The House Financial Services Committee’s Latest Assault on the CFPB

Americans for Financial Reform issued the following statement on May 21, 2014:

Most of us have not forgotten the financial crisis of 2008, or the rampant deceit and recklessness that fueled it. Five-and-a-half years later, the great majority of Americans still see a need for tougher regulation of Wall Street and the lending industry, and welcome the existence of a federal agency with a mandate to police rules of fair play in the consumer finance markets.

At the House Financial Services Committee, however, a different view has taken hold. The big threat, many on that committee seem to believe, comes not from abusive practices in the financial industry, but from the agency that is beginning to do something about them.

The Committee is holding a hearing today on a package of bills designed to harass and undermine the Consumer Financial Protection Bureau, thus making life easier for financial lawbreakers and, no doubt, encouraging the flow of campaign contributions from some of the worst elements of the financial world.

In its short life, the CFPB has issued rules against deceptive and unaffordable mortgage loans; shut down “last dollar” scams that squeeze money from desperate borrowers in return for help that is never actually delivered; set up a complaint system that is giving people a place to be heard and seek relief if they are treated unfairly in the consumer finance market; and delivered nearly $2 billion in consumer refunds for the sale of worthless and deceptive credit-card add-on products, unfair mortgage servicing practices, auto loan pricing discrimination, and an array of scams directed at members of the military and their families. That’s just a partial list of the Bureau’s accomplishments.

Some of the measures before the committee today are best understood as messaging pieces, intended to stir largely imaginary concerns over “transparency and accountability,” as the committee puts it. Others appear obscure or unobjectionable but would create serious procedural hurdles to consumer protection. Still others – notably a bill to repeal the mandate that Congress gave the CFPB to study and, if necessary, regulate the practice of forced arbitration in consumer finance – are naked attempts to roll back public-interest reforms.

Over the past two decades, arbitration clauses have become ubiquitous in the financial marketplace. Typically, they direct all disputes to private arbitration firms, which are hired repeatedly by financial services companies and encountered only once by consumers; most such clauses also bar consumers from banding together in class actionswhen many are harmed by a single pattern of misconduct.

Forced arbitration thus comes close to being a get-out-of-jail-free card for banks and lenders seeking, as the consumer-rights lawyer Paul Bland says, to “cheat a whole lot of people in little ways that they probably won’t notice.” And they vould go on operating that way indefinitely under the terms of a measure introduced by Rep. Patrick McHenry (R-N.C.) – one of the 11 bills that the committee will consider this afternoon and is expected to mark up in short order.

There is good reason to hope that the Senate will ignore this and most of the proposals on the Financial Services Committee’s docket today. But even so, the committee’s enthusiasm for these bills raises an important question. It is the question that Senator Elizabeth Warren, who came up with the original idea for the CFPB, articulated on the Colbert Report Monday night: it’s about “whose side the government is going to be on. Is it going to be on the side of the largest financial institutions and the largest banks on Wall Street – the ones that can hire a lot of lobbyists and lawyers, or is it going to be on the side of real people?”