Why that Orwellian Anti-CFPB Ad Could Backfire

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WASHINGTON — Even before the Republican presidential debate started, it made financial news – not because of what was said, but an ad that ran during the broadcast late Tuesday night.

A group called the American Action Network bought a 30-second spot that portrayed the Consumer Financial Protection Bureau as a Stalinist nightmare, complete with two large red banners portraying its director, Richard Cordray, and its founder, Sen. Elizabeth Warren, D-Mass. In the video, mindless drones in drab clothing mechanically stamp "DENIED" on consumer loans while a narrator describes the agency as "designed to interfere with your personal financial decisions." The ad ends by imploring viewers to "Tell Congress to Stop the CFPB."

While many bankers may cheer the ad's portrayal of the CFPB, its gross mischaracterization of the agency is likely to backfire – and is already helping bankers' greatest foe, Warren, raise money.

Here's how:

1. The ad is over the top, making it easy to knock down

For a political ad, the anti-CFPB spot packs a punch. It's well executed and, by evoking Apple's famous "1984" ad of several decades ago, likely to be very memorable to those who see it. But even the fiercest critics of the CFPB would have to agree it's hyperbolic.

For starters, it portrays consumers waiting in line to have their loan application denied by a CFPB employee. But that's not what the CFPB does. The agency writes rules and takes enforcement actions against firms after the fact; it isn't involved in the day-to-day process of granting loans. That may seem like a minor difference to some banker critics of the agency – after all, writing narrow rules could effectively constrict credit – but it makes it very easy for Warren and the agency's supporters to prove to any worried consumers that the ad is bogus.

2. Consumer credit isn't tighter since the CFPB's creation

Perhaps the biggest problem with the ad is the underlying point it wants to make – the CFPB will deny "that car loan you needed, your mortgage, that personal loan" – isn't backed up by any evidence. Though lenders will often argue it is harder to make loans in the current regulatory environment, credit is still flowing. September had the largest growth rate in consumer credit this year, at a 10% annual growth rate and almost double the 5.6% growth in August, according to the Federal Reserve's most recent consumer credit report.

In fact, the last year that consumer credit declined was in 2010, when the Dodd-Frank Act was signed that created the CFPB. Consumer credit fell 1% that year but has grown every year since and reached 7.5% in the third quarter this year.

3. The ad's sponsor has connections to a company under investigation by the CFPB

As detailed by an article in The Intercept, American Action Network has connections to Navient, a student lender under investigation by the CFPB. Two board members of the conservative group are registered lobbyists for Navient, according to the article, while another board member works for a lobbying firm that serves student and payday lenders.

The CFPB told Navient in August that after a two year investigation it had found sufficient evidence to determine the student lender violated consumer protection laws and may seek to sue it. Navient said the CFPB's potential legal action stems from its late-fee practices and what it described as "other matters."

A spokeswoman for Navient said the company had "zero involvement" in the ads "or any efforts regarding the ads. To imply otherwise is completely false."

[Editor's note: On Thursday, the board members, former Reps. Vin Weber and Thomas Reynolds, issued a public statement saying they were not aware of the ad until "after the ads had been made public."

"Neither of us saw the ad until it ran during the Republican debates," they said. "To be clear, Navient was not involved in any way in this effort."]

4. The ad is very likely to help Warren raise money

Political ads have a way of helping to galvanize the opposition more than enlisting supporters. That could easily be the case here. Before the ad even ran, Warren sent emails to progressive allies alerting them to her portrayal as a "commie dictator." She asked them to help her raise $30,000 – the same amount that she claims American Action Network paid for the ad.

"I'm a big girl, and I can take the personal attacks. But working families who need the CFPB can't – not when they've been crushed, squeezed and hammered by the big banks and their friends in Washington for years," she wrote in the email. "It's up to us to fight back."

If history is any indication, Warren is likely to get far more money than she asked for. At the very least, the ad reinforces Warren's message that the CFPB is under constant GOP attack and must be vigorously defended, making it even less likely other Democrats would be willing to break with her to support a bill that would restructure the agency.

It may ultimately be bad branding for the GOP itself, argued Sheila Bair, the former chairman of the Federal Deposit Insurance Corp.

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