Today, the President is in Birmingham, Alabama to speak about the progress we have made to build a safer and stronger financial system and to protect families from the types of abuses that led the economy to near collapse – and his commitment to safeguarding that progress.
Before the financial crisis, the irresponsibility and recklessness that was allowed to prevail on Wall Street may have seemed remote from Main Streets across the country. But we know now that was not the case. One of the most critical components of the Wall Street Reform bill passed by Congress in 2010 and signed by the President was the creation of the Consumer Financial Protection Bureau (CFPB), a dedicated, independent cop on the beat with the single goal of protecting consumers from threats like abusive practices of unscrupulous lenders or the fraudulent practices of debt collectors. Today, in another example of how crucial Wall Street Reform protections are for Main Street families, the CFPB has announced they are taking an important first step toward writing rules to help prevent abuses in payday lending and protect consumers from getting trapped in expensive cycles of debt and fees.
Apart from the work of the CFPB, the Obama Administration has continued its broader fight to protect consumers. In the last year alone, President Obama has announced steps to crack down on conflicts of interest in retirement investment advice that are costing middle class families billions of dollars every year, to put in place a bill of rights for students borrowing for college, and to provide proactive mortgage payment relief for active duty servicemembers and their families.
Yet even as the President and the CFPB continue to take action on behalf of consumers, Congressional Republicans are advancing budget plans and legislation this week designed to limit the ability of the CFPB to do its job and to undermine other crucial reforms. The Republican budgets risk returning us to the days of “too big to fail,” protecting Wall Street firms from important regulatory safeguards and putting ordinary citizens and the economy at risk. These measures are part of a broader effort by Wall Street lobbyists, special interest groups, and their Republican allies in Congress to roll back the progress we have made in creating a safer financial system that supports the middle class.
We cannot let Republicans in Congress undo the progress we’ve made by unraveling Wall Street Reform. These reforms have made our financial system dramatically safer by curbing the reckless practices that helped precipitate the crisis and have delivered substantial benefits to consumers. Wall Street Reform has built a stronger and more stable foundation for economic growth. That’s why the President is reiterating today the message he delivered in the State of the Union: if Congress sends him a bill that unravels the new rules on Wall Street, he will veto it.
Progress from the Consumer Financial Protection Bureau
Prior to the creation of the CFPB as an independent agency, there was no single agency that had all the tools and the mandate to oversee consumer financial products and services that Americans rely on every day. Even though many payday and similar lenders trap consumers in cycles of debt, too often these lenders have escaped regulation. But today, the CFPB is stepping up to help address this problem and better protect affected consumers, yet another example of how Wall Street Reform is delivering real results for working families.
Taking Action on Payday Lending
Problems Continue in Payday Lending: While marketed as a tool to meet consumers’ short-term credit needs, payday loans—and loans with similar structures like title loans or other installment loans—often trap families in an abusive and expensive cycle of debt and fees. Eighty percent of payday loans are rolled over or followed by another loan within 14 days, and the average borrower stays in debt for about 200 days out of the year.
As a Result of Wall Street Reform, an Independent Consumer Watchdog Can Now Take Action on Payday Lending: The CFPB is the first Federal regulator empowered to write rules that curb the abusive activities of payday lenders, and under that authority, today announced that it was considering proposing new rules that would end payday debt traps. The CFPB has made clear it recognizes the need for affordable small dollar credit while creating reasonable safeguards so that consumers are treated fairly and do not face an unsustainable debt cycle. The CFPB’s approach could serve as a Federal floor with states around the nation continuing to tailor their regulation of payday and similar loans as they see fit to meet the needs of their constituents.
The CFPB’s Continuing Record of Action
Since its creation as an independent agency, the CFPB has taken bold action in a number of important areas, providing a total of $5.3 billion in relief through enforcement actions to more than 15 million consumers who were harmed, and setting stronger rules of the road that prevent abuse in credit card, debt collection, student loan servicing, and mortgage lending markets. Following are some examples of how the CFPB is delivering for middle class and working families:
Cracked Down on Fraudulent Credit Card Practices: The CFPB has cracked down on costly and often unneeded credit card add-on products like identity protection and disability insurance, bringing enforcement actions that resulted in over $1 billion returned to millions of consumers signed up for products without their knowledge or paying for services they did not receive.
