Prepared remarks of Richard Cordray Director, Consumer Financial Protection Bureau
Good afternoon and thank you. And let me thank all the groups represented here at the conference. You raise awareness about the need for fairness, honesty, and justice in business, housing, civic life, and economic development. Your leadership improves life for a great number of people and advances our country’s economic and social health. We rely on you for help and advice on issues ranging from credit access to housing to consumer financial protection. So thank you for your service and your commitment to others.
At the Consumer Financial Protection Bureau, we focus on making financial markets work for consumers, responsible providers, and the economy as a whole. We protect people from unfair, deceptive, abusive, and discriminatory practices and we take action as needed against companies that break the law. And we are arming them with tools they need to make smart financial decisions.
We are less than six years old, but we have consistently gotten results. Our actions have resulted in nearly $12 billion in relief for 29 million consumers and imposed $600 million in civil penalties. We have put in place strong safeguards against reckless mortgage practices that led to a devastating financial crisis that hurt many millions of people. And we are giving consumers a voice, so they can address their own concerns and report on broader patterns of problems or abuse. These are just some of the ways we are standing up for consumers.
Still, we know there is more to do to clean up problems in the consumer financial marketplace. The markets we oversee are vast, and they touch all of us in one way or another. In our lifetime, markets for household credit and consumer finance have expanded rapidly and grown more complicated for the average American family. The numbers are striking. The mortgage market today is roughly $10 trillion. Student loan debt stands at about $1.4 trillion. Credit card debt now totals around $700 billion, and auto loan debt has topped $1 trillion. As you can see, we have our work cut out for us. So let me talk with you about what we are doing, how we are going about it, and what we can achieve by continuing to work together with one another.
Today I will discuss three main components of our work. There is much more to say, but I will concentrate on just these things. First, I will describe how our supervision and enforcement work is improving consumer financial markets. Second, I will explain how putting in place common-sense rules of the road fosters better business practices and responsible access to credit. Third, I will lay out how hearing directly from consumers through their complaints helps us hold companies accountable and keeps small problems from becoming big ones.
As most of you know, we are the first federal agency with jurisdiction over both the larger banks and the nonbank financial companies that compete with them. Our supervisory and enforcement efforts that hold them accountable thus span most of the financial landscape. Because we can assess the entire field of play, we can work to keep it level for all participants. This was not true before the advent of the Consumer Bureau. But we have a singular focus on making sure these entities obey the consumer financial laws, and we can address these issues with all the main players in the markets under our purview.
Over time, we are changing the practices of these institutions for the better. One way we are doing so is through consistent supervision. This authority is not well understood by the public, because by custom and tradition it typically occurs in a confidential setting. But this steady relationship with banks and other large financial companies means that we maintain a constant pressure on them to be mindful of their responsibilities. They know that someone can be looking over their shoulder at any time to see and understand exactly how they are treating consumers. Through our examinations, we scrutinize how their operations work and how they affect people. When we find violations of law, we make sure they are corrected and that harmed consumers are made whole. The consequences of those actions are cumulative and powerful.
Another prominent tool we use to combat illegal practices is public enforcement actions. These differ from our supervisory work because they are known at once and transparent to everyone – consumers and industry alike. They thus have a more immediate deterrent effect on bad behavior. They also can be reinforced by penalties imposed for conduct that warrants such treatment, which signal the need for more intense attention from everyone else in the marketplace.
This enforcement strategy has had a significant and positive impact on consumers. One noteworthy example is the $100 million penalty we levied against Wells Fargo for unfair and abusive banking practices. To meet the demands of unrealistic sales targets, its employees opened millions of accounts without the approval or even the knowledge of their customers. Bank employees concocted deposit and credit card accounts, enrolled consumers in online banking services, and ordered debit cards for consumers, all without their consent or even their knowledge. Some of these practices involved fake email accounts and phony PIN numbers. Making public the details of that rampant misconduct was essential to prompt soul-searching by every bank, not only Wells Fargo itself, and to stimulate further work from other public officials to round out a more comprehensive treatment of the issues raised. Nobody can contest the plain fact that it is wrong to treat people as mere numbers, with no rights and deserving of no respect, in pursuit of one’s own self-serving financial objectives.
An important element of our work, through both supervision and enforcement, is to uphold the laws that ban unfair, deceptive, or abusive acts or practices. As Charles Fried has commented, “Lying, cheating, and stealing are not traditional American virtues.” Indeed, they are flatly against the law. There are many particular applications of those more general terms, which our enforcement actions have addressed. For instance, it is unfair for lenders to collect money that consumers do not owe on loans. It is deceptive to trick consumers into repaying illegal loans that state laws have nullified in part or in whole. And it is abusive to take unreasonable advantage of people’s lack of understanding or inability to protect themselves. As it happens, in the enforcement actions where we have alleged unfair, deceptive, or abusive acts or practices, roughly 90 percent involved deception and roughly 50 percent involved unfairness. So if you are doing the math, you will see that in many cases we found both types of issues.
