Transcription:
Chana Schoenberger (00:00):
After the economic carnage of the global financial crisis in 2008, a new US government agency was formed to centralize consumer protection and guard against corporate wrongdoing that affects individuals. Kate Berry is the reporter who covers this agency, the Consumer Financial Protection Bureau for American Banker. As part of our series on economic populism and banks, Kate wondered how the CFPB interacts with this idea of government protecting people from business. I'm Chana Schoenberger, editor in chief of American Banker, and this is Bank Shot
Occupy Wall Street Crowd (00:36):
Occupy Wall.
Occupy Wall Street Protester 1 (00:41):
It's our duty as Americans to fight for our country and to keep it true to serving its people. And when it doesn't do that, it's immoral not to stand up and say something.
Occupy Wall Street Protester 2 (00:52):
I'm here myself as a free individual to humanize the markets and to have true participatory democracy, bottom of democracy, and to make Wall Street hear the sound of what democracy means. What kind
Occupy Wall Street Crowd (01:07):
Of power? People Power
Occupy Wall Street Protester 3 (01:10):
Wall Street, it crashes and people starve. People lose their jobs, things like that. We're very angry at Wall Street. It's the heart of capitalism, American and capitalism especially. That's why we're here today at Wall Street.
Kate Berry (01:22):
In 2011, thousands of protestors swarmed New York City's financial district, outraged by bank bailouts rising unemployment and student loan debt. The movement's slogan, we are the 99% was a rallying cry against the loss of millions of homes to foreclosure, economic inequality and corporate greed. Epitomized by the great financial crisis of 2008, many were protesting the government's purchase of toxic assets from failing banks, and their ire was directed at the bankers who received bailouts from the government. The response to the financial crisis sparked the Occupy Wall Street movement, but it also led to the passage of the Dodd-Frank Act and to the creation of a new government agency, the Consumer Financial Protection Bureau. The agency was conceived by Harvard Law Professor Elizabeth Warren, who would later go on to become a US Senator from Massachusetts. Here's Warren speaking in 2010 to John Stewart on the Daily Show.
Elizabeth Warren (02:25):
The question is, are we going to have a boom and bust world? Is it going to be that the CEOs on Wall Street write all the rules or are we going to say no enough of that? What we're really going to have is we're really going to have going forward a set of rules that make it safe to buy a mortgage, safe to take out a credit card. This really is the moment the chips are all on the table here. We are going to write what the American economy looks like for 50 years going forward.
Kate Berry (02:55):
The idea for the CFPB was to take 18 different consumer protection laws that had been spread across seven different government agencies and to house them in one place. The newly created CFPB with its broad enforcement powers represents perhaps the most inherently populous charge of any government agency that came before it. The CFPB is part of a long populist tradition dating back to before the country's founding. Federal agencies have long sought to deliberate about how we as a people collectively protect our liberties and freedoms from forces that would curtail them. But how can the government actually put regulations in place to ensure fairness and that the people, American citizens are protected from bad actors? How does the government, through a tiny agency with just 1700 employees, enforce the law and supervise corporations that are a hundred times larger than the agency itself? Or is that just a fool's errand from American Banker? I'm Kate Berry and this is Bank Shot, a podcast about banks, finance and the world we live in. Populism as a term is difficult to define. It has very different meanings to different people, and the meaning of populism has evolved over time making an already vague word, even harder to pin down in terms of what it stands for and precisely what is and is not a populous policy.
Thomas Frank (04:37):
Populism is a word that nowadays it's an American word. It was coined by Americans, by people in Kansas. As a matter of fact,
Kate Berry (04:45):
This is Thomas Frank.
Thomas Frank (04:47):
My name's Thomas Frank. I'm an author, author, I should say journalist, but not really sort of former journalist, I guess fans of the American Banker Podcast will remember the two or three years when I made life difficult for everyone from the op-ed pages of the Wall Street Journal. I've written a number of books. I wrote One Market Under God. I wrote The Conquest of Cool. I wrote, what's the matter with Kansas? And I wrote the people, no, by the way, that's the people NO. So the original definition was it was a word that referred to a political movement in the 1890s, and it was distinct from European movements in that it was very American. It didn't look to Karl Marx, it looked to Thomas Jefferson and various American heroes of democracy. That's what it was. That's what populism meant. It referred to that movement. The populace hated bankers and vice versa. And you talk about the Roosevelt era. My God, the bankers of this country hated him. So populism and bankers are born enemies going all the way back.
