CFPB Needs Course Correction on Consumer Credit

Richard Cordray celebrated his ascension as champion of America's borrowing public by recently taking center stage as a guest on The Daily Show with Jon Stewart. 

As President Obama's pick to head the Consumer Financial Protection Bureau, Cordray faces a hostile internal environment. This environment is the natural result of being asked to perform enforcement tasks that have long been the domain of some two dozen federal agencies, each staffed by career professionals in a culture of secrecy and competitive rivalry.

As the new kid on the block, Cordray may have needed his moment on The Daily Show, not just to say hello to America's credit hungry populace, but also to send a signal to his federal rivals. Interestingly, Cordray's task relies largely upon the investigative staff of his rival agencies. Without cooperation, his position could devolve to figurehead status.

Still, his presence on The Daily Show proves that protecting consumers from unfair lending practices, flawed mortgages and loan scams is definitely on the radar of the popular media.

Cordray's public comments have so far focused on mortgage lending, excluding any consideration of the nation's acutely constricted access to mortgage and equity loans, and smaller-term loans. In a Jan. 10 speech in Phoenix, where the market is still reeling from foreclosures, he referred to the financial crisis of 2008 as when "it all blew up."

"The collapse of the housing market destroyed jobs in every economic sector and wiped out big chunks of people's hard-earned assets in every community across the country," Cordray said. "Out of this mess came demands for financial reform and, among other things, the creation of the new Consumer Bureau."

He added, "Consumers want – and need – someone with the authority to stand on their side and provide reasonable safeguards against bad mortgage deals that ruin their credit, cost them their homes and saddle them with problems that follow them throughout their lives. While many areas of the country are now recovering and the economy is growing again, we must not forget those who are still struggling."

Perhaps Cordray's spin doctors need a reminder: this is 2014, not 2008. The statute of limitations for prosecuting most of the bad actors from 2008 has expired. The problem now is not subprime mortgage lenders, but a pendulum of federal regulation that has swung to such an extreme that worthy, qualified borrowers are being turned away.    

Depreciation in home values has eroded equity – with the exception of a few major markets – and with it, the ability of homeowners to access cash through home equity loans and second mortgages. First-time homebuyers are required to meet higher standards than ever, and the compounded impact continues to slow appreciation in home values while leaving 20% of American households unbanked or underbanked.

So the circus continues. Cordray, espousing the rhetoric of consumer protection, completely overlooks consumer need. Meanwhile, his colleagues at the state and federal level are moving to pinch off the credit of last resort to America's unbanked: online lenders.

Efforts to shut down online lending in New York, spearheaded by its chief financial regulator Benjamin Lawsky, have all parties involved positioned for a long battle over the doctrine of sovereign immunity, with tribally owned lenders suing Lawsky's regulatory agency in U.S. District court.

Here's a novel alternative: Instead of taking steps that ultimately restrict access to credit, and thus restrict economic growth, why not streamline access to credit by creating a smoother, simpler system? Between the highest interest rates charged and the rock-bottom rates available to those with the highest credit scores lies a spectrum of need for credit.

That unmet need represents both an opportunity for economic growth as well as an opportunity for growth in the banking sector.Legally licensed tribal lenders are doing their part to meet that demand, and should be allowed to do so without the interference of misguided regulators.

That message may not play so well on The Daily Show, but we know the idea has been proven to work.

For proof look no further than Muhammad Yunus, winner of the Nobel Prize for his credit innovations.

The American-educated Bangladeshi economist popularized microcredit through Bangladesh's Grameen Bank. The bank's wildly successful lending program has provided credit where none existed, with documented positive economic results for individuals and the third-world nations where Grameen operates. Yunus calls these programs, "a new, more humane form of capitalism."

If Cordray really wants to protect consumers, he could broaden his mission to not simply curtailpredatory practices, but to advocate for programs for more affordable loans for Americans still suffering the effects ofthe mortgage meltdown. How radical would it be to apply the principals of the Grameen Bank to create federally guaranteed programs for cash-strapped, working Americans?

Jane Daugherty, former associate professor of mass communication at Florida International University, has a master's degree in gerontology and is a doctoral candidate at the University of Miami School of Communication in Coral Gables, Fla.