As proposed legislation to repeal provisions of the Dodd-Frank banking reforms — measures put into place to protect consumers after the housing crisis financially devastated millions of Americans — moves ahead in Congress, a new legal analysis released by University of Utah S.J. Quinney College of Law professor Christopher L. Peterson outlines why passage of the Financial Choice Act of 2017 could have dangerous consequences for consumers.
Peterson’s research, titled “Choosing Corporations Over Consumers: The Financial Choice Act of 2017 and the Consumer Financial Protection ,” examines how the proposed legislation would affect the enforcement ability of the Consumer Financial Protection Bureau. The agency, known by the acronym CFPB, was created by Congress six years ago to protect consumers from unfair and deceptive lending practices and as a tool to help the American public recover from scars left by the Great Recession.
The agency’s future has again come into question after its director, Richard Cordray, announced he will step down from his position at the end of November, prompting discussion about what’s next for the agency’s leadership.
“Under Richard Cordray’s leadership, the federal government set up an effective watchdog that has been making progress in stopping the financial tricks and traps that have harmed so many American families,” explained Peterson. “But with Director Cordray stepping down and anti-consumer legislation making its way through Congress, the Consumer Bureau is at a crossroads.”
Peterson’s research, set to publish in a forthcoming issue of Consumer Finance Law Quarterly, shows how that the agency ordered banks and other financial companies that engaged in illegal practices to return nearly $12 billion in restitution to the pockets of harmed American families during Cordray’s administration.
The consumer bureau works as a civil law enforcement agency to prevent illegal financial practices — such as predatory lending — from hurting consumers. Peterson’s latest research has found that the Financial Choice Act of 2017 — which has passed along party lines in the House and is awaiting action in the Senate — could limit the agency’s ability to enforce the law on behalf of consumers who have been taken advantage of by banks and other financial corporations.
“My study compares the bill to the CFPB’s actual law enforcement track record. In particular, the study asks ‘How would the CFPB’s enforcement track record have changed if the Choice Act had been in effect from 2012-2016?’” said Peterson. “The short answer is that the law would have wiped out the vast majority of CFPB law enforcement, including seemingly uncontroversial cases such as that against Wells Fargo for creating over two million fake, unauthorized bank accounts.”
The study found that if the Financial Choice Act had been adopted in 2012 it would have eliminated:
- Over 91 percent of consumer refunds and restitution for illegal home mortgage lending practices, amounting to $2.7 billion dollars;
- Over 94 percent of consumer refunds and restitution for illegal credit card practices amounting to $6.8 billion; and,
- Every single law enforcement case addressing illegal practices in the “payday” and car title lending industry.
If the law passes and the CFPB does not retain its current enforcement powers, it could mean consumers will have a tougher road if taken advantage of by deceptive advertising, unfair billing practices or abusive fees associated with their credit cards, bank accounts and mortgage loans. Peterson’s study shows that the proposed Financial Choice Act protects the payday lending industry in particular. The bill would create an exemption for all payday loans, which have average rates of around 400 percent, from any CFPB regulation, investigation or law enforcement action of any type.
“Ironically, the payday lenders with the most abusive prices and practices are treated most favorably under the proposed statute — better even than banks or credit unions,” explained Peterson. “President Trump promised to drain the swamp but, at least with respect to working families’ personal finances, the swamp is set to become deeper and more dangerous.”
“The change in leadership at the Consumer Bureau could result in a similar outcome. I am concerned that a Trump-appointed director may simply refuse to enforce consumer protection laws,” said Peterson.
Peterson’s analysis draws upon pleadings, consent orders, settlement agreements, press releases and other public documents to study every public enforcement action announced by the bureau through 2016 based on over 70 variables. The study follows earlier research on the CFPB, including a 2016 piece published in the Tulane Law Review. That article, Consumer Financial Protection Bureau Law Enforcement: An Empirical Review, analyzed CFPB cases through 2015.
A recognized authority on consumer finance, Peterson has frequently testified in Congressional hearings and has presented his research to the Federal Deposit Insurance Corporation, Federal Reserve Board of Governors and at the White House in both Democratic and Republican administrations. Peterson served as a special advisor in the Office of the Director at the Consumer Financial Protection Bureau from 2014 to 2016 and in the CFPB’s Office of Enforcement beginning in 2012. He also previously served as a special advisor at the Pentagon working on consumer protection for military service members in the Office of Legal Policy for Personnel and Readiness in the U.S. Department of Defense.
Peterson’s books include the Thompson/West casebook Consumer Law: Cases and Materials and Taming the Sharks: Towards a Cure for the High Cost Credit Market which won the American College of Consumer Financial Services Lawyers’ outstanding book of the year prize. He is a consumer fellow of the American Bar Association’s Consumer Financial Services Committee. He is a recipient of the National Association of Consumer Agency Administrators’ Consumer Advocate of the Year award and the Department of Defense’s Office of the Secretary of Defense Award for Excellence. Peterson is currently the John J. Flynn Endowed Professor of Law at the University of Utah’s S.J. Quinney College of Law where he teaches contracts, commercial law, and consumer protection courses.