Your Wallet Will Suffer If This Agency Is Gutted
The Consumer Financial Protection Bureau has saved Americans $12 billion, but many businesses and congressional conservatives want to eliminate it.
By Brad Wolverton
March 14, 2017
If you care about your personal finances, be warned: There’s a battle brewing in Washington that will reach your wallet.
The new Congress and the Trump administration are taking aim at a young federal bureau that arguably has done as much to change the financial lives of consumers as any other government agency in history.
Most every American who has a credit card or mortgage or bank account or personal or student loan, or who cares about their credit rating, has benefited in some way from the Consumer Financial Protection Bureau.
The agency says some 29 million of them, or about 1 of every 8 adults, are receiving direct financial relief — money returned to them — as a result of its work since it opened in 2011.
Collectively, for every $1 in federal spending on the agency, more than $4 has been placed back in consumers’ pockets, a review by NerdWallet found. The agency has saved or returned to Americans $12 billion, while costing taxpayers $2.9 billion to operate over that period.
Other improvements, felt by virtually all consumers, have come in the form of lower costs, a more stable economy and new power to resolve individual disputes with financial institutions.
“We know exactly what the landscape would look like without the CFPB,” Sen. Elizabeth Warren, D-Mass., told NerdWallet. “We saw it in the 1990s and in the 2000s in the run-up to the biggest financial crash since the Great Depression.”
Not only did the bureau help the nation recover from the recession, but it also will help prevent another crash, she said.
Warren helped start the agency and has been a lightning rod for its critics who say the CFPB has misinterpreted laws, stifled business expansion and made it difficult for companies to plan or budget for the future.
Critics say the bureau’s changes have come at a high cost to industries and businesses — and that those costs are often passed along to consumers in the form of higher fees or prices for financial products and services.
They and their supporters in Washington are pushing to gut the bureau or at least sharply curtail its powers, starting with firing its director, Richard Cordray, whom they view as a rogue regulator.
“Cops on the beat don’t make law, they enforce law,” Republican Rep. Jeb Hensarling, chair of the House Financial Services Committee and a vocal CFPB critic, told NerdWallet. “It is the accountable, elected branch of government that makes the law.”
As the agency’s future is debated, its record will be under intense scrutiny. Here is a look at its specific accomplishments and its opposition. (Disclosure: NerdWallet CEO Tim Chen is a member of the CFPB Consumer Advisory Board.)
Congressional conservatives and many businesses want to curtail the CFPB's powers, including firing its director, Richard Cordray (at lectern above).
Some 44 million Americans owe a collective $1.4 trillion in student loan debt, with an estimated one-fourth of borrowers either in default or delinquent on payments.
Those troubled borrowers are the target for many unscrupulous businesses, including loan service companies and debt collectors that often trade in deception, promising to help borrowers meet their obligations for fees they sometimes disclose and sometimes do not.
The CFPB has sued several for-profit colleges for predatory lending practices, including ITT Educational Services, which announced last year that it planned to shut down its 136 schools.
The bureau helped students of now-defunct Corinthian Colleges get reimbursed for nearly $500 million after alleging that the company coerced tens of thousands of students into taking out private loans by promising bogus job prospects. The company then used illegal tactics to collect on those debts, the CFPB found.
In January the agency sued Navient Corp., the nation’s largest student loan servicer, accusing it of “systematically and illegally failing borrowers at every stage of repayment.”
The bureau alleges that the company, which services more than $300 billion in federal and private student loans, directed struggling borrowers into costly repayment plans and misallocated their money.
Navient has denied the claims.
Lack of information is often the starting point for defrauding former students. They don’t know what options they have aside from those outlined by schools, debt collectors and others that see their struggling financial condition as a business opportunity.
The bureau has also helped defend borrowers in disputes with their loan servicers.
Just filing the complaint and having a claim number — all of a sudden, this loan servicer acted completely differently.”
Raychelle Burks, an assistant chemistry professor at St. Edward’s University in Austin, Texas, contacted the CFPB after she had problems setting up a repayment plan with Nelnet, which services her federal student loans. Burks says the company refused to answer her calls and sent her letters arguing that she was not responding to its inquiries.
But within days after Burks provided the CFPB and the Department of Education with the dates and times of her calls and copies of correspondence, Nelnet’s representatives called her to arrange a payment plan. (Nelnet did not respond to requests for comment.)
If you’re like most people, you view your credit card as a tool to put more money in your pocket. And there are plenty of cards to help you do that, offering cash, travel and other rewards that can add up to hundreds of dollars in annual savings.