It is important here to stress a point that is not always fully understood. Both our supervisory work and our enforcement actions are the result of painstaking investigations that have uncovered specific violations of the laws. We base them on particular facts that we have documented and verified, we specify those facts, and we lay out as best we can the legal conclusions that follow from the facts as we found them. When we articulate the grounds of an enforcement action – as when we publish the results of our exam work in our Supervisory Highlights – we are speaking to every institution in that market by setting the expectations they must meet in their own compliance work to avoid similar violations, right away and without excuses.
To supervise and enforce these laws requires us to use our resources most efficiently to protect the public. By being strategic about the actions we take, as well as by providing clear guidance about what we have found and the conclusions we have drawn, we try to get the most “bang for the buck” out of the limited set of actions we can bring ourselves. We also put great effort into fostering strong partnerships with our colleagues around the country – federal, state, and local – and we are willing to work with anyone who is willing to join us in our efforts to protect consumers. The Wells Fargo action, again, was a prominent and productive example of that approach. There we worked with the Los Angeles City Attorney’s office – who did some really great work on the case – and with the Office of Comptroller of the Currency, which continues to partner with us as we conduct a horizontal review of other banks to assess their practices on a market-wide basis.
Much of this work is complex and detailed, but at the heart of it are some basic principles. Consumers want and need to have someone stand on their side to see that they are treated fairly. We seek to protect them against unfair surprises, frustrating runarounds, and bad deals that ruin their credit, cost them their homes, and saddle them with further problems. We stand with them, proudly and unapologetically. We are committed to bringing about a return to the basic building blocks of responsible lending and excellent customer service. And we are consciously seeking to cultivate a climate where people are treated with the respect and dignity they deserve.
Let me turn now from how the Consumer Bureau enforces the law to why it is so important to have common-sense rules of the road in place to protect consumers. Sound and sensible rules promote access to responsible credit for consumers. For businesses, they improve transparency in the marketplace, discourage bad incentives, and restore trust among their customers. The hard question, of course, is how to get the rules right in the first place.
One example stems from the ashes of the mortgage market meltdown that caused the financial crisis of 2008. The Consumer Bureau itself was born from that crisis – an epic failure in which Americans lost millions of jobs, millions of homes, and trillions of dollars in household wealth. In the years leading up to the crisis, the financial system slipped the bonds of effective consumer protections. Mortgage underwriting was permitted to engage in a race to the bottom. Charter competition and complex securitization helped some major players evade or mask the inevitable market consequences, at least for a time. The regulatory and supervisory systems fell behind the pace of product changes and the growth of new and increasingly irresponsible competitors.
After the cataclysm of that crisis, Congress directed the Consumer Bureau to institute much-needed reforms by putting in place new rules of the road to keep the multi-trillion-dollar mortgage industry within reasonable guardrails. In 2014, we carried out those directives by implementing rules to govern underwriting, servicing, and loan originator compensation. The goals were to make this market work better for consumers and responsible providers, and to help prevent financial crises in the future. We required lenders to make sure that borrowers could pay back their loans, and we provided protections for struggling homeowners. We followed up by ensuring that consumers get simpler and clearer “Know Before You Owe” mortgage disclosures, with easy-to-understand forms that explain the terms and costs and risks of the loan when people apply for and close on a mortgage. At the same time, we went out of our way to temper these regulations for small creditors so as to ease regulatory burdens on community banks and credit unions. More recently, we tweaked the rules to make mortgages more readily available in rural America. Specific rules to root out irresponsible and downright dishonest lending practices are now supporting free and fair competition, which always redounds to the benefit of consumers and of the responsible providers that seek to compete in the marketplace.
Since the rules took effect, confidence in the market has grown, among both consumers and mortgage lenders. Both last year and the year before, the volume of home purchase mortgages was up by double digits in percentage growth. In fact, for every quarter since mid-2011, the volume of purchase mortgages has been higher than the year before. Home prices are rising in many areas, and positive homeowner equity is now at a record level, exceeding $14 trillion. And last year, delinquency rates on mortgages hit a ten-year low, with foreclosures falling to a 16-year low. Consumers who had been shut out of the mortgage market by prior foreclosures, often occurring as a result of terrible loan products, are now able to return to the market and get less risky loans. Progress has been steady, though some issues linger and the housing market is still uneven in spots. But clearly the mortgage market is stronger today and functioning on a much more sustainable basis around the country. Americans do not have to worry about the market imploding because of another damaging race to the bottom in underwriting standards.
Of course, the mortgage market was not the only market in need of reform. The credit card market was highly troubled as well. In 2009, Congress passed the Credit Card Accountability Responsibility and Disclosure Act, or the CARD Act. It addressed a spate of vexing problems that consumers were facing with their credit card accounts. Chief among these were the back-end fees and interest rate repricing provisions – including “universal default” provisions – that often blindsided consumers. These fees and other provisions made it very difficult for consumers to anticipate the costs of their credit cards or even to understand the actual terms of the agreement. Now, credit card agreements are easier to understand. We have standards for when late fees can be assessed, and how much can be charged. Upfront pricing is more transparent, and the changes made in the law have saved consumers more than $16 billion in “gotcha” fees, while lowering the overall cost of credit. The amount of available credit has increased 10 percent since 2012, and last year was up almost 15 percent in low-income communities. Customer satisfaction with the credit card companies has been steadily and noticeably on the rise. In a better and safer market, consumers can feel more confidence and trust, and better business practices can thrive.
