Protect American consumers from financial fraud and abuse

Vijay Das is a writer and senior campaign strategist at Demos. Follow him @vijdas
Amy Traub is Associate Director for Policy & Research at Demos. Follow her @AmyMTraub

Six years ago today, the Consumer Financial Protection Bureau (CFPB) opened its doors to an American public still reeling from the devastation of a massive financial crisis fueled by years of banking deregulation and reckless lending. American households lost approximately $16 trillion in net worth from the crisis and ensuing recession. The need for an agency to protect American consumers from financial fraud and abuse seemed self-evident.

And yet the consumer agency has been under attack from the very beginning. Wall Street banks and other financial services companies bristled against CFPB investigations and rulemaking that challenged unfair and deceptive practices in mortgage lending, debt collection, student loans, credit cards and other financial services. Even though the agency returned $11.8 billion to millions of consumers cheated by financial services companies, financial sector lobbyists are pushing to undermine the CFPB’s independence and authority. In June, the House of Representatives rewarded their Wall Street friends and campaign donors by passing the Financial CHOICE Act, a bill that guts the CFPB and weakens other important financial reforms. Despite broad public support for the CFPB’s mission, the Senate is considering measures to undercut the agency.

Senate Republicans eager to undermine the CFPB are doing so at the country’s peril. The CFPB safeguards all consumers and in particular, communities of color. As President Trump and his Republican allies advance their anti-CFPB agenda, they aim to embolden shady lenders and banks at the people’s expense.

The CFPB is vital to everyone who interacts with the financial system, from households with bank accounts and 401(k)s to families that rely on check cashers or use payroll cards.

The CFPB also plays a critical role in halting the extraction of wealth from people of color. The legacies of slavery, housing segregation, and redlining extend into the present day, lying at the bedrock of America’s crater-sized racial wealth gap. Demos finds the median white household possessed $13 in net wealth for every dollar held by the median black household in 2013. That same year, median white households possessed $10 for each dollar held by the median Latino/a household.

Long subject to employment discrimination and shut out of mainstream lending, communities of color have also been targeted for risky financial products. That’s one reason why the CFPB has been instrumental in defending families of color from the extraction of their earnings and generational wealth.

The CFPB has combatted blatant discrimination in all fields. Take auto lending, a process many Americans are familiar with. Last year, the CFPB and Department of Justice required Toyota Motor Credit to change its lending practices and provide compensation to thousands of African American and Asian and Pacific Islander car buyers who were charged higher interest rates than white borrowers, even if they had similar or better credit. Similar cases resulted in millions of dollars in compensation for borrowers of color cheated by other major auto lenders.

It is only with continued vigilance from the CFPB over auto lending and other financial markets that further discrimination can be detected and remedied.

The Great Recession resulted from a mortgage meltdown that occurred in a Wild West lending environment, in which existing regulators failed to protect against deceptive financial practices. The recession crushed communities of color. While white households saw their net worth decline by about 16 percent, African American families lost more than half of their total household wealth. Asian American families living in the U.S. through the financial crisis experienced a 31 percent drop in household wealth. A stunning two-thirds of the net worth of Latino households disappeared. A strong CFPB is critical to prevent another financial crash.

Discriminatory mortgage lending—including brokers who steered black and Latino borrowers into deceptive, risky loans when they would have qualified for lower-cost mortgages—helped to fuel the disparity . New mortgage rules written by the CFPB prevent these and other deceptive home lending practices.

As the Republican-led Congress moves forward to gut the CFPB and bring on a lax regulatory environment similar to the free-for-all that led to the worst financial crisis since the Great Depression, we must remember the millions of American consumers, consumers of color in particular, who need protection from the predators of our financial system.

By pushing the Financial CHOICE ACT and other proposals that weaken the CFPB, Trump and his Republican cronies make no secret of their alliance with the unscrupulous lenders and crooked financial providers who would reap more profits if they had free rein to cheat American consumers without CFPB scrutiny and enforcement.

Without the Consumer Financial Protection Bureau, lenders preying on communities of color would continue to pull in windfall gains, while widening the racial wealth gap and undermining the precarious financial stability of vulnerable households. But if the financial industry’s motives for attacking the CFPB are clear, so is the American public’s interest in having a strong federal watchdog dedicated to ensuring a fair financial marketplace for consumers. The people’s interests should win.

Disclaimer: We selected this Op-Ed to be published in our opinion section as a contribution to public debate. The views and opinions expressed in this column are those of its author(s) and/or the organization(s) they represent and do not reflect the views or the editorial line of Univision Noticias.