But many big card companies have been offsetting those benefits by conning consumers in other ways.
The CFPB has uncovered deceptive marketing schemes at some of the largest card issuers, including Bank of America, Citibank and JPMorgan Chase, which the agency said charged millions of customers for services they never received.
In 2014, the bureau ordered Bank of America to refund $727 million to customers who it said were improperly billed for services that were supposed to protect them from fraudulent activity and excuse debts if they lost their jobs or became disabled. A year later, the agency forced Citibank and its subsidiaries to return some $700 million to customers for similar problems.
Consumers need access to convenient, low-cost financial services products.”
The CFPB required Chase Bank to reimburse customers $309 million for charging $7.99 to $11.99 a month for “identity theft protection” and “fraud monitoring” services that the agency says were never provided. Those problems happened between 2005 and 2012.
All told, the agency says it has returned about $2.5 billion to defrauded credit card customers.
The bureau has also tried to clean up problems with prepaid debit cards, which are popular with people who have poor credit histories. Prepaid cards give consumers who don’t have checking accounts an easy way to manage their money. They can use the cards to store cash and pay bills without a bank.
But prepaid cards, which are not subject to the same rules as credit cards, are often laden with hidden fees, including costs for activation, balance inquiries, reloading and inactivity. Starting in April 2018, prepaid card issuers, which include big banks as well as retailers like Wal-Mart, will be required to provide customers with clear, upfront information about account fees and periodic statements or available balances
If you use a prepaid card, you’ll also have new rights to dispute unauthorized charges and new protections against a lost or stolen card. Banks that offer traditional credit cards have had to comply with standards like those for years. But until the CFPB came along, prepaid card issuers did not have to offer customers those protections.
In February, Republican lawmakers introduced a bill that would kill the prepaid rules.
Card issuers have also rallied against it, opposing what they see as onerous requirements for prepaid accounts that have overdraft or credit features.
“Consumers need access to convenient, low-cost financial services products,” Richard Hunt, president of the Consumer Bankers Association, said in a statement last year. But costly changes could lead companies to stop offering the cards, banks say, which would leave consumers with one fewer option for their short-term financial needs.
If you’ve ever missed payments on a bill or credit card or failed to cover a loan, you’ve probably dealt with a debt collector, whose job is to compel you to make good on your financial obligation.
But what happens when the debt’s not really yours, or collectors won’t stop harassing you even after you’ve paid?
Debt collection accounts for more complaints to the CFPB than any other financial product or service. An estimated 70 million Americans have a debt in collection or have been contacted about one. And according to a recent CFPB study, about 1 in 4 consumers felt threatened by a collector’s conduct.
Sharron Greenberg received a letter from a debt collector last year after her son had a colonoscopy that she thought her ex-husband’s insurance had covered. When she tried to dispute the charge with the hospital, Monmouth Medical Center in New Jersey, she says administrators there told her that they had the right to bill her for the balance, some $2,400, because she had signed papers agreeing to cover the costs.
She filed a complaint with the CFPB against the hospital and the debt collector, Senex Services, providing documentation showing a bill in her ex-husband’s name and that his insurance was supposed to cover their son. She never heard back from the hospital, but within two days Senex agreed to close the file.
Neither Monmouth nor Senex would comment on an individual consumer’s case, citing federal privacy law.
Greenberg seems convinced the bureau’s backing gave her the leverage she needed in her dispute. “I wasn’t getting anywhere fighting this on my own (except maybe in trouble!), and it wouldn’t have made sense to try and fight it in court,” Greenberg said in an email. “I really would have been stuck in a bad situation if not for CFPB.”
Many collectors buy delinquent debt from creditors for pennies on the dollar because all earlier attempts to force repayment have failed. To break through to those debtors, some companies resort to intimidation by threatening to have them arrested or contacting them at work to demand money.
Many collectors have inaccurate information on consumers. More than half of the consumers surveyed by the CFPB say collectors thought they owed more money than they did or were looking for the wrong person.
If problems like those happen to you, there’s often little you can do. But the CFPB hopes to change that. It has proposed regulations that would limit the number of times collectors are allowed to contact debtors every week (a maximum of six times) and require collectors to verify debts before contacting consumers.
Those rules would put more pressure on creditors to keep better records of your missed payments and to share those with anyone they sell your debt to. Without those records, collectors would have a harder time suing you.
