Consumer Law & Policy Blog

Radio's Academic Minute: 100 Seconds on Mortgage Disclosures

Here.

Chamber of Commerce Won't Sue to Challenge Cordray Recess Appointment

Here.  They may sue later, however.  Or others might.  Or a challenge to the NLRB recess appointments made at the same time may decide the question.

The 1969 Fed and the CFPB

Lea Krivinskas Shepard of Loyola Chicago reports that yesterday (the day the CFPB got its first director), while researching the legislative history of the Fair Credit Reporting Act, she came across a 1969 letter from then-Fed ChairmanWilliam McC. Martin, Jr., commenting on Congress' intention to give the Fed regulatory authority over the FCRA:

With respect to the provisions for administering the bill, the Board is not prepared to assume responsibility for prescribing regulations to implement such legislations . . . . The Board has accepted responsibility for prescribing the Truth in Lending regulations.  However, the legislative history of the Truth in Lending Act clearly established that the Board's role should be a limited one, and that its acceptance of responsibility for developing regulations under that Act should not be taken as a precedent for assigning to the Board wide-ranging duties in the general area of consumer protection.

In view of the recent increase in legislative measures designed principally for the protection of consumers and the likely continuance of this trend, the Board suggests that the administrative responsibility for such legislation be vested in an agency whose responsibilities traditionally have required that it be more intimately concerned with consumer matters, or that a new Federal department or agency be established to which administrative responsibility for consumer protection measures would be transferred and in which responsibility for consumer protection measures would be vested.  In this connection, the Board welcomes the action of the Committee on Government Operations in opening hearings next week . . . to establish a Department of Consumer Affairs. Under this bill, functions relative to consumer matters that have been vested in other agencies, including the administrative responsibilities under the Truth in Lending Act, would be transferred to the new department.

Times Reports that President to Give Cordray Recess Appointment to Lead CFBP

Story at http://thecaucus.blogs.nytimes.com/2012/01/04/defying-republicans-obama-to-name-cordray-as-consumer-agency-chief/?hp.

Somehow, it feels as if the Jedi just won a round against the Sith.

Is This the Best Cordray Opponents Can Do?

by Jeff Sovern

Andrew Kahr, a principal in CreditBuilders LLC, had a column in the American Banker recently titled Who Really Needs the CFPB? Not Consumers at http://www.americanbanker.com/bankthink/who-really-needs-the-CFPB-not-consumers-1045296-1.html. Its reasoning is embarassing.

For example, the lead complains that the Bureau hasn't protected any consumers yet. Of course, the Bureau opened its doors only last summer and doesn't have a Director because Republicans are blocking his confirmation. It seems particularly unfair for critics to charge that the Bureau hasn't protected consumers when its critics have kept it from doing so. Then Kahr complains that the Bureau garners headlines by lobbying for Cordray's confirmation. Except that it hasn't lobbied for his confirmation.

Kahr next complains that the Bureau can pay "boundless sums" to its allies. But he doesn't identify any such payments, which suggests that it hasn't made any. If so, that's more criticism of the Bureau for not doing things that he doesn't want it to do. Then he complains about ACORN--which, as far as I know, has nothing to do with the Bureau.

There's plenty more. Kahr claims that "defects in regulation and enforcement" caused the economic crisis. If by defects he means there was too little regulation, he's right. But maybe he doesn't mean that, because the CFPB is supposed to increase regulation. Oh, and later he urges the CFPB--the agency he opposes--to address overdraft fees on checking accounts. He complains that the Bureau won't use cost-benefit analysis, but the evidence he offers is that he thinks a letter from consumer advocates to the Bureau (not from the Bureau) didn't use such analysis. He complains about prepaid cell phone terms--something the Bureau lacks jurisdiction over (as he acknowledges).

Unimpressive.

Inside a Banker's Mind

by Jeff Sovern

Isn’t it great that Occupy Wall Street is pretty much over? Though the truth is in some ways, they did us a favor. You know how a magician will gesture wildly with his left hand so you ignore what he’s doing with his right? Well, Occupy was like the magician’s left hand. We need people to ignore what’s happening in Washington—the magician’s right hand--and because people are more interested in demonstrations than the details of government, they’re overlooked what really counts. And, unlike the magician, we didn’t even have to do anything to make it happen. It’s as if the audience distracted itself. Plus, the occasional bad behavior of the Occupy folks and second-guessing the authorities shifted attention from us too.

