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.
Other banks were clearly put on notice that the CFPB will do whatever is necessary to tame the wild west of financial services. They've learned that there's no such thing as a third-party vendor when it comes to compliance. If your vender screws up, you screw up. It was also a rather loud shot across the bow for all of the non-banking industries that are under, or about to come under the purview of the CFPB. Folks like the debt collectors who hound people to distraction (in many cases when they are not even the true debtor); the payday lenders who fleece consumers to the tune of millions of dollars of unconscionable fees; the mortgage brokers who thrive on directing borrowers to exotic loans they cannot afford; the auto lenders who squeeze non-existent dollars out of the poor and then take back their vehicles to remarket several times; the student lending system which is designed to trap our young people into a cycle of life debt.
And so, I say to the Distinguished Members of the U.S. Senate and House (McConnell, Shelby, Boehner and Bachus, to name a few… not to mention Gov. Romney) who so vigorously opposed this agency as yet another example of government regulatory redundancy and bureaucratic inertia: those footsteps you hear may not be your patrons running up the Hill to express their gratitude with bundles of cash. It just might be the sound of millions of voters expressing their outrage at your anti-consumer orientation.
The CFPB celebrates its first birthday this weekend, but the American public is getting the present. In its first 365 days, Elizabeth Warren's brainchild has already done more to protect the American public than this do-nothing Congress has accomplished since it was sworn in back in the dawn of 2011.
Adam Levin is chairman and cofounder of Credit.com and Identity Theft 911. His experience as former director of the New Jersey Division of Consumer Affairs gives him unique insight into consumer privacy, legislation and financial advocacy. He is a nationally recognized expert on identity theft and credit.