Those may sound like baby steps toward cleaning up some of the most blatant abuses consumers face in any arena. But it could help with what might be the biggest problem for debt-saddled consumers. Many people summoned to court over unpaid bills simply never show up. Even though collectors often don’t have evidence that you’ve failed to pay off a debt, your absence earns them the right to have your wages garnished or to send you deeper into debt.
Buying or refinancing a home is a more onerous process than it’s been in years under new rules the CFPB put in place in 2014. Lenders now must essentially burrow deeply into your financial life to determine if you have the ability to make your mortgage payments.
The rules are intended to prevent the kind of high-risk loans that set the stage for the Great Recession of 2007-09. Mortgages were handed out with little research into borrowers’ ability to make payments. The failure of those mortgages triggered a collapse of financial markets and millions of foreclosures.
The additional documentation and analysis has aggravated buyers and lenders alike.
On the other hand, the new rules greatly curtailed the foreclosure rate in recent years. House prices stabilized and then increased across the nation.
Raj Date, a former deputy director of the CFPB, says the mortgage market was “in shambles” when the bureau was created. Congress asked it to create safeguards on nearly every facet of the industry on what he calls a “ludicrously fast” timetable.
“Hitting those deadlines so that everyone in the marketplace knew the rules of the road in short order was a terrific accomplishment,” he said in an email.
Other new rules give borrowers more clout once they take out mortgages. The changes require lenders to provide clear monthly statements to ensure that they’re crediting your payments and push loan servicers to fix problems with your account.
When lenders have failed to fix problems, some consumers have used the weight of the CFPB to try to get their issues resolved.
Hitting those deadlines so that everyone in the [mortgage] marketplace knew the rules of the road in short order was a terrific accomplishment.”
Steve Hickey, a product designer in Boston, says that as he refinanced his home last year with CitiMortgage, the notary showed up with papers that had the wrong loan amount. It included his closing costs.
Hickey says bank officials tried several times to make him roll his closing costs into his mortgage despite his desire to pay the costs out of pocket, which would save him money over time.
The notary told him he would lose his rate lock if he didn’t sign the papers, but Hickey refused. He emailed several Citi executives, threatening to file a complaint with the CFPB. The bank quickly corrected the problem, allowing him to pay his closing costs out of pocket (it also reduced the closing costs to compensate him for the difficulty).
Hickey says that without the CFPB’s presence, CitiMortgage would have had less incentive to fix the problem.
“To most corporations, customers are barely a rounding error,” he said in an email. “But it’s highly meaningful to the little guy. Knowing you’ve got someone in your corner that can actually make mistakes go away is a powerful tool.”
The CFPB has also provided protections for consumers who have trouble making payments. Lenders may not start foreclosures until you’re more than 120 days delinquent, and they can’t start while they’re working with homeowners who have applied for a loan modification.
Cops on the beat don’t make law, they enforce law.”
Critics say the new rules have made it harder for some disadvantaged groups to get mortgages. One result of the mortgage overhaul, they say, is that lenders increasingly have focused on commercial loans and high-dollar home loans, granting fewer mortgages to African-Americans and Hispanics than just before the crisis, according to a 2016 Wall Street Journal analysis.
Hensarling, who represents a district in Texas, told NerdWallet that the agency’s mortgage policies have forced lenders to make costly compliance changes and reduced opportunities for many Americans.
“I don’t believe that is a good thing, and I don’t think that one person in America should decide whether or not you get a home,” he said, referring to the CFPB’s director.
Hensarling said that lending standards are too high and that banks should be allowed to make independent judgments about the risk involved in a loan. “I want the market to make these determinations, and I want banks to have strong capital,” he said.
He plans to introduce a bill that would sharply curtail the bureau’s regulatory powers and limit its ability to supervise banks and other financial institutions.
Little evidence exists showing that CFPB rules have led to declines in lending or harmed banks’ bottom lines. Although mortgage applications have dropped recently as interest rates have risen, the housing market has enjoyed a sustained recovery in the years following the Great Recession. The rebound has been good for lenders, with many banks posting record profits.
Their critics call them fringe financial players. But the proliferation of payday lenders — which have about as many U.S. retail stores as McDonald’s and Starbucks combined — suggests that they are popular with more people than just those living paycheck to paycheck.
Payday loans, which are typically about $350, can have interest rates that top 300%. (On average, the CFPB says, the typical borrower would have to fork over more than $400 to pay off a loan of that amount.)
And while payday loans are designed to merely tide workers over a couple of weeks, many borrowers struggle to repay the money in that time, taking out one loan on top of another and piling up more and more fees.
