Obama’s Legacy: Sweeping Changes for Consumers and Borrowers—and More Ahead
More robust financial regulations and consumer protection law may be a hallmark of Barack Obama’s presidency, consumer advocacy groups say.
More robust financial regulations and consumer protection law may be a hallmark of Barack Obama’s presidency, consumer advocacy groups say. The crown jewel of that effort is the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which created the Consumer Financial Protection Bureau. According to the group’s spokesman, Ed Mierzwinski, the bureau will reshape the landscape for years to come.
“It is one of President Obama’s crowning achievements,” said Ed Mierzwinski, spokesman for the Public Interest Research Group. “It is a sophisticated response to financial services that were a Wild West under previous regulations.”
“The bureau has authority over the entire market place, and they have examining authority, the ability to open the black box and say: show me that you are in compliance to banks over $10 million, payday lenders, private student lenders and mortgage companies,” he said. “They have the ability to write regulations.”
Created in response to the great recession, one of the first regulations the CFPB drafted targeted mandatory arbitration clauses in nearly all consumer contracts, where consumers knowingly or unwittingly waive the right to sue in court, either as individuals or as a class.
CFPB is now in the final drafting phase of a rule that would likely restrict vendors’ ability to insert mandatory arbitration clauses. Expected restrictions on mandatory arbitration in other is expected to change the way merchants, banks, businesses and employers do business, Mierzwinski said.
The recent $100 million fine CFPB levied against Wells Fargo for opening two million accounts in the names of customers who didn’t authorize them, is an example of that change. Before the creation of CFPB, holding Wells Fargo accountable would have been up to the individuals harmed, who would likely have had to prove their harm before individual arbitrators.
Not everyone is thrilled with CFPB, Scott Pearson, a partner at Ballard Spahr LLP, said. He called the bureau “a disaster for consumers.”
“The bureau is a shining example of a gross overreaction to the credit crisis,” Pearson said. “The economy is doing badly and recovery is lagging because of the gross oversteps by the bureau.”
“Frequently it is hurting consumers it seeks to protect because it doesn’t understand the consequences of its actions,” he said. “For example, we’ve raised the costs of making loans so much, there’s a certain sector of the public that is being left out of the lending arena because of the increase in regulatory costs.”
Small businesses seeking small loans are being turned away, Pearson said.
“The compliance costs are so high that banks are not making loans in amounts less than $250,000—and those small businesses are what drive our economy,” he said. “The politics of this administration have strangled the small business sector.”
People with poor credit or no credit are having a hard time finding loans they used to get at higher interest rates, he said.
“There were short-term credit products that do have high interest rates, and people in bad situation need access to quick money can’t get those loans because of price controls on interest rates,” Pearson said.
Another significant change spearheaded by the Department of Labor is a proposed rule that says retirement investment advisors have a fiduciary obligation to their clients.
“Before, they didn’t have to give you the best possible advice, just suitable investment advice,” Mierzwinski said. “That’s a significant change that protects workers.”
“There’s protecting people and there’s paternalism,” Pearson added. “How far should we go: should we educate and disclose or should we assume people are unable to make good decisions and ban some products?”
There are still areas where consumers need help, UC Irvine School of Law Professor Kate Porter said.
There’s more work to do on housing financial reform,” she said. “We need clarity around future Fannie Mae and Freddie Mac rules.”
While the Obama administration—through both the Department of Education and the Consumer Financial Protection Bureau—has addressed abusive student lenders, helped consumers, there’s work to be done, Porter said.
“There’s a fundamental policy question about how government should support education financing,” she said. “And, as these areas become more complex, we are still struggling with providing affordable legal services. How we think about self-help and making legal systems accessible to ordinary people needs work.”
Porter points to Identitytheft.gov, a website set up by the Federal Trade Commission, as a shining example of helping people help themselves.
“It is a marvelous example of legal tools made available by the FTC, a beautiful set of tools that are very personalized and very action-oriented,” she said.
Marty Graham is a San Diego-based freelance writer whose work has appeared on Reuters.com, Wired.com and other outlets. She writes fiction on the side.