History and Work of Consumer Financial Protection Agency

Abstract

The purpose of this paper is to provide the history and impetus for the Consumer Financial protection agency (CFPA). This paper will describe and explain the just what the CFPA does and has done for the citizens of the United States. The author will endeavor to explain the systematic destruction and removal of the regulations (Dodd, Frank) Created to protect consumers from predatory lenders, unscrupulous creditors, and those who would seek to defraud or confuse consumers into financial obligations that they did not understand, for the primary purpose of profiting from their lack of understanding. The primary goal of the CFPA is to protect consumer interests, regulate predatory lending practices, and to stabilize and wrangle sectors of the financial markets primarily responsible for the housing market collapse and the second great depression (2008 Financial Crisis). Ultimately, this report will discuss the worldwide impact of the CFPB policies and how its creation actually helped stabilize the markets and created worldwide confidence in US ventures.

History of Consumer Financial Protection Agency

The Consumer Financial Protection Agency was officially created on July 16th 2011 with the passage of the Dodd-Frank Wall Street Reform and Consumer Protection bill of 2010 as a direct result of the 2008 financial crisis. Richard Cordray was the first acting director of the CFPB and he took office in January of 2012 and led the office for almost 6 years. Since its inception and under the guidance of Cordray the CFPB has won some 11.5 billion in relief for 25 million Americans (Roberts, 2016). Recently Cordray has stepped down as director of the CFPB and is currently headed by President Trump’s nominee Mick Mulvaney. Mulvaney is a long time detractor of the CFPB has vowed to change the direction of the CFPB, which in turn will make Trumps threat of eviscerating the agency a reality.

The CFPB’s primary goal was to increase financial stability and to act as a kind of insurance policy preventing the same abuses from happening again. This was to be accomplished through the combining of the oversight and regulatory agencies that currently existed inside of government into one cohesive agency, independent of congressional oversight, with real authority over the financial institutions. Adam Levitin has written an insightful paper about the creation and nature of the CFPB. Levitin talks about the why and how the CFPB will be enabled and hindered in the current regulatory and political construct. Levitin also describes how the many agencies now responsible for consumer protections will be brought together for the purposes of the promulgation of substantive regulations and enforcement actions. Adam continues to describe the pros and cons of the CFPB and describes how the CFPB will enhance the current regulatory scheme by effectively placing some safeties into the scheme. By placing an enforcement structure that will give some teeth (Strength To Prosecute) to the agency to affect some throttling back of the currently unbridled predatory banking systems (Levitin, 2009).

Economic Impetus and Economic Impact

The economic factors that played directly into the creation of the CFPA were the increasingly predatory and risky practices of the banking industry and specifically mortgage lenders. The use of complex instruments, derivatives, and the financial gambling practices (Credit default swaps) of betting against consumers were directly responsible for the financial collapse. Subsequently, the coining of the phrase “Too Big to Fail.” was heard for the first time in American financial history. Although, this phrase is counterintuitive to the economic laws that keep most businesses in check, our own government protected and in many cases did not prosecute those responsible for the acts of treason leveled against our nation in the form of weakening and endangering our economies stability.

What followed was an economic collapse not seen since the great depression of 1929, which lasted until the late 1930’s with the DOW not recovering until 1954. The same could be said of the 2008 financial crisis, which had lasted more than 5 years. Some still speculate that even with the current record highs the DOW Jones is experiencing, our economy has still not recovered fully from the damage done. It should be noted that current market indicators and the historic 1175-point drop in the DOW Jones indicating a self correction, has had serious ripple effects on the worlds markets. What is most interesting is the current rhetoric that states the CFPB is out of control and is crippling the economy. The fact is that banks have been hauling in record profits since Dodd-Frank was enacted (Egan, 2017).

Current State of The CFPA

Currently with republicans at the helm of the White House, the Congress, and the Senate, they are all working diligently to remove the Dodd-Frank protections in an all out effort to return us to the state of rampant corporate profiteering that will most assuredly lead to another market and economy collapse. Mick Mulvaney has been placed in charge of the agency he wanted to kill years ago, and is very strong evidence that what little protection the agency was able to provide in the recent past, will be weakened and destroyed from the inside. Confidence in American money markets is a fundamental part of a strong world economy. Problems in Europe affect the U.S. and Asia, and Problems in the U.S. also affect Asia and Europe, which indicates a truly macroeconomic issue. The systematic weakening of the CFPB will bring serious consequences to the worlds markets. Luckily for the American consumer the complete undoing of the CFPB will also bring very negative consequences to whichever party is considered the responsible agent. Lisa Kastner has coined a paper titled Tracing policy influence of diffuse interests: the post-crisis consumer finance protection politics in the U.S. Here Ms. Kastner asks an important question: How do the very rich and powerful lobbies of the financial institutions that run America, become overrun by the much weaker social movements to bring these exploitative organizations into some modicum of proper conduct. It is clear that social outrage over the continual exploitation of Americans by Wall Street Fat cats was a serious driving factor and was made even more potent by the financial crisis of 2008. In which Wall Street continued the irresponsible and destructive slash and burn profiteering that has become their MO. Kastner suggests that even resource rich agents that do not care one little bit for those they hurt, can be thwarted by strong social coalitions that take an affront to this obvious and destructive influence and can win a policy battle to curtail those criminal activities.

How The CFPB Focuses Its Regulatory Influence

Pamela Foohey’s article Calling on the CFPB for Help is a great article on how the CFPB takes, handles, and ultimately responds to consumer complaints. This agency was never designed to help individuals on a case-by-case basis, but what it has done is enable individuals to report incidents of predatory practices and deceit to the agency. Then the CFPB would take that data and create focused responses based on the statistical analysis and breakdowns of the complaints reported. Foohey continues to explain how the data was taken, manipulated, codified, categorized, and ultimately used to create policies and rules to slow these criminals down (Foohey, 2017).

The Real Threat Of Non-Bank Financial Institutions

Schwarcz and Zaring have penned a great analysis of the threat that non-bank financial institutions currently pose to our financial markets stability and the role they played in exacerbating the financial crisis of 2008. They also analyzed how Dodd Frank and the CFPA have designated the Financial Stability Oversight Council (FSOC), which by threat of stern financial control over these actors or by designating them as systemic financial threats keeps these smaller non-bank financial institutions in line, or at least considering the ramifications of risky financial behaviors, for which they risk punitive actions. The data provides a very good defense for this type of regulatory protection calling it regulation by threat, and writes a very strong supportive argument for this agency. The FSOC is facing the very real threat of being disbanded, weakened, or abolished by the current radical right wing administration. A Republican controlled government and a pro-business and anti-fact president do not care about financial stability, nor do they consider anything but profit at any costs. They are already rich and do not care if the whole thing collapses, as they will still be protected and rich regardless of the outcome.

Conclusion

Anything that has influence or that affects money markets, stocks, bonds, insurance markets, home prices, gas prices, or any other financial instrument that ties into the value and equity of the dollar, and subsequent international monetary and goods markets is most definitely a Macroeconomic issue. I submit that removal of the regulatory scheme or weakening of the consumer protection agency will be not only disastrous for consumers, but will lead us right back to 1929 and will assure market collapse and recession, but not before a handful of people will get very rich, while dooming others to financial losses and poverty.