Kate Berry (05:59):
Populism got its start as a farmer's movement in the late 19th century aimed at reigning in railroad monopolies. But over the ensuing 40 years through the progressive era and the government expansion after the first World War, it evolved to become somewhat synonymous with government intervention in the free market
Thomas Frank (06:21):
In the 1930s. Franklin Roosevelt comes along, very much speaks in a populist way and is supported by a lot of populist movements, farmer movements, labor movements, and does a lot of very populist things and among other things establishes the regulatory state. So like the Securities and Exchange Commission, and you go right down the list, all these sort of deeds of the Roosevelt administration. These were the long delayed dreams of populism and this is pretty well known at the time where it's forgotten today. But yes, populists were very, very supportive of government intervention in the economy. That's sort of what populism was about. It was the dawn of that idea, the beginning of that idea. Populism is the single guiding thread that you can follow through American political, economic history and understand nearly everything they dreamed of regulation. So when we look back at the long history of government intervention in the economy, and it really begins with populism, this was the beginning of it.
Kate Berry (07:28):
By that definition, nearly every government agency is endowed with a populous mission. The USDA is charged with making sure the people's food is uncontaminated. The Department of the Interior keeps the people's wild spaces free from exploitation, and OSHA keeps people's workplaces free from unnecessary hazards and in most cases, those agencies were established by popular demand in the wake of some scandal or another, and the CFPB is no exception.
Rohit Chopra (08:01):
The CFPB was actually created out of the ashes of the last financial crisis where it was very clear that regulations and regulators were not where they needed to be.
Kate Berry (08:16):
That's Rohit Chopra, director of the CFPB speaking last year.
Rohit Chopra (08:21):
I have to tell you, I don't want to be in a world where we keep bailing out the largest financial institutions on the planet when they take risks, it should be their shareholders and executives who lose, not the public who bears risk of a financial crisis.
Kate Berry (08:42):
The mortgage crisis at its roots in the administrations of both presidents, George W. Bush and Bill Clinton, who sought to increase home ownership in the 1990s and early two thousands, the term predatory lender was coined to refer to mostly non-bank mortgage companies such as Countrywide Financial Ameri Request New Century and Indie Mac that profited by offering low teaser rate mortgages to borrowers without requiring any documentation. The loans were bundled and sold through securitizations by Wall Street Investment Banks, but a severe decline in housing prices combined with rising mortgage rates trapped millions of homeowners in high cost loans that they couldn't afford. From 2008 to 2013, more than 5 million families went into foreclosure. The CFPB was supposed to not only plug holes in the mortgage application process and the secondary securitization market, but also to stand vigil over the consumer financial market and make sure that similar bamboozling didn't take roots somewhere else despite its roots in the popular uprising to the financial crisis. Not everyone sees the CFPB as populist, and that in turn depends on what exactly the term is meant to signify.
Kathy Kraninger (10:08):
One is populism anyway, and so interestingly, it's largely a political approach.
Kate Berry (10:15):
This is Kathy Kraninger.
Kathy Kraninger (10:17):
I'm Kathy Kraninger, former director of the CFCB and currently the president and CEO of the Foreign Bank of Association. And so that of course puts color on it. Today we're dealing with many different dynamics of the political world seemingly overtaking daily life and that's one of the things that I think is interesting about this, but it is really about appealing to those individuals in society who feel as though they've been disregarded and particularly disregarded by the elitist or the establishment or institution. And so is the CFPA populous institution. I come down again looking back at the beginning of this agency and the conversation around creating agency and the need. So it really is that populist in mind why and it's not taking that political approach. Dan really goes back to the law and purpose of the agency.
Kate Berry (11:21):
One of the problems posed by lawmakers when the Dodd-Frank Act was being drafted was how to vest these various consumer protection authorities, many of which had already been on the books for decades in an agency that would wield them more effectively than other agencies that had wielded them before. The answer that ultimately emerged was that the new agency had to be independent of political interference that might co-opt the agency's mission. And to do that, lawmakers forbade the agency's from being dismissed by the president except for cause, meaning that so long as they were not derelict in their duties, a CFPB director could not be removed by the president. The law also gives the CFPB a unique funding structure whereby its expenses are paid by the Federal Reserve rather than through congressional appropriations. Richard Cordray, a democrat, was tapped as the agency's first director in 2013. He laid out tough new regulations for the mortgage market and sought unsuccessfully to reign in payday lenders and eliminate arbitration agreements, but much of his time was spent fending off constitutional challenges to the agency.
