On June 8th, 2017, Republicans in the United States House of Representatives passed the Financial CHOICE Act. Representative Bill Huizenga, who represents Michigan’s 2nd Congressional District, voted in favor of the bill, justifying his decision by using a lot of unsubstantiated buzzwords and claiming that the Financial CHOICE Act will enact “commonsense reforms” (the first red flag) and “remove regulatory red tape that is preventing community financial institutions from supporting small business job creation” (see Rep. Huizenga’s Facebook post below). The bill, which passed the House along party lines, will now move to the Senate, where Republicans hold a 52-seat majority and will need 8 Democrats or Independents to vote in favor of the bill. Even if the current form of the bill dies in the Senate, the contents of the Financial CHOICE Act provides us with a clear insight into who our representatives in Congress actually support. Let’s first talk about what the Financial CHOICE Act is attempting to dismantle: The Consumer Financial Protection Bureau.
The Dodd-Frank Act of 2010
The Consumer Financial Protection Bureau (CFPB) is a consumer watchdog agency that was created in 2010 in under Dodd-Frank in response to the collapse and subsequent bailout of the banking industries which resulted in the Great Recession. The Dodd-Frank Act was devised to put regulations in place that would help to stop another financial meltdown and prevent another economic collapse from occurring. The Act included reforms that increased the amount of capital that financial institutions were required to hold in reserve (to absorb any losses in the future and prevent the need for a bailout), required banks with more than $50 billion worth of assets to undergo yearly stress tests from the Federal Reserve to determine if the bank would be able to survive another hypothetical financial meltdown, and created the Office of Credit Ratings and the Consumer Financial Protection Bureau (CFPB), among other provisions.
One of the main problems of the Dodd-Frank Act is that it only aimed to minimize volatility and increase the stability of the financial markets using complex regulations. This was unlike the previous Glass-Steagall Act of 1933, which simply separated commercial banks from the more riskier investment banking industry and prevented commercial banks from engaging in excessively speculative activity. Dodd-Frank also has been criticized as being too restrictive on smaller banks and credit unions – despite only six of the 5,000 community banks being subjected to Dodd-Frank stress tests. Additionally, community bank profits are actually increased relative to the profits of the larger financial institutions.
There are minor technical changes that could be made to Dodd-Frank that would be less restrictive on community banks and credit unions, but the Financial CHOICE Act does not address these issues – instead, it loosens the regulations which are imposed on large financial institutions in the name of community banks which aren’t even affected by the regulations in the first place. The Financial CHOICE Act was also written as a means to dismantle the Consumer Financial Protection Bureau, which has returned over $11.7 billion to date back to consumers who had been exploited by deceptive, predatory, or unfair financial products or services.
The Consumer Financial Protection Bureau
The CFPB, which was created to be the financial equivalent of the U.S. Consumer Product Safety Commission, is a independent consumer watchdog agency created to protect consumers from unfair, deceptive, or abusive financial products. The CFPB also requires lenders to disclose information in a way that is easy to read and understand, instead of using confusing or misleading language while hiding certain information in the fine print. The Financial CHOICE Act takes a two-pronged approach to dismantling the watchdog agency, both of which are poorly disguised as a way to create “true” consumer protection.
If passed by the Senate, the Financial CHOICE Act would start by rolling back the authority of the CFPB to protect consumers from predatory financial products. It would do so by removing the CFPB’s supervisory functions, creating an agency that would only be able to respond to institutions that break the law after corporate malfeasance is revealed – turning the consumer watchdog agency into a weak enforcement-only agency. Without supervisory functions, the CFPB would not be able to audit an institution’s internal documents and practices, and would not be able to stop any policies or practices that it finds to be deceptive in nature (such as mortgages with deceptive introductory “teaser” interest rates or misleading “add-on” services for credit cards that are essentially useless or already included).
In the past, the CFPB has required Citibank to return $700 million to customers in 2015 after Citibank was found to have misled consumers into buying deceptive identity theft protection or other add-on services. In 2014, Bank of America was also found to have illegally charged almost 2 million consumer accounts for services they were not receiving, such as credit monitoring and reporting services in addition to deceptive add-on marketing schemes. In this case, the CFPB required Bank of America to give $727 million of relief back to the consumers harmed by these practices. Without supervisory functions, the CFPB might not have become aware of these practices, allowing these mega-banks to keep the money they had stolen from hard-working consumers and providing large financial institutions with an incentive to continue their practice of defrauding customers.
The Financial CHOICE Act would also eliminate the CFPB’s Consumer Complaints Database, which is one of the Bureau’s most important and effective features. The Consumer Complaints Database provides a way for consumers to file a complaint about a financial institution with the Consumer Financial Protection Bureau. After receiving a complaint, the CFPB first confirms that the consumer had an actual relationship with the institution before alerting the financial institution of the complaint. The institution is then required to respond to the consumer’s complaint within 15 days using the Consumer Complaint Database.
The Database was designed to hold financial institutions accountable to the public, so complaints are publicly listed (if the consumer gives consent) in the database and shows the institution’s name, how quickly the institution responded to the consumer’s complaint, and whether the institution’s response satisfied the consumer. Any personal or identifiable information about the consumer is redacted before the complaint is posted to the public in the database. To date, the database has received over 800,000 complaints, helped to return almost $12 billion dollars to consumers, and has helped to improve the customer service at banks, which compete with one another to have the fewest complaints. The Consumer Complaint Database helps provide Americans with a viable way to hold financial institutions responsible for bad business practices and provides transparency into a bank’s reputation, giving banks a reason to act responsibly and in the best interest of their customers.
True Consumer Protection
Representative Jeb Hensarling (R-Texas), the creator of the Financial CHOICE Act, claims that the CFPB isn’t needed because “true consumer protection promotes competition and choice and ensures that consumers have access to transparent and innovative markets that are vigorously policed for fraud and deception”.
Hensarling’s statement is correct – however, the bill he has created does the opposite. It prevents markets from being vigorously policed for fraud and deception by removing the CFPB’s ability to audit an institution’s internal documents and practices. It also prevents consumers from having access to any transparency in their financial institutions by eliminating the CFPB’s Database of Consumer Complaints, preventing consumers from learning about an institution’s business practice history and reputation.
By passing the Financial CHOICE Act and dismantling the Consumer Financial Protection Bureau, Hensarling is denying access to transparent markets and preventing vigorous policing for fraud and deception. When making financial choices in a unregulated shadow-market, consumers always lose.
We must send a clear and resounding message to Washington that they work for the American people, not Wall Street. We must not allow this bill to pass in the Senate! I urge you to call, write, or email your state senator and urge them to reject the Financial CHOICE Act.
We also need to elect members of Congress that dedicate themselves to protecting consumers instead of corporations, reject donations from corporations and Super PACs, and do not side with the interests of lobbyists over the well-being of their constituents. Representatives like Bill Huizenga, who considers his congressional seat as “safe”, need to be voted out of office to show that it is not acceptable to use the struggles of hardworking Americans as a smokescreen to mislead and deceive their true intentions and motives.
The members of congress on both sides of the isle need to be reminded that they serve as the voice of the constituents in their district and were not sent to Washington to further their own interests or the interests of their friends on Wall Street.
The only way to enact change is to get active – start by donating a dollar to this campaign to strike fear into Representative Huizenga and help keep this political revolution alive. And, if you are ready to stand up and challenge the status quo in Washington, volunteer to make an impact in your community by registering here.