Some doomsayers sound a frequent refrain that new regulations are killing the banks and choking off access to credit. On the contrary, these common-sense rules of the road are promoting access to more responsible and safer credit. Banks have been consistently profitable and smaller institutions like community banks and credit unions have grown their share of the mortgage market in particular. Last year, U.S. financial institutions had total annual profits of $171.3 billion. Community bank profitability has also rebounded to pre-recession levels. In 2010, only about 78 percent of community banks were profitable. By the end of 2015, that number had jumped to over 95 percent. Credit has expanded in the markets for auto loans, as well, with the sales of cars and trucks reaching record levels in each of the past two years. These are encouraging developments for many consumers and for many lenders.
All of these developments are occurring in a consumer financial marketplace where the CFPB is now fulfilling its role as a watchdog and a “cop on the beat” to identify and address bad practices that violate the law. In this new era, the numbers tell us that when banks and financial companies deliver clear value with strong customer service, they can expect to thrive in a well-functioning marketplace. They are protected by reasonable regulation and oversight against the worst excesses of unfair competition perpetrated by those who are willing to violate the law or cut corners to get an unfair edge in ways that harm consumers. We should all be glad of that.
As we carry out our mission to protect consumers from fraud and ensure they are treated fairly in the financial marketplace, we have found an invaluable resource to be consumers themselves. Crucial to our communication with the public is our ability to receive and process consumer complaints. We hear directly from people about their concerns through the complaints they share. Our Consumer Complaint Database, the nation’s largest public collection of such information, reflects what consumers are complaining about and why, and how companies are responding. Consumers, industry, and researchers alike can search our database by company name or financial product. This data can be aggregated and downloaded, and is generally updated daily, making it an invaluable resource for businesses too. By submitting a complaint, consumers can address their own issues, be heard by financial companies, and help us prioritize our work to protect others against similar problems. This helps prevent the Consumer Bureau from developing either a mentality of “regulatory capture” by industry or an “ivory tower” mentality of “we know best” what consumers need. Every complaint provides insight into real problems, experienced by real people, communicated nearly in real time. Of course, nobody actually believes that “the customer is always right,” but customers taken as a group can tell us a lot and we would be foolish not to listen closely to them as our truest compass point to guide the direction of our work.
We have now handled almost 1.2 million consumer complaints, and we have published about 780,000 of them. This database helps us spot patterns so we can identify and prioritize problems that deserve our attention. We use it to identify spikes in specific complaint types, emerging trends, and issues with particular types of products. By sharing this data publicly, we empower consumers and inform our state and local partners about issues affecting their constituents. Likewise, companies have begun to use the data to improve their own operations, their compliance efforts, and their customer service. Industry can see direct feedback from customers, and review complaints made about others in the same markets. This helps them fix current problems, keep small problems from becoming bigger problems, and prevent future problems.
Not every consumer complaint is published. We will not post a complaint if a company tells us they cannot validate a commercial relationship with the person who submitted the complaint. Nor will we publish a complaint submitted by an unauthorized third party, or one that duplicates another the company has already responded to through our secure website. We also do not post the complaints we refer to other regulators, such as complaints about banks or credit unions with less than $10 billion in assets. We afford companies the option to respond publicly to the complaints they receive in a manner that protects consumer privacy.
The complaints and stories we receive are our “hotline” to people at their kitchen tables all across America who are struggling with some financial issue or other and may be at their wit’s end about where they can turn for help. They tell us personal stories of real pain – and they remind us every day why we do what we do, and inspire us to keep moving forward. The result is better outcomes for consumers, both singly and as a group, which means a better financial marketplace for everyone.
I invite you to contact us as well, and not just with your complaints. We ask you to keep the Consumer Bureau up to date on what you see and hear from those you work with every day. Please continue to encourage those whose lives you touch to bring us their questions or problems or feedback of any kind. Consumers can submit a complaint online at consumerfinance.gov (and you can help them do that) or by calling our toll-free number to speak with our very helpful consumer response team at (855) 411-CFPB (2372). If people just want to share an experience – either positive or negative – they can use our online “Tell Your Story” feature. We need to hear from you. Your input makes us better.
In doing our work, we firmly believe that every consumer counts. The law states that all people must be treated honestly and fairly in the financial marketplace. It is not just the right thing to do. It is good for consumers, good for responsible businesses, and good for the economy as a whole. Barbara Jordan, the great stateswoman and civil rights leader, put it this way: “Let each person do his or her part. If one citizen is unwilling to participate, (or cannot participate), all of us are going to suffer. For the American idea, though it is shared by all of us, is realized in each one of us.” Thank you.