(12:40)
Both the for cause provision and the funding structure have been brought before the Supreme Court, which ruled in 2020 that he and any other CFPB director could be fired at any time by the president for any reason. More recently, payday lenders challenge the CFBs funding through the Federal Reserve Board with the Supreme Court expected to rule by the end of June on whether the CFPB should be subject to the congressional appropriations process. When Donald Trump won the presidency in 2016, the CFPB got a very different director with a very different vision for the agency. Mick Mulvaney, who was tapped by President Trump to lead the White House Office of Management and Budget in 2017 was also tasked with leading the CFPB. On an interim basis, Mulvaney carved a very different path than the agency's first director. He changed the CFPB name, attempted to eliminate the bureau's consumer complaint database and reopened a rule that would've regulated payday lenders at the federal level. For the first time. He proposed changing the agency's funding structure and also claimed he was not required to answer questions from Congress.
Mick Mulvaney (14:01):
I evidently made a little bit of news yesterday when I reminded everybody at least pointed out the fact that while I have to be here by statute, I don't think I have to answer your questions. If you take a look at the actual statute that requires me to be here, it says that I shall appear before the Committee on Banking, housing and Urban Affairs of the Senate and I'm here and I'm happy to do it. I don't want to make it clear. I'm going to answer every question that I can today. I'm not using this as an excuse not to answer your questions, but the statute says I have to appear
Kate Berry (14:27):
After this short break. We'll hear from now Senator Elizabeth Warren's response, here's Senator Warren's response to Mick Mulvaney.
Elizabeth Warren (14:39):
You've taken obvious joy in talking about how the agency will help banks a lot more than it will help consumers and how upset this must make me, but here's what you don't get, Mr. Mulvaney. This isn't about me. This is about active duty military. It's about first responders and students and seniors and families and millions of other people who need someone on their side when consumers get cheated.
Thomas Frank (15:05):
That's the strategy, these guys and back. It all goes back to Nixon. Nixon sort of invented this strategy of putting people in charge of agencies who don't believe in the mission and whose job is to wreck the agency. They actually do this.
Kate Berry (15:20):
Trump ultimately tapped Kraner to lead the agency and she took over in 2018. She says her approach to the agency was to stabilize it, to keep its policies from diverging too wildly from one administration to the next.
Kathy Kraninger (15:36):
Do we want directors who come into agencies that there we will just undo what we done before and that this is pendulum you will, which just assume backing or that is not self-funding at I dos as a public servant, as a leader, I don't think it makes sense. I don't think it makes sense for markets either because markets ultimately like stability,
Kate Berry (16:00):
But during her time at the CFPB, Kraner was criticized by Democrats and Congress and consumer advocates for gutting the payday lending rule. She says Consumer protection boils down to clearly disclosing information, particularly as it relates to prices. The idea is to give consumers information that would allow them to make their own informed decisions about credit.
Kathy Kraninger (16:27):
But the purpose of that agency is of course to promote fair transparency of markets to ensure that consumers have access to those markets and it's about transparency and information and that's in the history of consumer protection law and regulation. That is really what we're talking about. And from that standpoint, we do have the dynamic of an agency that's responsible for making sure that consumers have that information, a fairness role. So whether that is populous to the that if you think populism is a political spin, I'd like to think the answer is no. But if you take it as again, information for consumer words so they can make the best decisions,
Kate Berry (17:15):
But the current CFPB director, Roya Chopra, who was sworn in in 2021, has taken a more expansive view of the bureau's power. He's focused his attention. Not only are the largest banks, but also on big technology companies including Amazon, apple, Google, and Facebook that focus on bigger companies is very much in line with the populous tradition of going after corporate monopolies.
Rohit Chopra (17:44):
We all know that part of the business model of companies like Google and Facebook is to harvest as much data as possible from us to feed its behavioral advertising model. They already know every website we go to, they already know our friends who are connected to and increasingly they have our health data. They have intimate data about even where we live and what we say in our homes. I think if they know details about all of our financial transactions, we need to understand the implications of that and we also need to make sure that these firms are not monopolizing more and more and more markets because we cannot have a robust and innovative American economy that produces inventions and better things for families and businesses unless we have fierce competition. And that is a worry when it comes to how big tech is swallowing up more and more power in this country.