The bureau has stepped in to stop this negative cycle, proposing the first rules for small-dollar, nonbank lenders, which cater to an estimated 12 million Americans. The regulations would require lenders to verify borrowers’ ability to repay the debt and limit the ways in which companies dip into customers’ checking accounts to recover borrowed money.
The payday loan industry has pushed back hard, arguing that the underwriting changes alone would put many lenders out of business.
It seems like a 300% loan rate should give any company enough cushion to operate. But with high default rates (about one-third of payday and auto-title loans end up in default) and costly overhead (think of all those stores), the industry might have to rethink its business model.
While that might leave lower-income Americans with one fewer option to borrow money, it could keep them from spiraling deeper into debt.
Credit rating companies
When you want to borrow money for a new house or car or apply for a credit card, it helps to have a strong credit score. But how that score is determined has long been a mystery.
Your score is based on information in your credit reports, which is collected by the three big credit reporting companies: Experian, Equifax and TransUnion.
To determine how much credit you qualify for and the interest rate you will be charged on loans, most lenders rely heavily on your FICO score, which is based in part on how promptly you pay your bills and how much of your available credit you’re using.
[Credit card companies are] giving consumers access to their [credit] scores, which has never been done.”
As consumers have become more educated about the importance of having a high credit score, some credit rating companies have sought to capitalize on the market, selling dubious credit services.
In January, the CFPB ordered Equifax and TransUnion to return $17.6 million to consumers after alleging that the companies misled customers about the cost and usefulness of the credit scores they marketed. The scores they sell to consumers, the CFPB said, are not typically used by lenders in determining who qualifies for mortgages and other products.
The bureau also alleged that TransUnion and Equifax falsely claimed that their credit scores and credit-monitoring services were free, when some customers were automatically enrolled in plans that, after a brief trial period, cost $16 or more a month. That’s a lot of money for a number that lenders aren’t using.
The CFPB has also pushed for greater transparency in the credit world, encouraging credit card companies and FICO, also known as the Fair Isaac Corp., to provide consumers with free credit scores.
FICO had already been marketing its credit scores to consumers, says Barry Paperno, a former FICO spokesman who writes about consumer credit issues. But the CFPB’s push helped persuade more credit card companies to provide customers with free FICO scores on their card statements.
“They’re giving consumers access to their scores, which has never been done,” Paperno says. As a result, the murky business of credit has become a little clearer.
The bureau is not responsible for regulating auto dealers, but it has jurisdiction over indirect auto lending (when dealers make a loan to a consumer and then sell it to a bank, credit union or other lender). In recent years, the CFPB and the Department of Justice have fined or sought restitution from several large auto lenders, including Ally Bank, Honda and Toyota, after alleging that the companies had discriminated in their lending.
Arbitrary loan markups that dealers have traditionally taken, which can amount to an additional 2 percentage points of interest on your loan, allow them to charge borrowers different interest rates regardless of their credit history.
Consumers often are ‘captive’ customers and frequently fail to compare or shop around for [auto loan] rates.”
The bureau ordered lending giant Ally Financial to return $80 million to more than 230,000 African-American, Hispanic, Asian and Pacific Islander borrowers after alleging that they paid higher interest rates than white borrowers for their car loans.
The CFPB initially proposed eliminating arbitrary auto loan markups, instead allowing dealers to take a flat fee that would not result in discrimination. But the bureau eventually agreed to settlements that allowed dealers to add up to 1 percentage point to loans.
The need for some regulation of auto lending seems clear, says Steven Davidoff Solomon, a law professor at the University of California, Berkeley.
“Consumers often are ‘captive’ customers and frequently fail to compare or shop around for rates,” he wrote in a 2015 New York Times column. “This may be one area where clearer disclosure could actually help.”
Aside from intervening with various financial products and services, the CFPB has been active in ways that encompass the full spectrum of consumer finance.
Most notable have been actions that empower consumers by giving them a forum for complaints and a special focus on the needs of consumers in the military. The CFPB also is taking steps to give all consumers more collective clout by reining in the growing use of arbitration as a substitute for the courts.
The CFPB has given consumers a place to lodge grievances against companies and get support in fighting their problems.
Since it went online in 2011, the bureau’s consumer complaint portal has collected more than 1 million complaints. Unlike other agencies that field consumer complaints, the CFPB posts its publicly, including the names of companies and a detailed description of the allegations.
