The Dismantling of the CFPB Is Leaving Vulnerable Consumers Unprotected and Supercharging the Racial Wealth Divide
Wealth-building is often considered the main strategy for closing America’s wealth divide—particularly the racial wealth divide. But wealth-building won’t close the gap unless it’s counterpart, wealth-stripping, is prevented as well. Wealth-stripping disproportionately impacts low-income households and households of color. It often comes in the form of discriminatory practices from lending institutions.
Recent actions and statements from Trump-appointed officials in charge of key government protections around financial security show an abdication of responsibility to curtail wealth-stripping. Last week, the Trump-appointed Comptroller of the Currency, Joseph M. Otting, came under intense criticism from Senate Democrats after saying he never "observed" any discrimination in lending or housing. He later clarified that despite never personally observing this type of discrimination, he does believe it exists.
As sad as that sounds, it’s actually a vast improvement over most other Trump Administration officials overseeing key consumer protections. Housing and Urban Development (HUD) Secretary Ben Carson, who once called HUD’s mandate to enforce the Fair Housing Act a “mandated social-engineering scheme.”
Then there’s Mick Mulvaney, the acting director of the Consumer Financial Protection Bureau (CFPB—or the Bureau of Consumer Financial Protection, as he recently renamed it), who is personally invested in undoing the Bureau’s mission to protect consumers.
Mulvaney has taken steps to rollback regulations, dismiss enforcement actions, remove public access to data, halt input from external advisors and experts and more. He is also making it easier for financial institutions to discriminate against consumers. Mulvaney moved the status of the CFPB’s Office of Fair Lending and Equal Opportunity to come under the Director’s Office, effectively stripping its enforcement powers and independence.
Now Mulvaney is turning his sights to the Equal Credit Opportunity Act (ECOA). The ECOA is a 1974 law that prohibits discrimination in lending. This includes cases of unintentional discrimination, or disparate impact claims. Based on a recent Congressional Review Act bill passed by Congress to repeal CFPB guidance on indirect auto lending—which guts the CFPB’s authority to enforce anti-discrimination in car loans—Mulvaney wants to re-examine the regulations around ECOA in a way that would potentially make it harder for people to win discrimination claims against financial institutions:
“How am I now going to enforce ECOA claims [when] I've got an auto lender and a non-auto lender? How am I going to enforce it equally against them when I know I cannot enforce disparate impact against the auto lender? I think there is a lot more to the CRA [Congressional Review Act] ruling than just auto," Mulvaney said.
Even if Mulvaney doesn’t achieve this during his temporary tenure at the CFPB, it is likely to remain a priority of Kathy Kraninger, who was recently nominated to be his successor. Kraninger works for Mulvaney at the Office of Management and Budget, which he directs, and has no experience in lending or consumer protections, which should worry consumers and legislators.
Ultimately, any changes Mulvaney or his successor makes to the ECOA will have serious repercussions on our most vulnerable consumers and will likely worsen the racial wealth divide, which remains pernicious.
The Urban Institute reported that people of color lost more housing wealth than Whites did between 2007 (before the financial crisis), and 2010. Another example, from Pew, shows that Blacks are twice as likely than their White peers to use payday loans, and Latino borrowers are 1.5 times as likely. Recent research from the Center for Responsible Lending found that each year, payday loans strip $8 billion from the pockets of borrowers. Overall, Asian, Black and Hispanic households tend to use costlier alternative financial services, like payday loans, at a rate 1.2 to 2.5 times higher than White households, according to the Federal Deposit Insurance Corporation (FDIC).
Despite slow, but steady economic growth in the United States since the Great Recession, median Black and Latino wealth only recently began showing signs of recovery from the 2008 economic crisis. While median White wealth has been recovering for about eight years now, median Black and Latino wealth didn’t start increasing until 2013. Since then, Black and Latino wealth has risen substantially, but the racial gap is not closing—it's widening. Today, median Black and Latino wealth stands at $17,000 and $20,000, respectively, compared to $171,000 for the median White household.
Over the past six years, before the change in its leadership last year, the CFPB returned over $12 billion directly to consumers who were harmed by predatory financial practices, including $450 million to over a million victims of fair lending violations. Since Mulvaney has taken over, the bureau has only issued two enforcement actions. This lack of leadership at the CFPB, combined with the new tax law that greatly shifts tax benefits to wealthier and White households, does not bode well for the racial wealth divide or the average American family.
Going beyond the CFPB—Comptroller Otting will also have some influence on the future of the racial wealth divide through potential changes coming soon to the Community Reinvestment Act (CRA). The CRA was a landmark legislation passed in 1977 to combat redlining, a practice that prevented families in communities of color from acquiring mortgages to purchase homes, the greatest source of wealth for most Americans. Federal regulators are planning to issue new regulations for the CRA that could make equal access to mortgage credit even more difficult for households of color.
The CRA and the ECOA make each other more effective. While the ECOA makes lending discrimination illegal, the CRA requires depository institutions to invest and lend where their branches are sited, which helps connect local residents to competitive lending products, including the mortgages, car loans and credit cards many of us take for granted. The presence of well-regulated and well-regarded banks in a community can discourage predatory actors from ripping off borrowers.
Defending the CRA and ECOA will be crucial to holding the line on an ever-growing racial wealth divide. Don't be fooled by what seems like an otherwise healthy economy with low unemployment and high stock market numbers. Inequality is still growing to record levels and economic mobility is diminishing.
Regulators like Otting, Mulvaney, Federal Reserve Chairman Jerome Powell, newly-installed FDIC Chairman Jelena McWilliams and others will all have a key role to play. But Mulvaney and Kraninger (if confirmed, which is not certain) will play the most important role and should be held accountable for protecting consumers, particularly the most financially vulnerable and those of color. As noted earlier, Kraninger has no background in financial services issues and appears to have been chosen to continue dismantling the bureau and its important work. Consumers deserve and need better.