Explainer: What Dismantling the Consumer Financial Protection Bureau Will Cost Americans [Podcast]

In the wake of the financial crisis of 2008, Congress established the Consumer Financial Protection Bureau, the CFPB. It protects Americans from predatory practices by consumer finance companies. The CFPB enforces federal laws and investigates fraud and abuse. It has sent over 6.8 million complaints to companies for resolution so far. The bureau has been targeted for massive cuts by the new administration which, thus far, have been blocked by a federal judge. Mallory SoRelle, a consumer finance expert and author of Democracy Declined: the Failed Politics of Consumer Financial Protection, talks with Manoj Mohanan, interim Dean of Duke’s Sanford School of Public Policy, about the CFPB and what dismantling it could mean for Americans.

Conversation Highlights

Responses have been edited for clarity. 

ON THE HISTORY OF U.S. FINANCIAL REGULATION

The US is a little bit unusual in that we have a particularly fragmented approach to regulating the financial industry. As new products and services have come online over the last century and a half, the government has come up with separate regulatory agencies to address different parts of the industry. What existed for many, many years was a system of multiple regulatory agencies that were all created primarily to look out for the safety and soundness of banks, and what that typically meant was the profitability of banks.

At the time most of these agencies were created, consumer financial protections did not exist. It wasn't until the late 60s and 70s that Congress started to say, “We probably need to have some laws on the books to make sure people's pocketbooks are protected when they use all of these new things, like credit cards and mortgage loans. (And so Congress) essentially gave authority for these new consumer financial protections to a patchwork set of agencies who then had to coordinate with one another to come up with rules, (and) we ended up with this system of really weak financial protections.

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ON THE GREAT RECESSION AND CREATION OF THE CFPB

(During the Great Recession we saw) increased predatory lending, people being given loans that they probably never should have qualified for, being charged exorbitant fees and interest rates to borrow money in really unsustainable ways. In the aftermath of the financial crisis, Congress sat down and they said, "Okay, we've really got to do better, what we're going to do now is maybe what we should have done initially, which is to create an agency whose only job is to protect consumers. Not to focus on the profitability of banks, we already have agencies that do that, just to protect consumers. We will essentially transfer much of the existing power to implement these laws to this new agency." And that's what they did.

ON WHAT THE CFPB DOES

Supervisory action is the ongoing day-to-day work of the CFPB. (They ask,) "Are we seeing evidence that companies might not be complying with the laws that we need to follow up with?" They're also looking for things like, “Hey, are there new products and practices that we probably should be aware of that we might need to think about how to regulate?”

(Also) when they identify a company that has potentially broken the law, they engage enforcement powers. (They can say), “Okay, we think this bank has defrauded its consumers, we are going to take them to court.”

The CFPB (also) provides educational information.  Anyone who has taken out a mortgage in the last several years will have gotten with their mortgage paperwork, education material that the CFPB produces that actually steps you through, line by line, what all of the things on your mortgage application are. And as someone who's gone through that process, I can tell you I would've been lost without that information.

HAS THE CFPB BEEN A SUCCESSFUL AGENCY?

It is the only agency that's designed to look out for consumers finances, and it's quite efficient in doing that. Even if you just look at the money they've gotten back for consumers through enforcement alone, the CFPB has put roughly $21 billion back in the pockets of over 200 million consumers through their enforcement activities.

ON THE IMPACT OF POTENTIALLY DISMANTLING THE CFPB

If the CFPB goes away, or is unable to carry out their responsibilities as robustly as they have been doing, we go back to the system of pre-2008, but with an increasingly complex marketplace. The first line of defense for most consumers will be state attorneys generals. Now, state attorney generals do have the power to enforce federal financial regulations, but they also have fewer resources with which to do it. So, to some degree, whether or not you get protection is just the random chance of where you live.

(Another issue concerns) new types of financial products, like peer-to-peer payments. I bet most of the people listening have used Venmo, or Cash App, or something like that, (or) the new Buy Now Pay Later programs. Those don't obviously fall under the existing regulatory agencies. If there is no federal oversight through something like the CFPB, what that means is that all 50 states get to pass their own laws. If you're a company, obviously your first preference is probably to have less regulation than more, but your second preference is only to have to comply with one set of regulations instead of 50 different sets, because that's pretty costly as well.

ON actions consumers can take to protect the CFPB

Most people think the things that the CFPB is doing are a good idea, and they like the CFPB when you ask them about it, and yet people don't take much political action in support of the agency. The best thing that you can do is treat it as a political issue. Write to your member of Congress expressing how important you think this is. It's hard for any elected official, (if) on the one side, they might have industry voices who are saying, we would actually like a weaker CFPB, and if there's no voice on the other side saying, “No, no, no, this is really valuable, we really want you to keep this, this is an important electoral issue for us,” well, they're going to follow the voices they're hearing. The best thing that people can do is speak out.

Mallory SoRelle is an assistant professor at the Sanford School of Public Policy at Duke University. Her research focuses on how public policy influences economic inequality.