Prohibited Abusive Mortgage Lending: The CFPB has implemented significant mortgage lending reforms to address the actions and products that hurt so many homeowners during and after the financial crisis. For example, lenders are now prohibited from offering mortgages that borrowers cannot repay, must use significantly improved mortgage disclosures that make products easier to understand, and must limit high fees and abusive payment structures. The CFPB has also created national mortgage servicing standards, established clear rules of the road for borrowers, and put in place pro-consumer restrictions for mortgage servicers.
Created New Protections for Student Loan Borrowers: The CFPB has set up a complaint database for borrowers and launched oversight of student loan servicers. The CFPB and the Department of Education also initiated complementary enforcement actions against for-profit colleges that engaged in predatory or deceptive student loan practices, winning loan forgiveness for thousands of students.
Established Rules for Remittances Abroad: The CFPB has established rules making it easier for people who send money abroad to compare prices and ensure that all the money they send reaches its destination.
Penalized Discriminatory Auto Lending Practices: The CFPB has assessed $18 million in penalties and returned $80 million to consumers who were victimized by auto loan programs which resulted in higher interest rates being charged because of a borrower’s race or national origin.
Protected Military Service Members from Abusive Practices: The CFPB has secured more than $1 million in restitution through 2014 for military service members, veterans, and their families based on over 14,000 complaints the Bureau received.
Created a System for Handling Consumer Complaints: The CFPB has received more than 540,000 consumer complaints about financial products and services since it began processing complaints in 2011, including 240,000 complaints in FY2014. And this month, the CFPB announced that it will give consumers the choice to publicly share their personal financial complaint narratives with others through the Bureau’s complaint database, so consumers can learn from one another.
Building a Broader Record of Consumer Protection:
Apart from CFPB’s efforts, the Administration has taken a broad set of steps to fight to protect consumers from the abuses that led to the financial crisis. In the last year alone, President Obama:
Announced Steps to Crack Down on Conflicts of Interest That Sap Retirement Accounts: Last month, the President announced steps to crack down on backdoor payments and hidden fees that incentivize retirement advisers to recommend bad investments with high costs and low returns. These conflicts of interest sap away families’ hard earned dollars from their retirement accounts, costing working and middle-class families approximately $17 billion in losses each year. The Department of Labor is planning to issue a Notice of Proposed Rulemaking requiring retirement advisers to abide by a “fiduciary” standard—putting their clients’ best interest before their own profits.
Rolled Out A New Student Aid Bill Of Rights: This month the President underscored his vision for a quality, affordable education for all Americans through a new Student Aid Bill of Rights. Among the new actions, the President signed a Presidential Memorandum directing the Department of Education to work across the federal government to do more to help borrowers afford their monthly loan payments including by: creating a responsive student complaint system to ensure quality customer service and accountability for the Department of Education, its contractors, and colleges; requiring enhanced disclosures and stronger consumer protections for student loan borrowers; establishing a centralized hub for all federal student loan borrowers in repayment to access account and payment processing information; and ensuring fair treatment for struggling and distressed borrowers.
Provided Proactive Payment Relief to Active Duty Military and Their Families: The Administration has partnered with five large financial institutions to proactively offer interest rate reductions on their mortgage loans to active duty military and their families. Active duty military are entitled to this benefit under the 2003 Servicemembers Civil Relief Act (SCRA) but only if they request it and jump through hoops by providing unnecessary paperwork and documentation, which many of them do not. The President launched a coordinated effort across government to cut regulatory red tape, allowing participating lenders to proactively identify and reach out to our active duty service members to enroll them in these important financial protections.
