In this country where we place such a high value on individual freedoms, we often feel a little uneasy about government power.This is especially true when it comes to the economy, the business sector and the market. We've been taught to suspect government intervention, believing that democracy thrives when there's a "free market."
I like to frame government power in the marketplace in a slightly different way. Think of sports. The government writes the rulebook, employs the referees and insures the integrity of the game. This is the analogy I evoke for the Consumer Financial Protection Bureau (CFPB), the government agency created by Congress in 2010 after the worst economic crisis this country has seen in generations.
I serve as vice chairman of the CFPB's Consumer Advisory Board (CAB), and this week the CAB and key bureau staff met in my home state of Mississippi. The reason CFPB holds meetings at different locations across the country -- and away from Washington, DC -- is to gain greater insight into the circumstances unique to particular communities, and to spread the word about the bureau's work.
In small towns from the Mississippi Delta to the southwestern corner of the state, we heard from teachers, students, retired people, business owners, bankers, public officials and ordinary citizens. They spoke about the challenges they face when they try to borrow money to buy a house, to cover emergency medical expenses, attend college or to start a business. A big obstacle, they told us, is the closing of bank branches in small towns and low-income neighborhoods.
"When the bank told us they were leaving in five weeks, it set off a small panic," said Kenneth Broome, the mayor of Utica, Miss. "For our people, especially our senior citizens living on a fixed income, it's kind of a hardship to have to get transportation to a town further away."
According to a Bloomberg report, 93 percent of bank closings since 2008 have been in low income areas.
"When you don't have a face-to-face relationship with a bank manager and a teller, you lose something important about the American economy," said Lauren Wilkes, who co-owns a small business in Utica. "So many loans for small businesses are made based on relationships."
One of the most important ways the CFPB can have an impact on this kind of large scale, national problem is to make sure the information is available to assess whether a bank or other financial institution's actions have a disproportionate affect on vulnerable populations such as senior citizens, students, active or reserve military personnel and underserved communities.
"One of the bedrock principles at the (CFPB) is transparency," Bureau Director Richard Cordray told people at a public meeting in Itta Bena, Miss. "We have a deep respect for the power that knowledge conveys."
To advance the goal of making sure information is meaningful and available, the CFPB has recently released a set of web-based tools to provide consumers with easier access to public information collected under the Home Mortgage Disclosure Act. With access to information and rules in place for the entire sport -- banking services -- the CFPB can determine whether the playing field is level. The other way the CFPB can exert its power is to protect individual consumers.
A major contributing factor to the financial crisis was the fact that many individuals borrowed more money than they could afford to repay by signing up for mortgages that they did not fully understand. The banks should never have approved these loans.
A key provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act is the requirement that "financial institutions must ensure that borrowers can repay the loans they are sold."
In Mississippi this week, people asked for protection from predatory lenders. "I am a victim of predatory lenders," said Pauline Rogers. "They will entice you with a quick fix because they are strategically located in low income areas, but one thing they will never give you is a future." Mississippi has the highest per capita concentration of payday lenders in the nation. The allowable fees for a small dollar loan in the state are higher than those in neighboring Tennessee.
At Hope Credit Union, where I serve as CEO, we have assisted more than 400,000 people through responsibly structured financial services since 1994. One example is consolidating eight payday loans for a member who had taken out the loans in quick succession, to cover an emergency car repair. A small degree of effort and responsible judgment by any of the eight lenders would have revealed that she could not repay the debt by her next payday. Not surprisingly, it did not take long for rapidly accumulating renewal fees to create an inescapable debt trap.
Fortunately, the CFPB is working hard to understand how these and other abusive financial practices impact lives across the country, and is establishing and enforcing rules that protect every individual equally.
Someday soon, let's hope that whether a person is suiting up for a team in Itta Bena, Mississippi or in New York City, the rules will be fair to all who play the game.