The Consumer Financial Protection Bureau had a difficult birth. Written into the Dodd-Frank reforms in the aftermath of the 2008 financial collapse, the CFPB was created to protect consumers from payday lenders, credit-card companies, student-loan sharks, and debt collectors.
That made the bureau a natural target of those industries. In 2012, lobbyists pushed Congress to eliminate the position of CFPB director in favor of a five-person board, and to put Congress, not the Treasury, in charge of its funding. They also tried to slow down the bureau’s formation, recalls Christopher Peterson, a former CFPB official who served as a special adviser to the bureau’s first permanent director, Richard Cordray. “Members of Congress would send letters demanding explanations,” Peterson says. “That doesn’t sound like that’s that big of a job, but it’s a lot easier to write a question [than to answer it]—especially if a lobbyist or an attorney for a financial institution is actually ghostwriting.”
The goal, ultimately, was to strip the CFPB of its independence. With the election of Donald Trump and the rapid implementation of his virulently anti-regulatory agenda, the lenders finally got their wish.
Last November, Cordray resigned to run for governor of Ohio (his directorship was slated to end in July 2018). Trump’s pick to replace him was former House member Mick Mulvaney (R-SC), who also heads the Office of Management and Budget. Mulvaney immediately brought the bureau under the president’s direct political control, assigning appointees to shadow career staffers in each CFPB division, moving critical supervisory and enforcement functions into the director’s office, and requesting no money for bureau operations at all. In June, he fired his entire advisory board after several members criticized his leadership. He also changed the agency’s name to the Bureau of Consumer Financial Protection.
Among Mulvaney’s more radical moves has been to defang the CFPB’s oversight of student loans. American students are deeply in debt: 44 million people owe a combined $1.5 trillion. Eight million are now in default, while 3 million more are at least two payments behind; three times as many people defaulted on student debt in 2016 than lost a home to foreclosure. That makes these borrowers susceptible to scams: Under Cordray, the bureau received 60,000 complaints through August 2017—that’s one complaint per hour, 24 hours a day, seven days a week. The CFPB acted on many of them, returning $750 million to injured borrowers, as well as conducting proactive supervision.
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That didn’t sit well with lenders, and Trump’s new guard quickly moved to appease them. Even before Cordray resigned, the Education Department hamstrung the CFPB by saying it would stop sharing student-loan data with the “overreaching and unaccountable” agency. Upon his appointment, Mulvaney folded the bureau’s student-loan division into a consumer-education office—a clear signal that the CFPB would focus on providing information about the loans, not on monitoring bad actors.
Seth Frotman joined the CFPB in 2016. As the assistant director and student-loan ombudsman, Frotman was one of the highest-ranking federal officials overseeing student-loan servicers. By August of this year, he’d had enough: “[Y]ou have used the Bureau to serve the wishes of the most powerful financial companies in America,” Frotman wrote in his incendiary resignation letter, noting that Mulvaney’s political appointees had “repeatedly undercut and undermined career CFPB staff” at the expense of students and to the great advantage of lenders. Frotman further alleged that the bureau’s political staffers had suppressed evidence that the nation’s largest banks were “saddling [students] with legally dubious account fees.”
If Frotman is right, this could have repercussions on a massive civil action previously filed by the CFPB against Navient, the largest student-loan servicer in the country. Navient is accused of systematically misleading borrowers about repayment options. In July, a judge rejected the company’s motion to have the civil action dismissed; Mulvaney hasn’t said whether the CFPB will proceed with the suit, but conservative editorial boards and Navient’s CEO are urging him to abandon it. “What this means is that there are college kids out there who are being charged illegal fees by major banks,” Peterson observes. “And the Trump administration’s political staff that’s in control of the bureau covered up that information.”
Cynics might expect Trump to throw students under the bus: This is, after all, a president who settled a multimillion-dollar fraud case related to his own for-profit college. Less predictable—but equally disheartening—is the administration’s treatment of people in the armed forces.