Kate Berry (18:58):
Under Chopra, the CFPB has issued several rules to force the largest banks to reduce what he calls junk fees on a wide range of banking products. Last year the CFPB issued a rule that would cut credit card late fees to just $8 down from 32. Currently, it's part of an effort to reduce costs for millions of average Americans. Again, a strategy out of the populism playbook
Rohit Chopra (19:26):
We're looking to take on these junk fees across banking. Everywhere you look, it feels like there's fees tacked on for a service you never asked for or something that's charged way beyond its costs. We've looked at overdraft fees, credit card, late fees, and so much more. We proposed a rule that will make those credit card fees a little bit more reasonable and we expect our proposal will save people 9 billion per year. It's still going to make credit card companies money. They get to charge a lot of interest, charge a lot of other costs back to consumers, and I think this is just going to make the market a bit more competitive.
Kate Berry (20:11):
These competing visions of what the CFPB should be and what it should be doing are in many ways a reflection of the competing visions for what populism should be and what it should stand for. Those visions in turn are a reflection of a broader evolution in the economy and people's rules within that economy.
Matt Stoller (20:32):
So prior to the 1970s, and you could go back to the American Revolution, you could even go back to the English Civil War, but the idea was that concentrations of political and economic power are dangerous.
Kate Berry (20:44):
This is Matt Stoller.
Matt Stoller (20:45):
My name is Matt Stoller. I am the director of research at the American Economic Liberties Project and the publisher of a media outlet called Big, which focuses on the politics of monopolization and financial policy.
Kate Berry (21:00):
He's the author of Goliath, the 100 Year War Between Monopoly, Power and Democracy, A History of US Economic Policy.
Matt Stoller (21:10):
The essential change that happened in the 1970s is that we shifted our view of political economy and who we are as a people. It used to be we thought of ourselves as a free people of Free American people and then we started to think of ourselves as just consumers. And that shift from citizen to consumer was in the Consumer Rights movement in the 1970s. It was in sort of a whole series of movements that were kind of understood on the left, environmentalism, civil rights and so on and so forth. There was also in the libertarian turn in the Republican party, the Chicago School of Economics, this would be Friedman, Robert Bort, so on and so forth. They all said, look, it doesn't matter if someone has market power. That's not really a thing. All that matters is whether they have good options as a consumer and low prices,
Kate Berry (21:59):
One of the first consumer protection laws, the Truth in Lending Act of 1968 required that borrowing costs and terms and credit transactions be clearly disclosed so consumers could compare prices. It was the beginning of a major change in how Americans would be redefined not as citizens, but as consumers.
Eugene Ludwig (22:20):
There is a general misunderstanding in a public and including in the Congress of how the financial system really works. This is Gene Ludwig, a former controller of the currency and been a bank advisor and banker and public servant and venture capital investor with pane Finance is an arcane area for most people, and to be fair, a lot of people really aren't that interested when they go to buy a consumer product. Yes, they may have to take out financing, but they don't want to deal with the financial entity. They want to buy the headset or the television or the car or whatever it is. They don't go in and say, oh boy, this is going to be fun. Gives me a day to do finance.
Kate Berry (23:07):
That people as consumers theory was embraced by President Bill Clinton and in many ways set the stage for a revived populism that in turn set the stage for the CFPB.
Thomas Frank (23:20):
So the Democratic Party takes this huge turn in the 1980s and the 1990s, there's a group within the Democratic Party called the Democratic Leadership Council, and their goal, their stated object is to sever the Democrats from their populist background, from the sort of rooseveltian background. And they would say this again and again and again that the age of the New Deal is over. We have to move away from that. The group that Democrats had to leave working class people behind or have to leave their concerns behind, they thought they could still get their votes anyway through other means, but the group that they had to reach out to, they called them the learning class. Maybe you've heard this phrase before, by which they meant white collar professionals and this was the impetus of the Clinton administration and they deregulated banks in some ways it was like one of the biggest historical political blunders we've ever seen, Clintonism I'm talking about here. It was an economic blunder because it ushered in this sort of new economy that's extremely elitist where all the rewards go to the people you know, all the rewards inequality, right? Inequality comes roaring back,
Kate Berry (24:29):
Backlash against the idea that the rewards of capitalism would go to the largest corporations to the 1% was the core idea behind the populism that created the CFPB. Some experts believe that view was reinforced rather than changed by President Barack Obama who came into office in 2009 at the height of the financial turmoil. And at a pivotal moment within the Democratic party,
Matt Stoller (24:58):
There was a basic dispute within the Democratic Party in 2008 and nine and 10 as the Obama administration was coming into office, and then as they governed about what should the financial system look like, what was it for? Why do we have a financial system? And there was sort of a wing of the Democratic party represented by I think Tim Geitner and Barack Obama who thought, well, the financial system is the center of American power, in particular the big banks. And what we need to do is support the big banks. They might've made some mistakes, but they are the central nodes of the American system and we have to support them. If that means undermining people who are in foreclosure, so be it. If it means undermining smaller banks, so be it.
