During the endless hearings leading up to the passage of the Dodd-Frank Wall Street Reform Act, which has its two-year anniversary this week, and an even more taxing series of hearings defending its existence, Elizabeth Warren, the Harvard Professor who can rightly be called the birthmother of the Consumer Financial Protection Bureau, said "America needs a cop on the beat." Well, this week the CFPB issued its first major ticket and it's a doozy — $210 million.
According to a statement from CFPB director Richard Cordray, (you remember, he's the fellow the Party of No said, well, "No" to…), representatives working for a third-party vendor engaged in deceptive practices by hawking "Payment Protection" and "Credit Monitoring" products to consumers with low credit scores and low credit limits.
First, many consumers were wrongly encouraged to believe they had to purchase these products to activate their cards. Second, some consumers were either deceived into thinking these products were free or were simply enrolled without their full consent and automatically billed. Third, some consumers were wrongly led to believe that these products would improve their credit score or help them build good credit. Fourth, some consumers were sold the product even though they were disabled or unemployed and thereby ineligible for some of the benefits being touted. Furthermore, once customers became aware of these problems or no longer wanted to pay for the product, they were given the runaround or further misled as a means of keeping them enrolled…compliance mechanisms failed to prevent, identify, and correct the practices.
Karma will get you dinner for two, apparently. The CFPB announced that 2 million consumers will receive refunds of $70 each. Not to mention millions of dollars of fines to the CFPB and the Office of the Comptroller of the Currency. The whole thing comes to about $210 million.
Imagine that! $140 million is being returned to people who will most likely inject those dollars into the economy. Think of it as a mini stimulus plan. And it is just the beginning, Cordray continued:
We know these deceptive marketing tactics for credit card add-on products are not unique to a single institution. The compliance bulletin puts all financial institutions on notice about these prohibited practices and reinforces that they must make sure their service providers are complying with the law.
Elizabeth Warren fought for this type of consumer protection for years and finally saw it become law in 2010. She then turned the concept into a reality and for all of her blood, sweat and tears she was run out of town. However, it is quite likely that the people of Massachusetts will make her their next U.S. Senator and she'll be back in January. (Be careful for what you wish for, Sen. McConnell.)
Another lawmaker who deserves a tip of the hat: Rep. Spencer Bachus (R-Ala.), who asserted not too long ago that, "In Washington, the view is that the banks are to be regulated, and my view is that Washington and the regulators are there to serve the banks."
It appears Washington's view trumps his.
This action by the CFPB should be hailed for what it truly is – a victory for consumers as well as a message that anything less than transparent business practices will not be tolerated.