Secured Billions in Penalties and Fines from Banks for their Involvement in the Mortgage Crisis: The Department of Justice (DOJ) secured billions from the country’s largest financial services institutions as a result of civil investigations related to the packaging, marketing, sale, arrangement, structuring and issuance of Residential Mortgage-Backed Securities (RMBS), collateralized debt obligations (CDOs), and the banks’ practices concerning the underwriting and origination of mortgage loans. A large portion of these settlements will be set aside as aid for hundreds of thousands of homeowners and other consumers harmed by the financial crisis precipitated in part by Wall Street’s unlawful conduct.
Protecting the Progress We’ve Made in Reforming Wall Street
The President’s Wall Street Reforms have made our financial system safer and stronger by limiting the excess risks and reckless practices that caused the crisis, providing substantial benefits to families, communities, and the broader economy.
Wall Street Reform has built a stronger and more stable foundation for economic growth and ended the worst of the practices that contributed to the financial crisis, such as curbing predatory lending and closing regulatory gaps.
Wall Street Reform has made our financial system safer and more resilient by curbing excessive risk-taking by financial institutions. Banks have added over $500 billion of capital to cushion against unexpected losses and reduce overall leverage.
These reforms benefit Main Street by providing businesses—large and small—with more stable access to credit to fund expansion, make payrolls, and help create jobs. Business lending is up by more than 50 percent since its post-crisis low.
These reforms also benefit middle-class families through new investor protections that will make it safer to invest and grow their savings, including through strengthened enforcement authorities for market regulators and enhanced disclosure requirements.
Yet, even as the President continues to work to build on this progress, Republicans in Congress are seeking to undermine it through attacks on Wall Street Reform. Given how far we have come since the crisis, it is hard to understand the efforts of some to undermine our ability to protect consumers, investors, and taxpayers from excessive risks taken by financial institutions. The Administration is willing to consider reasonable reforms that make the law work better and supports efforts by regulators to tailor rules to apply only where they should. But we cannot let Republicans take us back to the way things were before the crisis. Here are a few concerning ways that Wall Street lobbyists, the special interests, and their Republican allies in Congress are seeking to undermine these critical reforms:
Undermining the Consumer Financial Protection Bureau: Despite the CFPB’s progress, Republicans have consistently stood with Wall Street lobbyists and the special interests over middle class families by seeking to limit the power of the CFPB through proposals to replace its director with a five-member panel, limiting the Bureau’s ability to respond effectively to rapid changes in the financial services market, place additional procedural burdens on its rulemaking and data collection processes, and eliminate the fund that the CFPB uses to compensate consumers who have been the victims of fraudulent and deceptive practices. Just this week, Congressional Republicans are advancing budget plans and legislation designed to severely limit the ability of the CFPB to do its job of protecting consumers, among other things. The Administration will not allow Republicans to undermine the important work of the CFPB.
Using Small Lender Relief to let Big Banks Off the Hook: Small lenders play a vital role in their communities and the Administration supports tailoring regulations where appropriate, but we cannot allow measures that purport to help community banks be a back door to undermine reform, letting big banks take excessive risks like they took before the crisis.
Putting Roadblocks in the Way of Bringing the Financial System Under Stronger Regulatory Oversight and Supervision: Republicans in Congress are attempting to hobble financial overseers and independent watchdogs that are keeping an eye on risks in big banks and nonbank financial companies. Standing in the way of these independent watchdogs makes it tougher to catch and prevent the next threat to financial stability.
Sending us Back to the Days of “Too Big to Fail”: In the heart of the financial crisis, regulators needed to deal with faltering firms such as Lehman Brothers, Bear Stearns, and AIG but lacked the ability to wind them down in an orderly manner without damaging the broader financial system. Orderly liquidation authority—in “Title II” of Dodd-Frank—is a critical emergency tool for resolving firms in an orderly manner, when the failure of a firm could threaten the financial stability of the United States and only when bankruptcy is not an effective option. We cannot accept proposals that would roll back the very tools needed to allow any firm, no matter how large and complex, to fail without harming the economy.