Memo to American consumers: You just got screwed—again.
The too big to fail boys and their GOP handmaidens—the Hon. Richard Shelby, the Hon. Mitch McConnell and the other 43 legislators in the US Senate—have struck again.
This week, they blocked the confirmation of Richard Cordray to be the Director of the Consumer Financial Protection Bureau, which is the first federal regulator with the sole purpose of protecting regular people from the likes of financial scoundrels.
[Related article: Senate Republicans Block New Consumer Watchdog]
Plain and simple—just like we experienced a few months earlier with Elizabeth Warren (whose potential nomination was derailed by the same band of robber-barons)—Mr. Cordray is the newest piece of road kill on the Conservative super-highway, and the American people have been hosed yet again. Now, you might not realize this, because you're about to witness a cable news cycle full of Republican senators prattling on as to why their vote was really about accountability and good government.
Don't buy it, my friends.
Thursday's vote was a simple win for greed and gridlock. Republicans didn't need to win (actually they lost, 45 to 53). To secure their next round of campaign contributions from their financial patrons, all they needed to do was stall. And in that respect, they hit the ball out of the park, because Cordray's nomination is seven votes shy of being filibuster-proof. Ironically, Scott Brown, the Republican Senator from Massachusetts who is being challenged by Elizabeth Warren, was the only GOP Senator to vote for Cordray.
Thursday's vote assures that a whole host of banks and other non-banking financial services companies won't have a real cop on the beat until at least November 2012, when the next Presidential election is decided. And, the GOP is counting on the fact that when the smoke clears in January of 2013, they will be running the show so that they can stamp out all of this consumer protection rubbish once and for all.
Consumers obviously lost this round. But other folks lost, as well. Take, for instance, honest companies (including some of the nation's largest banks), and anyone who cares about doing business on a level playing field in an environment of integrity.
First, a little background. Congress created the Consumer Financial Protection Bureau, which launched last summer, as part of the Dodd-Frank financial reform package. A lynchpin of the legislation, the CFPB represents the first federal agency exclusively devoted to the protection of the consumer in the financial services area. Consumer law enforcement responsibility, previously scattered among seven other financial regulatory agencies, has now been consolidated under the CFPB.
Whereas other regulators are primarily concerned with promoting the safety and soundness of the American economy (which all too often they confused with protecting the profits of big banks and Wall Street investment firms), the CFPB is a one-stop shop for consumer education, advocacy, research and enforcement. Just pay a visit to their website and take a look at the work they are doing now. They are actively collecting the stories of consumers wounded by their credit card issuers and confounded by their mortgage lenders. And just this week they released their proposal for a credit card agreement that an actual human has a shot at understanding.
This is vitally important work. Here's the most obvious reason why: The late-stage mortgage boom of the mid-2000s, and the crisis it caused, was fueled by greed, ignorance, irresponsibility and fraud. After years of historic low interest rates, lenders and the Wall Street firms that funded them had largely run out of qualified people to whom they could lend money. But the banks and investment houses were too addicted to the easy money they made from mortgage fees to change course.
Lines were blurred, rules were broken and facilitators were rewarded for creating exotic and risky bundles of securitized loans—which were then off-loaded to uninitiated and unsuspecting investors. According to insider testimony, brokers at companies like Countrywide Financial, the largest subprime lender during the boom, tricked people into taking on loans they couldn't afford. And then the big boys went about enticing everyone from pension funds to Scandinavian fishing villages to buy those junky loans.
When the whole thing fell apart, the 99.25% were decimated (you don't really believe that the entire 1% escaped scot-free, do you?). People holding mortgages that never should have been written in the first place found the banks too overwhelmed with bad loans to help. Everyone else suffered, too, since the average value of all our homes has dropped by a third since the boom time peak.
[Read our coverage on the Consumer Financial Protection Bureau]
Guess who also lost out? Honest bankers and any other business that tried to stay free from the mess. Many financial institutions actually tried for years avoid the subprime market. But non-banks like Countrywide were making so much money that eventually virtually every major bank had to get into the business just to preserve market share.
The Consumer Financial Protection Bureau has the power to level the playing field for consumers and honest bankers, but only if and when it has a permanent director. It can educate, do research and enforce existing legislation, but when it comes to the important innovative work for which it was created, it is seriously hampered. Like an embryo permanently trapped in the womb of the Treasury Department, without a director, it has no power to prevent "unfair, abusive or deceptive practices," which, of course, is the core of its being. It can't even write new rules to enforce existing laws designed to protect consumers from mortgage fraud, payday loans charging 400% interest, and student loans that consumers can never escape, even if they declare bankruptcy.
Republican leaders would have you believe that they blocked this important work because they fear the CFPB has "unprecedented" power and is "unaccountable" to voters and Congress, in the words of Senator Richard Shelby. Who does the Honorable Gentleman from the Great State of Alabama think he's kidding? Nobody. The CFPB actually has less power than any other financial regulator. (The other seven can even veto any bureau decision.) This isn't a fight about accountability, transparency, or any such noble cause. It's a fight about who will win in our economy. It's a fight between consumers and honest businesspeople on one side, predators, charlatans and snake oil salesmen on the other.
By doing the bidding of their Wall Street contributors, Republicans aren't just hurting consumers. They're actually hurting the companies and values they claim to represent. Real bank profits don't require devious schemes. Real innovation in the financial markets doesn't involve fraud. Stable banks, and a stable middle class, depend on everybody playing by the same rules.
Senate Republicans, meanwhile, continue to play by an older set of rules, one that already sent our economy down the path of crisis and ruination. "Congress has remained a collection of two-cent politicians who could serve well enough in simpler days," TIME magazine wrote in 1942. "But the ignorance and provincialism of Congress renders it incapable of meeting the needs of modern government."
Truer words were never spoken. We need the minority party in the Senate to get with the program. We need a CFPB with the firepower, the funds and the fangs to do its job. Until we get that, honest American consumers and businesspeople will continue to get pulverized.
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.