Members of the military and veterans are uniquely vulnerable to loan sharks and scams. Roughly half of the United States’ active-duty service members are under 25, and the military provides many of them with their first regular paycheck. Young soldiers, sailors, and Air Force personnel with limited credit histories are required to move frequently around the country and overseas, sometimes with little notice, so their spouses struggle to find stable work. In military towns with a high population of young people far from home and in need of credit, financial predators—particularly payday lenders and automobile-financing firms—are eager to swoop in. The Defense Department has found that service members are four times as likely as civilians to be targeted by unscrupulous lenders.
To limit the damage, Congress passed the Military Lending Act of 2006, which capped interest rates and extra charges; until recently, the CFPB sanctioned some lenders that violated the act. But the bureau’s work in this area seems unlikely to continue. Public records show that on August 2, representatives from the National Automobile Dealers Association, the American Financial Services Association, and the American Bankers Association met with officials from the Department of Defense and Mulvaney’s Office of Management and Budget to discuss “Military Lending Act limitations on terms of consumer credit extended to service members and dependents.” Documents indicate that the industry groups wanted relief from a rule restricting the sale of a type of insurance, called “guaranteed acceptance protection insurance” or GAP, to service members financing their cars with MLA-protected loans.
Auto dealers like GAP insurance because it can be more profitable than the sale of the car itself. They portray it as a commonsense product that protects borrowers who owe more than their car is worth if the vehicle gets totaled or stolen. But consumer advocates say GAP insurance is a costly scam. A recent report from the National Consumer Law Center found that it was the second most frequently pushed add-on by car dealers, after service contracts; that markups on the insurance averaged 170 percent; and that “consumers often find that GAP products fail to provide the promised benefits.”
Representatives of the nation’s car dealers and financiers present at the August 2 meeting wanted permission to keep pushing GAP on members of the military, according to records. What they got was no more cops on their beat: The New York Times reported a week later that the CFPB would stop proactively supervising these dealers and lenders.
Paul Kantwill, a former Army colonel who joined the CFPB under Cordray in late 2016 as assistant director for service-member affairs, likens this to “removing your sentries from the guard towers on your installation.” Kantwill, who left the agency this past summer, cautions that “you may have the guard tower there, but if there’s no one there to look at the fence line and to maintain security, you can expect that bad actors are going to get in.”
Among these bad actors is the Security National Automotive Acceptance Company, an Ohio-based business specializing in auto loans to service members. Thanks to the CFPB’s oversight, we know that SNAAC has been ruthless. When service members defaulted on a loan, the company hounded them with bogus threats, according to an administrative order that the CFPB filed against SNAAC in 2015. SNAAC’s debt collectors would also threaten service members with demotions or even discharges and invoke the loss of a security clearance or a potential promotion. After a sailor near Norfolk Naval Station in Virginia fell behind on car payments as the result of a divorce, SNAAC collectors “began to call and threaten me over the phone to include contacting my commanding officers,” according to a 2015 complaint. The sailor gave up the car and eventually resolved the debt—but a few years later, SNAAC collectors suddenly “started calling and harassing me again.” The debt, too, somehow reappeared on credit reports as unresolved.
Whether this was done out of greed or sheer incompetence, it shows how necessary a watchdog like the CFPB still is. The Defense Department can’t protect its employees from this kind of predation because it is not a financial regulator—and as a nonbank lender, a company like SNAAC would have operated with virtually no regulatory oversight if not for the CFPB.
In 2015, the bureau filed an administrative order against SNAAC for illegal debt-collection practices, forcing the company to refund $2.28 million to service members and other borrowers and pay a $1 million penalty. The CFPB also obtained a separate court order banning SNAAC’s practice of using exaggeration, deception, and threats to compel payments from service members.
Kantwill says that the CFPB’s newly passive approach means it will essentially have to sit back and wait for the SNAACs of the world to prey on service members; nothing will change until consumers have been harmed. For members of the military, “it might mean that their careers have been compromised—and perhaps their family situations have been compromised as well.”
