Why We Need the Consumer Financial Protection Bureau

“My view is that Washington and the regulators are there to serve the banks.” – Republican Rep. Spencer Bachus, Chairman of the House Financial Services Committee

In 1972, the Nixon Administration created the Consumer Product Safety Commission (CPSC). Its purpose was relatively straightforward: to enforce uniform standards, minimum levels of safety, on consumer products sold in the United States.

Forty years later, we can say that the CPSC has been a magnificent success. Product-related death and injury rates have declined significantly since its creation. Its safety standards for cigarette lighters, cribs, and baby walkers save more than $2 billion annually — more than its entire cumulative budget since 1972.

So it makes sense that Harvard law professor Elizabeth Warren drew on the CPSC as inspiration for the Consumer Financial Protection Bureau (CFPB), which Congress created in the Dodd-Frank Act of 2010.

“It is impossible to buy a toaster that has a one-in-five chance of bursting into flames and burning down your house,” wrote Warren back in 2007. “But it is possible to refinance an existing home with a mortgage that has the same one-in-five chance of putting the family out on the street — and the mortgage won’t even carry a disclosure of that fact to the homeowner.”  

But many politicians don’t care. In their view, if borrowers sign loan documents that they don’t understand, that’s their own damn fault.

This may be the most pernicious myth to emerge from the financial crisis.

As Michael W. Hudson documents in his behind-the-scenes book The Monster, these multibillion-dollar mortgage empires grew at astronomical rates by purposely hiring inexperienced salesmen whom they could “brainwash”; teaching them how to find and take advantage of uneducated, vulnerable borrowers in financial distress; ordering them to lie to, spy on, and hide critical information from borrowers; creating a culture that encouraged salesmen to forge documents and lie to regulators and underwriters; and firing anyone who didn’t employ as many of these unethical and illegal tactics as possible to increase loan volume.

These were expert con artists, perpetrating fraud on a level unseen since the vicious dog-eat-dog days of the late nineteenth century, back when consumers couldn’t even trust food not to poison them or medicine not to kill them. Unrestrained capitalism is a dirty business.

Corporations want us to believe that they will regulate themselves, that no firm with a reputation for shoddy products will stay in business for long, but we’re not that stupid. Our eyes are open, and the millions of fraudulent loans make it impossible to look away.

The Monster is to our generation what Upton Sinclair’s The Jungle was to an earlier age: a warning, a call to action, a witness to injustice so widespread that the reader is continually shocked at how human beings can be so cruel, so callous, so sociopathically greedy.

In 1972, there was no need for the CPSC to regulate mortgages. Loan documents were only a few pages long, and most financial institutions weren’t allowed to sell the risky products that became popular in the 2000s.

Congress began tearing down those barriers in the 1980s, and bankers like Roland Arnall, the founder of the biggest subprime empire in history, jumped at the chance to expand their business. When those banks were sued and shut down for fraudulent lending, Arnall and his colleagues set up shop at unregulated non-depository lenders, financed by Wall Street. The few regulations that still applied were divided among seven agencies, which were severely underfunded by the Bush administration.

The CFPB can change all that. Its power is consolidated under one roof, its budget is safe from Congressional interference, and it can prevent any lender from selling mortgages that will sink us into another recession.

But without a director, the CFPB has no legal authority. Senate Republicans are blocking President Obama’s nominee to head the CFPB because they believe it’s too powerful, but as Ari Berman reports in The Nation, “the CFPB is the only banking regulator whose budget will be capped…and whose rules can be overturned (by a two-thirds vote from the Financial Stability Oversight Council…).” The real power imbalance lies elsewhere.

Our indifference to the suffering of millions of homeowners is staggering and has gone on long enough. If Senate Republicans don’t step aside, President Obama must appoint a CFPB director when Congress is in recess.


This op-ed was published in today’s South Florida Sun-Sentinel.