordray, a former Ohio attorney
general, had an excellent and balanced record of service in the public interest
that would make him an effective head for the CFPB.
A poll released the same month by AFR demonstrated strong and broad voter support for Wall Street reform. After hearing arguments in support and in opposition, voters across party lines supported the reforms in Dodd-Frank. Seventy-seven percent of those polled—Republican, Democratic, and Independent—favored tough, sensible oversight of the financial services industry, including a strong and independent CFPB.
Filibustering Consumer Protections
In May, 44 GOP senators signed a
letter to Obama declaring that they would oppose any nominee to lead the CFPB
unless the bureau’s structure was changed and its authority gutted. While the
letter said the CFPB otherwise had unprecedented powers, AFR and other CFPB
advocates argued that their arguments had more to do with protecting Wall
Street than improving the bureau, which is already accountable to Congress, the
judiciary, the president, and the American people, and which is structured much
like the other banking agencies. In effect, lawmakers who were unable to keep
Dodd-Frank from becoming law were signaling their intent to hold confirmation
of the critical position of CFPB director hostage unless given the opportunity
to rewrite—and
weaken—the
law.
The consequences of the GOP threat were extremely serious. Without a director in place, the bureau could not effectively do its job, and there were particular constraints on its authority over non-bank institutions and their activities, including payday lenders, private student loans, car loans, or credit reporting agencies, many of which disproportionately affect lower-income families, military servicemembers, and seniors.
In October, the Senate Banking Committee recommended Cordray’s confirmation on a party-line vote that demonstrated the challenges of confirming a director, despite the fact that no one had anything but praise for the nominee’s record and fitness for the job. The vote to bring the nomination to a vote was held in early December. Obama traveled to Kansas to deliver an assertive speech on financial reform and the importance of the CFPB to protecting consumers from abusive financial products. Civil rights organizations and consumer advocates around the country mobilized tens of thousands of people to contact their senators and demand an up-or-down vote on the nomination. A letter to senators organized by AFR and signed by more than 200 organizations stated:
“Failing to confirm a nominee so broadly agreed to be qualified and able for the job needlessly puts consumers, and the economy as a whole, at risk. Leaving the CFPB without a director is unconscionable; it puts consumers who are already suffering through an economic recession caused by a lack of financial regulations in danger of further harm. Leaving the agency without all the tools it needs to not only protect consumers, but to protect companies that compete fairly, leaves both at the mercy of unregulated, predatory firms. And it leaves our whole economy in danger of further problems caused by abusive lending at a particularly vulnerable time. That is the wrong way to go.”
On December 8, 45 GOP senators voted to block Cordray’s nomination. While the vote was deeply disappointing, financial reform advocates continued to support Cordray to head the CFPB. The president responded with a recess appointment of Cordray on January 4, 2012, which advocates applauded.
Despite the ongoing efforts to weaken it, the CFPB has not lost sight of its vital mission to protect consumers and ensure transparency and fairness in the consumer financial marketplace. An early effort of the CFPB has been to make mortgage disclosure forms simpler through its mortgage disclosure project, Know Before You Owe. The project’s goal is to provide consumers with better information that makes it easier to compare home loan products, while reducing burdens for the financial services industry. The bureau is also working to make credit card agreements and student loan offers clearer and more transparent so that consumers can make informed choices. The CFPB has a statutory mandate to take in and monitor consumer complaints, and it has begun to do so with credit card, mortgage and mortgage servicing complaints. Now that there is a director in place, civil rights and consumer groups look forward to working with the CFPB to take on abusive lending practices in our communities.
Other Attacks on Reform
While the CFPB was a key part of
reform, Dodd-Frank also contains a broad array of other initiatives aimed at
making the financial system safer and more secure to help prevent a repeat of
the disastrous crisis of 2008. These include new oversight for the vast “shadow
markets” in unregulated derivatives that helped crash the economy; requirements
that the big Wall Street banks hold more private capital to protect against the
need for taxpayer bailouts; restrictions on commodity speculation; restrictions
on big bank gambling with taxpayer money; and reforms in executive compensation
practices.
These other reforms also have come under sustained opposition from Wall Street interests, and AFR and other consumer groups have worked to protect them and to press for their effective implementation.
To take just one example, the role of the Commodity Futures Trading Commission (CFTC) in oversight of financial markets is vital. The CFTC oversees the commodity markets that set the prices for the food we buy for dinner and the gas we buy to get to work. Dodd-Frank requires the CFTC to impose new limits in the commodity markets to prevent excessive speculation and possible manipulation that drive prices up and make them more volatile. Dodd-Frank also assigns the CFTC the responsibility of overseeing vast portions of the previously unregulated “shadow markets” in derivatives—leading to a seven-fold increase in the size of the markets the agency is responsible for supervising. Yet despite this vast increase in responsibilities, reform opponents have targeted the CFTC for budget cuts as a way of crippling reform.
Growing income inequality makes executive compen-sation another area of importance. Dodd-Frank prohibits excessive bank bonuses that encourage inappropriate risk-taking by financial institutions and establishes new mechanisms to give shareholders a voice in setting top executive pay. It also requires new disclosures of pay disparities between CEOs and the median paid worker at all companies, not just financial firms. These provisions have come under industry attack with a bill introduced to repeal the new disclosure.
Conclusion
The Dodd-Frank Wall Street Reform and Consumer Protection Act
was debated, passed, and signed in to law because the existing system of
financial regulation failed. It failed—among other things—to stop clearly
fraudulent and obviously unsustainable mortgage lending that devastated our
communities and our economy. The fight for consumer protections and other
financial reforms will continue into 2012, with new attacks and heated
rhetoric. But now the CFPB is fully positioned to advance the work of
protecting consumers, and civil rights groups and consumer advocates like
Americans for Financial Reform are prepared to continue to fight for reform,
and to fend off attacks on the progress made thus far.
John Carey is the communications director of Americans for Financial Reform, a coalition of more than 250 national, state and local consumer, labor, investor, civil rights, community, small business, and senior citizen organizations working for financial reform that will crack down on abusive and irresponsible practices by big Wall Street banks and finance industry bottom feeders, and create a financial system that serves the ‘real economy’ rather than putting it at risk.
