WASHINGTON — Consumer advocates were furious Thursday after the House Financial Services Committee advanced legislation that would effectively dismantle an agency responsible for policing deceptive financial practices in the aftermath of the 2008 financial collapse.
The Financial Choice Act, introduced by Financial Services Committee Chairman Jeb Hensarling (R-Texas), advanced Thursday to next face a full House vote. The bill proposes to dramatically alter the Dodd-Frank Wall Street Reform and Consumer Protection Act. Opponents say the proposal would effectively neuter the Consumer Financial Protection Bureau (CFPB), which represents consumers seeking financial compensation related to fraudulent home and student lending, among other issues. Veterans groups have been outspoken on the proposed changes, as members of the armed services have been particularly susceptible to predatory loan practices.
CFPB has secured nearly $12 billion from financial institutions for 29 million consumers since opening in July 2011, according to real estate statistics from Trulia.
In 2014, the CFPB was instrumental in recouping $60 million in compensation for nearly 80,000 service members after it was discovered that Sallie Mae entity Navient Corp. had been charging excess interest on student loans since 2005. The company failed to follow the Service Members Civil Relief Act, which allows service members to pay reduced interest rates while on active duty. Navient ended up cutting checks ranging from $10 to $100,000, with an average of about $771, according to the Justice Department.
President Trump ordered re-evaluation of the Dodd-Frank Act in February, while suggesting significant reductions for CFPB.
Hensarling’s proposal advanced Thursday despite 29 veterans advocacy groups sending an opposition letter Wednesday to the chairman and the panel’s Ranking Member Maxine Waters (D-Calif.), as well as Senate Committee on Banking, Housing and Urban Affairs Chairman Mike Crapo (R-Idaho) and committee Ranking Member Sherrod Brown (D-Ohio).
According to Rohit Chopra, the CFPB’s former student loan ombudsman, Hensarling’s proposal revokes the agency’s ability to enforce laws that ban unfair and deceptive commercial activity, handcuffs the agency in policing the payday loan industry and curtails the public’s right to check the status of CFPB complaints by removing a public database. Chopra called it a “pretty dramatic attempt to gut the agency” that will make it impossible to fully police major financial institutions like Bank of America, Citigroup, JPMorgan Chase and Wells Fargo.
“Most of the blockbuster enforcement action the agency has taken would not be possible under the proposed changes. This is a sophisticated way at demolishing the agency by rendering it utterly toothless,” Chopra said, adding that Thursday’s vote shows the power of special interests in Washington.
A Financial Services Committee spokeswoman said in a statement Friday that Hensarling shares concerns about “the harmful effect of unlawful financial practices” on service members, veterans, and their families.
“(The Choice Act) includes reforms that ensure the Bureau stays within the bounds of the law, while simultaneously protecting consumers from financial service providers who violate the law,” the statement said. “The best way to ensure that the Bureau can continue its work on behalf of service members and their families is to ensure that it is constitutional and responsive to the American people.”
Waters offered a statement Friday in support of maintaining the CFPB, noting that the Dodd-Frank Act created a specific office within the agency to address veteran needs.
“Since its creation, (the Office of Servicemember Affairs) has not only provided education to prevent these abuses, but it has also been instrumental in effectively implementing servicemember protections,” she said. “This is why the Consumer Bureau is an invaluable agency and ally, and its work must continue.”
The offices of Crapo and Brown did not respond to requests for comment or declined.
Walter Ochinko, policy director for Veterans Education Success, in an interview last week expressed disappointment at the bill’s advancement. His organization took the lead in sending Wednesday’s opposition letters to lawmakers. Ochinko said the CFPB has made significant progress since the financial collapse, noting its involvement in cases against major institutions like Bank of America. In 2014, the DOJ reached a $16.7 billion settlement with Bank of America over mortgage fraud practices, securing the largest civil settlement with a single company in U.S. history.
“It’s obvious that corporate America needs someone to police them to make sure that consumers are protected,” Ochinko said. “State attorneys general do this on a daily basis, but at the federal level, this is what the Consumer Financial Protection Bureau does. It makes sure that consumers are treated fairly by big business, small business.”
Chopra said that the CFPB not only protects consumers but it also protects honest businesses trying to compete with America’s large financial institutions.