What matters, of course, is that we pull the fangs of the Dodd-Frank Act. Take the Consumer Financial Protection Bureau. If it makes good on the goal of protecting consumers—from us--it may reduce our profits. So far, though, the strategy that we and Congressional Republicans are pursuing to cripple it is working beautifully, and most people haven’t even noticed.

I particularly like what we’re calling commonsense proposals to increase accountability. Congress originally arranged for the Bureau’s funding to be independent of the annual appropriations cycle, just other bank regulators. So we’re arguing for accountability by saying the Bureau ought to get funding from congressional appropriations. That way, we can lobby every year to have its budget cut unless it does what we want. It’s the same strategy Fannie Mae used to get power over its regulator. Sure, Fannie and Freddie Mac ended up being so poorly regulated they needed a bailout of $160 billion or so, but in the meantime, they made tons of money for the people running them.

We’re also saying we can increase accountability by changing the Bureau’s leadership from a single director to a five-member commission. Don’t you love the idea of increasing accountability by having decisions made by a three-member majority instead of one person? As if three people represent the public so much better than one. The bill the Republican-controlled House passed says no more than two commissioners can be from the same party, and one commissioner has to be from the Federal Reserve. That would be the same Fed that got the power to stop predatory lending in 1994, but didn’t use it until after the subprime crisis hit. I don’t think we have to worry about them stopping us from making profits. The House bill provides for accountability, all right; accountability to us. Definitely not to the 99%. It gives us a pretty good shot at either capturing the Bureau, or paralyzing it. Either way, the Bureau doesn’t hurt our profits.

The beauty part is that the Democrats will never agree to this. So we’ve disarmed the Bureau. The Bureau has only limited powers until a director is confirmed, and we’re using the Democrats’ refusal to agree to our “commonsense proposals to increase accountability” to justify blocking confirmation of a director. They didn’t have the votes to defeat a filibuster on the director the other day in the vote nobody noticed, and they can’t compromise without undermining the Bureau. Too bad, so sad. Life is full of pain.

And the long run is even brighter. Next time there’s a big consumer protection problem or bailout, we’ll be able to say we tried more regulation, and it didn’t work, so now let’s go for less regulation. Maybe we’ll be able to get rid of the Bureau.

We have only two things to worry about. One is that the president makes a recess appointment of Cordray and it sticks. The other is that the Occupy guys start paying attention to what’s going on in Washington and protest against that. It would be as if the magician’s left hand pointed to his right. But especially now that Occupy is just about done, that will never happen.

January 3 is the Big Day for a Possible Recess Appointment of Cordray

The president may have as little as thirty seconds to grant Cordray the recess appointment, as the Huffington Post explains.

Checking Account Fee Disclosures

by Jeff Sovern

On Tuesday, the Times printed an editorial, Clearer Bank Account Terms at http://www.nytimes.com/2011/12/27/opinion/clearer-checking-account-terms.html. Here's the concluding paragraph:

By requiring banks to provide straightforward, uniform account disclosure forms, the Consumer Financial Protection Bureau would give customers the ability to comparison shop as well as avoid fees. The Chase form, for example, shows that customers can avoid the $34-per-item overdraft fee by linking a checking account with either a savings account or credit card. Voluntary measures are all to the good. But the consumer agency should make clear, concise disclosure the industry standard.

Today the Times printed my letter about the editorial:

You are quite right to call for clearer disclosures of checking account fees. But disclosure may not be enough to protect consumers.

My study of mortgage disclosures, published in the Ohio State Law Journal, found that many borrowers spent little time reading the final loan disclosures and rarely, if ever, backed out of loans upon learning the terms.

Even the Chase form you praise is three pages long and discloses more than 30 fees.

It is hard to imagine many consumers comparison-shopping on so many terms. Sometimes, disclosures create the illusion of consumer protection but not the reality.

Bloomberg Businessweek: Obama Unlikely to Get Opportunity to Appoint Cordray in Recess

Here.  But consumer advocates say it isn't over yet, at The Hill's On the Money Blog.

Senator Lindsay Graham Calls CFPB "Something Out of the Stalinist Era"

by Jeff Sovern

He said it on Meet the Press.  You can watch it here;  you can also find coverage here and here.  His claim seems to be based on the Bureau's having a director rather than a commission and not being subject to the congressional budgetary process.  Exactly like the Office of the Comptroller of the Currency, which Republicans seems to have no problems with.  Could the difference be that the banks have captured the OCC and not the Bureau?  Incidentally, according to the Center for Responsive Politics, among industries commercial banks are the eleventh largest contributor to Graham, while "miscellaneous finance" rank thirteenth.