Ten years ago, bullies had taken over the playground. Financial service firms preyed on their customers with impunity:
- Lenders made expensive, risky mortgages to people who couldn't afford to pay the money back.
- Credit card issuers foisted overpriced insurance and other add-on products on millions of unsuspecting customers.
- Credit bureaus ignored evidence submitted by people disputing errors in their credit reports.
- Companies sold delinquent debts to collection agencies that ran amok, violating fair debt collection laws and strong-arming people into repaying debts they didn't even owe.
People's complaints fell on deaf ears, since consumer protectionwasn't a priority at any agency. Huge swaths of the credit and debt industries, including credit bureaus, collection agencies and payday lenders, operated with little government oversight.
Then the Consumer Financial Protection Bureau pushed back.
Created by the Dodd-Frank Wall Street Reform and Consumer Protection Act that President-elect Donald Trump has vowed to repeal, the CFPB launched five years ago to defend the little guy. Now the agency itself needs a strong defender, one who understands that a truly healthy, competitive financial marketplace can't exist without sensible regulation and enforcement. It's unlikely to find that defender in Trump.
A system rigged against the consumer
Financial companies fear and loathe the CFPB because it has teeth. In its five-year existence, the bureau:
- Created rules requiring lenders to consider people's ability to repay a mortgage and curbed their ability to make the risky loans, such as interest-only or negative amortization loans, that set off the financial crisis.
- Ordered lenders that were illegally overcharging service members to refund millions of dollars to their military borrowers.
- Forced multiple credit card issuers — including American Express, Bank of America, Chase and Citibank — to pay hundreds of millions of dollars in compensation to consumers over illegal practices, including unfair billing and deceptive marketing.
- Got the three main credit bureaus to finally update their dispute-processing software so that documents submitted by consumers, such as account statements or receipts, could be forwarded to companies reporting incorrect information.
- Took steps to rein in the debt collection industry, including fining Chase $136 million for selling "zombie debts" to debt buyers that included accounts that were already settled, discharged in bankruptcy or simply not owed.
Profit, but honest profit
It's no wonder the financial services industry is bent on destroying or at least defanging the bureau. It's not just the billions of dollars they've paid out in fines and restitution. The industry would like to pretend the abuses that led to the Great Recession either didn't happen or couldn't happen again. It claims the agency is meddling unnecessarily in its business and thwarting the free market system.
In fact, it was the financial services companies that did their best to thwart the basic tenets of capitalism. Instead of competing based on quality and price, they larded contracts and service agreements with hidden "gotcha" clauses to increase revenue. They lied to customers about what products really cost and signed people up for services they didn't want. They offered incentives for mortgage lenders and brokers to steer unwitting customers into high-cost loans when the borrowers qualified for safer, low-cost loans.
Just after the CFPB opened its doors, Bank of America CEO Brian Moynihan became the poster child for financial sector arrogance. Asked to defend a new $5 monthly fee the bank announced it would charge for using a debit card, Moynihan insisted: "We have a right to make a profit." No, actually. Under our system, companies have the right to
make a profit. That's a huge difference, since no one has a right to profits that aren't earned honestly.
And that's why the CFPB exists — because many financial service companies don't understand that distinction and will go to any lengths to make a buck. Without an enforcer to make sure they adhere to the rules that make marketplaces transparent and fair, these companies will run roughshod over consumers.
The CFPB's sole priority is to make sure the average person gets a fair deal. President-elect Trump, you were elected by those people — people who've been bypassed by the economic recovery and run over by Wall Street. If you really had their interests at heart, defending and even strengthening the CFPB would be among your highest priorities.
Liz Weston is a certified financial planner and columnist at NerdWallet.