The situation also poses a national-security risk. The Defense Department has found that financial turmoil has a demonstrable effect on military readiness and morale. Kantwill says he’s seen it happen: “There is a direct correlation between financial readiness and mission readiness.”
Think car dealers are scummy? it gets worse. Perhaps no other group has benefited more directly from Mulvaney’s largesse-by-neglect than payday lenders. Mulvaney has transferred the CFPB’s Office of Fair Lending and Equal Opportunity from the specialized Supervision, Enforcement, and Fair Lending Division to the director’s office. He has also dropped a suit against some of the most deceptive creditors in the country: Golden Valley Lending, Silver Cloud Financial, Mountain Summit Financial, and Majestic Lake Financial.
Between August and December 2013, Golden Valley Lending and Silver Cloud Financial extended $27 million in payday loans and violated the Truth in Lending Act by hiding the true cost of these loans from consumers. According to a CFPB complaint filed last year, these loans carried annual interest rates of anywhere from 450 to 900 percent—meaning that a customer would have to repay up to $900 in interest alone over the course of a year on a $100 loan. (By contrast, earlier this year the New York attorney general arrested 10 people allegedly connected to the Lucchese crime family for running a lucrative loan-sharking operation. The yearly rate of their “usurious loan payments”: 200 percent.)
But there was a catch. Though Golden Valley and its ilk had straightforwardly violated state usury laws, they claimed to be protected by tribal sovereign immunity, since they had been incorporated on Indian reservations. This kept state authorities at bay, because they had no jurisdiction. But sovereign immunity can’t be invoked against the federal government, and the CFPB took the opportunity to step in.
When Mulvaney dropped the suit, he claimed that career CFPB staffers supported his decision—only to backtrack when NPR reported that his “entire career enforcement staff” had opposed it. The truth is, this type of lending has helped bankroll Mulvaney’s political career. In the 2015–16 election cycle, payday lenders like the World Acceptance Group (which also saw its CFPB charges dropped) gave Mulvaney, then a congressman from South Carolina, $31,700, making him the ninth-highest congressional recipient of donations from the industry at the time. Golden Valley, meanwhile, is still operating and advertising payday loans on its website.
To Mulvaney’s credit, he plays it straight with his donors: Last April, he told an American Bankers Association conference that “we had a hierarchy in my office in Congress. If you’re a lobbyist who never gave us money, I didn’t talk to you. If you’re a lobbyist who gave us money, I might talk to you.” And he has certainly been doing a lot of “talking.” The watchdog group Public Citizen compared the 30 companies with the most complaints in the CFPB database to Mulvaney’s donors throughout his congressional career. Nineteen of the 30 companies—including eight of the top 10—had contributed, via political-action committees, to him.
Mulvaney has halted enforcement and caused otherwise dedicated public servants to leave the CFPB in protest. But he hasn’t yet managed to pare back the bureau’s statutory authority. Waves of unsuccessful lawsuits against the CFPB over the years have helped to establish its legal authority, and Mulvaney hasn’t convinced the Republican-controlled Congress to get rid of his position altogether, or to take over the independent agency’s budget outright.
That might be because a vast majority of Americans like financial regulation in general, and the CFPB in particular. A poll conducted by Americans for Financial Reform found that three-quarters of likely 2018 voters support the existence of the CFPB, and more than half are concerned about efforts to hobble it. That poll was taken before news of the planned pullback on military lending broke.
Christopher Peterson says that the agency can, in theory, take up the mission that he and many other idealists signed up for in the years after the economic crash. “My sense is that the essential strengths and features of the bureau are still intact,” he says. “With appropriate leadership in place, the bureau can continue to serve the function that Congress asked it to serve.”
Yet that would require the CFPB to be led by someone who actually cares about borrowers. Let’s hope it doesn’t take another crisis.