Kate Berry (25:57):
Matt Stoller was working for a democratic lawmaker on the House Financial Services Committee during the debate over the creation of the CFPB,
Matt Stoller (26:06):
The Consumer Financial Protection Bureau, which is a traditional kind of 1970s institution that says we're going to focus on the consumer protecting the consumer, the tricks and traps that the financial services industry plays on them. But it wasn't a restructuring of the industry in a way that would prevent the financial crisis. So it was just a compromise by populists who didn't have a lot of power but got what they could.
Kate Berry (26:35):
But there is a competing view about the agency, about populism really that holds that the CFPB as a unilateral arbiter of what is and is not fair to consumers is anti populist. Those decisions might be best made by consumers themselves or by Congress.
Kathy Kraninger (26:55):
I am definitely a believer in the rational outer. I think it's been seeded in the water linkages and unfortunately therefore denigrates Congress's authority, the way Congress is functioning, has also denigrated this authority and power that they have over the Executive branch. Congress needs the voice of people, the represented both that should be most sponsored for the people having that hour over executive agency. It's important check and balance so that that's how I philosophically look at it. But I think it definitely would be true to say that the appropriate is the most so populous position that one could pay, and if the Supreme Court were to determine that, it does throw some near term chaos into all kinds of things. So I think that is an issue to deal with and that we would hope that Congress could take on that responsibility and it passed that chaos to implement something that makes sense in the law for the CFPB.
Kate Berry (28:00):
So everyone agrees on some level that the people should be empowered, but this divergence in populism that is played out at the CFPB is really a divergence in view about who should be checking whom. Here's Eugene Ludwig. Again,
Eugene Ludwig (28:17):
When I think of populism, what I think about is in a sense the root of the word, which is people. It is the populace that is the bulk of the people. Middle class, you think of the middle or even more lower income groups and their wants and needs, and it is the expression of those wants and needs. When you think of populism, irrespective of the derivation of the term and sort the utilization and sort of academic literature, you think of folks who are anti bigness, anti organizations translate even to anti-government even when government is set up to do things for them. The CFPB is interesting viewed through that lens, and I think thinking of it as a populist movement item is really creative and fresh because it is to a degree. Remember there were sit-ins outside Wall Street and the CFPB in that sense makes sense for people are quite angry that it hasn't taken care of us.
(29:28)
And I believe, which I think is mistaken by the way, that the banking agencies weren't somehow in cahoots with the banks and weren't treating people fairly, which as I say I think is not true. But there was a lot noise about it at the time. It created the CFPB. And then one of the interesting phenomena that occurred since is as the CFPB has gone about doing the hard work of actually making things happen, both because it's part of government and also because there tends to be today a regional and community aspect to populism, not a national kind of focus. I think the CFPB has come in actually for criticism from populace of today we're not getting the job done quick enough or being part of the deep state or the government, et cetera, et cetera, and a lack of appreciation of how hard actually getting things done really is.
Thomas Frank (30:29):
The answer to it is constant vigilance on the part of these mass popular movements, but that's very difficult. A big part of the strategy now is that the lawsuits drag on for so long that you just file a bunch of 'em and whatever. We can outlast the Biden administration or something like that. If you're in my position, if you really care about the people at the bottom, it's extremely frustrating. It makes you real, real, angry,
Matt Stoller (30:58):
Intellectual, and ideological arguments. They're old and we're not done with them, right? And we'll never be done with them because that's who we are as a country is we fight over liberty. And that's what these problems are, is we're fighting over liberty.
Chana Schoenberger (31:21):
This episode of Bankshot was reported and written by Kate Berry and edited by John Heltman. Our audio producer is Kellie Malone Yee. Special thanks to Yahoo Finance, the Washington Post, CNBC, MSNBC, and PBS NewsHour. For more analysis and news in the banking world, go to americanbanker.com/subscribe. From American Banker, I'm Chana Schoenberger and thanks for listening.