The Financial CHOICE Act Ignores One of the Greatest Lessons Learned from the Great Recession
Yesterday, in the midst of the House voting to repeal and replace the Affordable Care Act, the House Financial Services Committee approved HR 10, the Financial CHOICE (Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs) Act of 2017. The legislation, which was reintroduced just last week by Financial Services Committee Chairman Jeb Hensarling, is billed as necessary to spur economic growth, hold Wall Street accountable and foster consumer financial independence. Despite how the Financial CHOICE Act is being framed by supporters, at the core of what it aims to achieve is a dismantling of common-sense Wall Street reforms and consumer protections put in place as a response to the Great Recession.
At the top of that list is a fundamental reshaping of the Consumer Financial Protection Bureau (CFPB), which despite the characterization by opponents of the Bureau that it is a 'rogue agency,' in the six-years since it's been around it's been both highly successful and extremely accountable to the very people it was set up to serve: consumers. In part, that success and the level of accountability we've seen over these past few years can be attributed to the CFPB's sole-mission of helping and protecting consumers, which has been made possible by a number of agency functions, including:
Through its consumer-focused abilities, the CFPB has helped countless consumers make informed financial decisions by providing valuable tools and information that have helped many navigate a financial system that can be complex to even the most knowledgeable consumer. As part of this effort, through its consumer complaint portal, the CFPB has given a voice to consumers who have found themselves unable to resolve issues with financial service providers. To date, the CFPB's consumer complaint tool has resolved issues for over one million consumers.
Part of the CFPB's enormous value to consumers everywhere has been its ability to proactively provide educational resources about the best financial practices available, so that consumers can not only interact with the financial system in a safe manner but can also build long-term financial security. Among some of these tools are the Your Money, Your Goals toolkit—which is a set of resources available for front-line services providers to use with clients as they work to achieve their financial goals—as well as tailored information for libraries, tax preparers and parents.
Data & Research
As impressive as the CFPB's front-facing consumer work has been, its research capabilities have been instrumental to its success so far. In addition to helping the agency better understand trends within a number of consumer financial markets—from mortgages to payday lending—their research functions have also allowed them to discover and take action against a number of unfair financial practices.
Policy & Compliance
In addition to the above-mentioned functions, the CFPB's policy & compliance abilities—including rulemaking and enforcement—have given the agency the ability to craft common-sense policy solutions and rules to protect consumers against predatory practices. Despite CFPB's work so far to develop a number of common-sense rules—including establishing new mortgage lending and disclosure standards—much work remains to be done. Among some of this outstanding work are efforts to prohibit consumers from being entered into forced-arbitration, ensuring that consumers of prepaid cards have access to basic consumer protections and ending the debt trap perpetuated by payday and auto-title lenders. Despite the amount of work ahead, so far, the Bureau's policy and compliance abilities have allowed it to provide about $12 billion in financial relief to 29 million consumers—about one out of every 10 consumers in the country.
So what does the Financial CHOICE Act aim to do to the strongest watchdog consumers have had on their side? Essentially, it would gut it.
While the bill does not propose converting the CFPB into a multi-person commission, thus setting the stage for internal gridlock at the Bureau for years to come, it would move the agency's funding under the appropriation process, which would provide an opening for members to starve the agency of much-needed funded in the years to come. In addition, it would undermine the CFPB's independence and give members of Congress the ability to stop the agency from working on certain issues.
Unfortunately, this change is just one small piece of what the Financial CHOICE Act aims to do to the CFPB. Some of the other not-so-subtle changes include:
- Limit rule-making authority to enumerate statutes, which has provided the CFPB with flexibility to develop common sense rules that respond to the latest threats against consumers in an ever-changing financial marketplace, recognizing that the problems of today may not be the problems facing consumer tomorrow.
- Repeal of Unfair, Deceptive or Abusive Acts and Practices (UDAAP) authority, which the agency has used to bring enforcement actions against a number of bad financial actors, helping to return billions back in the pockets of consumers.
- Repeal of advisory boards, supervision and market monitoring powers, which has helped the agency cultivate broad stakeholder engagement and identify market trends that could pose threats to consumers.
- Complete prohibition from regulating payday, auto-title or other forms of small-dollar lending, which each year strips over $8 billion dollars from the pockets of financially vulnerable consumers through triple digit interest rate loans that keep consumers trapped in a long-term cycle of debt and financial insecurity.
- Allowing the Bureau to eliminate certain offices and functions, such as its consumer education and research arms as well as the office of fair lending, which has been critical to ensuring all communities have fair and equal access to credit, whether it's to go to school, start a small business or buy a home.
- Blocking the CFPB from making the consumer compliant database public, which has helped to create more transparency between consumers and the marketplace and has provided consumers with an invaluable tool to remedy issues across a whole range of financial products and services.
Beyond the CFPB changes, the Financial Choice Act also includes a whole host of other provisions that would roll back a number of tools and laws, including the Dodd–Frank Wall Street Reform and Consumer Protection Act. Among those provisions is one that would harm vulnerable individuals and families seeking to purchase a manufactured home—which make up one of the largest sources of unsubsidized affordable housing in the country—by stripping away needed protections that protect these homebuyers against a number of predatory practices that have plagued this industry, including loan steering.
If this is what it takes to spur greater economic growth, hold Wall Street accountable and foster consumer financial independence, then the costs are too high—especially after going through the Great Recession in which clearly showed why an agency like the CFPB is needed. While some may need what the Financial Choice Act is selling, families and consumers throughout the country need a strong, effective and independent consumer watchdog along with an array of strong federal resources to protect them.