After being attacked repeatedly for supposedly being soft on Wall Street and the “big banks,” Acting Consumer Financial Protection Bureau Director Mick Mulvaney was part of the Trump administration team that on Friday hit Wells Fargo with a fine of $1 billion. The CFPB levied this fine jointly with the Office of the Comptroller of the Currency.
We may have more to say on the specifics of the settlement as we read through the details. Suffice it to say for now that this action shows that regulatory agencies still have plenty of powers to inflict penalties on miscreant financial institutions of all sizes while these agencies simultaneously ease regulatory barriers that penalize consumers and legitimate entrepreneurs. It’s not rocket science to punish those who cheat and mislead consumers while cutting red tape for Main Street banks and credit unions that deal with their customers honestly.
In fact, as my colleague Iain Murray points out in his report The Case against the Consumer Financial Protection Bureau: Unconstitutionally Structured and Harmful to Consumers, the CFPB under Mulvaney’s predecessor was so busy paternalistically restricting consumer choices and stretching its authority in going after different types of businesses that it “failed in its core mission of protecting all consumers.” The CFPB “failed to notice” Wells Fargo’s “abusive practices until it was alerted to them by The Los Angeles Times and California regulators, despite the bank being under Bureau supervision at the time,” Murray writes.
Similarly, CFPB whistleblower Ronald Rubin writes that CFPB sat on its hands even after it knew of Wells Fargo’s misdeeds.
While Murray and Rubin were focusing on the fake credit card accounts Wells Fargo opened in customers’ names, the CFPB’s lack of focus could also be to blame for the bank’s misdeeds resulting in this current fine. Wells Fargo bought auto insurance for its car loan holders beyond what borrowers had agreed to in the loan agreement and without the borrowers’ consent. It then tacked on the charges for the extra insurance onto borrowers’ payments.
According to the CFPB’s consent order, the settlement agreement it signed with Wells Fargo, the bank also tacked on late fees to mortgages, even if the payment was late due to Wells Fargo’s own delays in processing.
This action was clearly a case of the CFPB, as Mulvaney describes his agency’s mission, enforcing the law without “pushing the envelope.” Here, the CFPB was not trying to restrict consumer’s choices by saying a loan’s interest rate was too high, or that the consumer didn’t have the “ability to repay,” a charge that the CFPB hurled at payday lenders and others in its small-dollar lending rules. Rather, it went after Wells Fargo for misleading consumers and violating the terms of contracts with borrowers. The consent order spells out Wells’ Fargo violation of specific sections of the Consumer Financial Protection Act.
To show he is really pro-consumer, Mulvaney must also change another practice of the CFPB in levying fines. Like the Obama Department of Justice, the CFPB gave a significant portion of portion of the penalties it collected to outside groups not party to the case. The CFPB had described these groups as providing “financial coaching” for low-income homebuyers, as well as “housing and social services.” But according to Investor’s Business Daily, the activities of many of the groups specifically listed by the CFPB as eligible for grants under its “Civil Penalty Fund” were “more political than charitable.” IBD listed groups packed with former Obama administration appointees and groups that lobbied Congress for more domestic spending.
Last summer, Attorney General Jeff Sessions issued a strict ban on the Department of Justice disbursing proceeds of its settlement agreement to third parties. To put the “Consumer” back in the “Consumer Financial Protection Bureau”—or, as Mulvaney points out, its official title in Dodd-Frank of “Bureau of Consumer Financial Protection”—Mulvaney should follow Sessions’ lead.
Congress should also pass the Stop Settlement Slush Funds Act, sponsored Rep. Bob Goodlatte (R-VA) to prevent all divisions of the federal government, from entering into these slush-fund settlement agreements with outside groups not parties to the litigation at hand. And then, as we have urged many times before (and I did recently to public radio’s Marketplace), it should make the CFPB accountable to elected officials by putting its funding under congressional appropriations and making its director removable at-will by the president.