The Consumer Financial Protection Bureau is on your side.
Who’s out there fighting for you? When you go to vote, and you have to choose between a Democrat and a Republican, ask yourself which one is going to fight harder for you. For essentially every American — other than those at the tippity-top of the economic pile, perhaps — that simple question has a simple answer: the Democrat. The most effective way to make that argument is through a story. Thankfully, we’ve got a really good one, and it’s one that is making news again.
The Consumer Financial Protection Bureau protects everyone in this country who deals in some way with financial services companies. If you have a bank account, a mortgage, a retirement or other brokerage account, then the CFPB is there to police the companies you deal with. It also protects people who are in a particularly vulnerable position, like those being pursued by a debt collection agency, or who are in foreclosure, or who rely on payday loans. The CFPB stands up for all those Americans — people who, as individuals, would stand little to no chance of getting redress for abuse committed by the companies with whom they interact.
This agency exists almost completely because of Democrats. Elizabeth Warren came up with the idea and proposed it in 2007. In early 2010, she joined the Obama White House, and her job was to oversee the bureau’s development. The Dodd-Frank Wall Street Reform and Consumer Protection Act (only three GOP senators and three Republican House members voted for the final bill) created the CFPB, and Richard Cordray, former Ohio attorney general, became its first director. Presumably you all know what Elizabeth Warren has been up to since then.
This week, Cordray published an opinion piece in the New York Times called “Let Consumers Sue Companies,” in which he laid out the stakes in the latest battle the CFPB is waging. It’s just another of the many this government agency has undertaken on behalf of consumers against those who would rip us off.
Cordray begins by discussing what happened when banks lost big money after Home Depot failed to safeguard financial data. Rather than each bank individually filing its own lawsuit, they banded together to file a class action suit. This tactic is much more effective, both in terms of cost to those filing it, and in terms of forcing the defendant to make its victims whole by paying for damages.
Most consumers used to be able to file class action suits as well. However, as Cordray explains, few are still able to because in order to open just about any kind of account, one has to sign away the right to join a group lawsuit. If you’ve ever bothered to scroll down and read one of those contracts to the end without nodding off, you’ll see what Cordray is talking about. Of course, if you’ve been wronged and explored joining a suit, you’ve likely already experienced these restrictions first hand. Few individuals have enough resources to file their own lawsuit against a bank.
You might remember the Wells Fargo scandal, where they opened fake accounts on behalf of real customers. It’s a complicated story, but the point is that because the customers couldn’t sue as a group, Wells Fargo got away with paying them far less than if the case went before a judge and jury, and this for an absurdly egregious set of actions. Cordray explains the problem in general terms below:
First, opponents claim that plaintiffs are better served by acting individually than by joining a group lawsuit. This claim is not supported by facts or common sense. Our study contained revealing data on the results of group lawsuits and individual actions. We found that group lawsuits get more money back to more people. In five years of group lawsuits, we tallied an average of $220 million paid to 6.8 million consumers per year. Yet in the arbitration cases we studied, on average, 16 people per year recovered less than $100,000 total.
[snip] When a bank charges illegal fees to millions of customers and then blocks them from suing together, a result is not millions of individual claims, but zero. So the bank gets to pocket millions in ill-gotten gains. Not only do group lawsuits help consumers recover money they otherwise would forfeit, but they also protect many more consumers by halting and deterring harmful behavior. For example, when banks reordered bank debits to charge more overdraft fees, consumers sued and recovered $1 billion. Most banks have since stopped the practice.
Don’t skip over this last point. Not only do we want a robust regulatory body to make crooked companies pay the people they’ve wronged, we want to make it painful enough that other institutions perpetrating the same practices will change their ways — thus benefiting millions of Americans now and going forward.
The CFPB, after five years of study, drafted a rule that would override the clause in your bank account contract that prevents you from joining a class action if the bank treated you, in Cordray’s words, “unfairly.” What would the rule cost the financial industry as a whole? Under $1 billion per year out of their collective $171 billion in annual profits. And remember, the lion’s share of the “costs” are borne by the wrongdoers who should have to pay for their misdeeds.
The battle over this rule is between the CFPB and the Republicans who, of course, are fighting on the side of the banks against consumers. Every Republican in the House except Rep. Walter Jones voted last month to block the CFPB’s proposed arbitration rule. Jones, it turns out, is the only remaining House Republican who voted for Dodd-Frank back in 2010. All Democrats stood with consumers and voted against the anti-CFPB House bill. Republican senators have introduced similar legislation and, if it passes, Donald Trump will sign it.
In six years, the Consumer Financial Protection Bureau has accomplished a great deal. Furthermore, it exemplifies the difference between the two major parties. Republicans fought tooth and nail to prevent it from coming into being, and have made clear their desire to gut and get rid of it ever since. Why? Because they are on the side of the corporations who want to rip off vulnerable consumers. When conservatives call for small government and rail against regulation, they don’t want you to think about all the specific ways government works on your behalf, and the CFPB stands as a great example of that.
Democrats like Elizabeth Warren and Barack Obama fought to create the CFPB, and progressives are fighting to keep it working on behalf of vulnerable consumers. Progressives have a compelling, understandable story here about who really stands on the side of average Americans, and who stands on the side of the real elites. All we have to do is tell it.