The CFPB has used the data to analyze troubling industry patterns and to crack down on bad actors. Although the Los Angeles Times broke the news about Wells Fargo employees setting up fake checking and credit-card accounts, consumer complaints about the bank’s practices helped the CFPB discover the widespread nature of the problems, which led the bureau to hand down a $100 million fine.
The public database has also given new muscle to individual consumers. As Raychelle Burks learned from her 2011 dispute with Nelnet, just the existence of a complaint can force a company to resolve a problem.
“Just filing the complaint and having a claim number — all of a sudden, this loan servicer acted completely differently,” she says.
The banking industry would like nothing more than to see those narratives be taken offline. Bank leaders say the write-ups are riddled with inaccuracies and can be misleading for consumers.
There’s no verification that the complaints are valid.”
“There’s no verification that the complaints are valid, and the information is not put in context,” says Nessa Feddis, a senior vice president at the American Bankers Association. Such misinformation can cause consumers to choose products and services that might not be best for them, she says.
The database at minimum gives consumers a starting point to evaluate companies, says Ed Mierzwinski, consumer program director for the United States Public Interest Research Group, a consumer advocacy group.
“If I’m thinking of opening an account, it gives me a place where I can see how this bank has treated its customers,” he says. After all the problems we’ve seen in the financial sector, Mierzwinski says, the CFPB and its complaint system have become an essential watchdog.
Since the CFPB introduced its online complaint center, it says it has fielded more than 70,000 grievances from military families, or an average of more than 1,000 complaints a month.
Nearly half of those complaints in recent years have involved debt collectors. Unpaid debts can harm anyone’s credit, but they can derail a military career. And when creditors have faulty information about service members, it can be difficult to dispute, especially for those serving overseas.
Lenders were abusing the system to siphon money out of service members’ paychecks.”
The CFPB, which has a special unit charged with protecting military families, says it has helped return them more than $120 million in restitution since 2011.
The bureau has uncovered widespread mistreatment of military members in the servicing of their student loans. It worked with the Department of Justice to force one of the country’s largest student loan servicers to credit nearly 80,000 service members for excess loan interest it says they were charged.
The CFPB has also helped military members who it said have faced illegal foreclosures. And the bureau has made it easier for service members, whose duties often require them to move frequently, to sell their homes and still honor their financial commitments.
But one of the bureau’s most impactful changes was to clean up a military auto loan program that allowed service members to have their loan payments automatically deducted from their paychecks. The program was designed to help military members cover their payments in the event of deployment.
The CFPB said that U.S. Bank, which helped facilitate the program, had failed to disclose some $180 in fees it was charging military families over the course of their loans. One of the bank’s partners, Dealers’ Financial Services, was selling vehicle service contracts to military members that it claimed would cost only a few dollars a month. The contracts cost an average of $43 a month, the CFPB said.
“Lenders were abusing the system to siphon money out of service members’ paychecks,” says Christopher Kukla, an executive vice president at the Center for Responsible Lending who oversees its auto lending work.
The CFPB worked with the Defense Department to create new protections in its program, he says. “It’s led to really significant reform.”
The next time you apply for a new credit card or checking account, chances are you’ll have to sign an arbitration clause, which limits your right to sue. Banks and credit card companies force consumers to agree to arbitration to protect themselves against class-action lawsuits.
Arbitration is designed to save banks money, but it rarely benefits customers. In fact, few consumers ever file individual arbitration claims, according to a 2015 CFPB study. Class-action cases, on the other hand, have brought consumers hundreds of millions of dollars in relief.
After Wells Fargo employees set up some 2 million fake checking and credit card accounts, dozens of customers sued the bank to recover improper fees they were charged. Wells Fargo tried to resolve the complaints through the “industry-friendly” arbitration process, Sen. Warren, an ardent CFPB supporter, said on Facebook.
“Unfortunately, there’s a real chance a court will let Wells Fargo shuffle these claims off to die in arbitration,” wrote Warren, a former Harvard Law School professor.
The CFPB has proposed new rules that would prevent companies from using arbitration clauses that block class-action lawsuits. Banks have fiercely opposed the idea.
Feddis, of the American Bankers Association, says the CFPB’s data show that consumers often fare better in arbitration than in class-action cases, in part because lawyers’ fees eat up a large percentage of the damages consumers win in court.
The high costs associated with class-action cases can lead banks to charge higher fees for their services and products, Feddis says. That ends up hurting customers.
CFPB data show there is little evidence that arbitration clauses have led banks to lower prices for consumers.