U.S. Sen. Elizabeth Warren of Massachusetts helped establish the federal Consumer Financial Protection Bureau in the wake of the 2008 financial crisis. Its role has been to investigate complaints by citizens against banks, mortgage servicers, credit card companies and other large financial institutions. The CFPB gave consumers added clout to sue those companies.
In a video on the sixth anniversary of the CFPB, Warren recalled the opposition advocates for the agency faced.
“The banks hated it, hated it,” Warren recalled. “They spent more than a million dollars a day for over a year lobbying against the financial reforms, and the consumer agency was right at the center of the target. But we fought back.”
— Elizabeth Warren (@SenWarren) July 21, 2017
Consumers might have to fight again to keep those protections in place.
President Donald Trump has appointed White House Budget Director Mick Mulvaney to also serve as interim director of the CFPB. As a South Carolina congressman, Mulvaney drafted legislation to abolish the agency, calling it a “joke in a sick, sad way.”
“Anybody who thinks a Trump administration’s CFPB is going to be the same as an Obama administration CFPB is being naïve. Elections have consequences,” Mulvaney declared at a press conference on his first day on the job last November.
Under the CFPB’s previous administrator, Richard Cordray, the agency investigated more than a million complaints against financial companies. It returned an estimated $12 billion to consumers it said banks or other institutions had cheated.
Consumer advocates worry those days are over. In a memo to staff, Mulvaney said the bureau needs to act with quote “more humility and moderation.”
“What is happening now with CFPB is that the interim director is actually discouraging enforcement of the regulations,” said Stacey Tutt, an attorney who heads the Community Preservation Clinic at the University of Illinois, which offers free legal services to people in disputes with mortgage banks and servicers.
Speaking on GLT’s Sound Ideas, Tutt said, “There are a number of actions that were being taken against banks and other institutions for predatory actions, but the interim director has said that should stop, and the CFPB should act more humbly.”
NPR reported Monday that Mulvaney will seek sweeping changes to the consumer bureau's structure to give Congress control over the agency's budget and require Congress approve any new rules to protect consumers.
NPR also reported Mulvaney plans to ask Congress to give the president more power over the bureau's director. These changes would mark "a major shift for the bureau, which was designed to be independent from political influence."
In McLean County, the CFPB has investigated 169 citizen complaints in the past six years. The investigations involved some of the nation’s largest financial institutions, including Bank of America, Citibank, Wells Fargo and PNC Bank, which has numerous branches in central Illinois and the largest number of local complaints against it.
In general, complaints range from difficulty closing accounts to erroneous credit card reports and improper sharing of financial information.
Tutt said one of the advantages of having the CFPB is that the agency maintains a large database of complaints and can track patterns of systemic problems.
“There is an imbalance right now between consumers and various providers of products,” Tutt said. “For example, one consumer against a large credit reporting agency has difficulty getting something corrected. Large entities have far more resources than an individual does, which makes it very difficult to enforce their rights.”
A breakdown of McLean County complaints to the CFPB, by product type:
One of the main areas of complaint for residents of McLean County involves the servicing of mortgage loans. Tutt said the CFPB has tried to protect homeowners seeking loan modifications to avoid foreclosure.
“The CFPB put in additional regulations in order to provide borrowers greater protections than they otherwise would have had,” Tutt said.
One Homeowner's Story
Those regulations helped one McLean County woman who had fallen behind on mortgage payments while dealing medical costs for her husband. The woman asked to be identified only as Lucy because of the embarrassment she says she feels about facing foreclosure.
“We had a lot of catastrophic medical expense, so financially we had moved through virtually all of our resources and our savings,” Lucy said.
Lucy and her husband moved from their multi-level home to a single-story rental property that was easier for her husband to navigate. When they could not sell their first home, they dipped further into debt. They tried to work with their mortgage lender to modify their home loan. That began a four-year ordeal.
“We began to communicate very regularly with the mortgage company. They would offer a specific program. We would file the paperwork and I’d call to make sure there was nothing else they needed. And then we would get a form letter in the mail saying we were denied that program with really no specific explanation,” she recalled.
She did not want to disclose her lender’s name because her case remains ongoing.
Lucy said, at one point, she had a buyer for her home, but the mortgage lender rejected that offer. She then tried to deed the home to the lender, a procedure known as a deed in lieu of foreclosure. It would mean sacrificing the money she had put into the home over 20 years, but allow the lender to sell the property.
Lucy said the lender rejected that option as well, and instead locked her out of her home.
It was then that Lucy sought help from Tutt at the University of Illinois’ legal clinic.
“They are not actually allowed to lock the homeowner out unless they have a court order, Tutt said. “They can try and say the property is abandoned, but that clearly wasn’t the case here. Lucy was working to maintain the property. She had a realtor and a lockbox to allow for the marketing of the property.”
Tutt said Lucy’s home deteriorated during the time it was in her lender’s possession.
“When the mortgage servicer took over, there were windows left open and broken. That allowed water and the elements to come into the property, and that allowed it to become more run down, deteriorate and become less valuable,” Tutt said.
The University of Illinois legal clinic threatened to sue on Lucy’s behalf under rights given to her by the Consumer Financial Protection Bureau.
“If the CFPB regulations were not in place she would lose a number of her private rights of action against the mortgage servicer for the deterioration of her property and the mismanagement of her case,” Tutt said.
GLT reached out to the Mortgage Bankers Association for comment on complaints the CFPB has investigated against mortgage companies, and received no response.
PNC Bank, one of the largest local lenders, issued a statement.
“At PNC, we strive to deliver an exceptional customer experience that will help our customers achieve financial well-being," PNC said. "At times, if a customer is experiencing an issue, we work to help clarify, remove complexity and come to a resolution. We are committed to an ongoing effort of continuously improving the customer experience.”
A look at CFPB complaints in McLean County, by financial institution:
Another area where CFPB interim director Mulvaney has pulled back on enforcement actions involves payday loan and car title loan companies. These companies make short-term loans—often to people with poor credit—at interest rates of 300 percent or higher.
Mulvaney made clear his mandate from President Trump concerning short-term lenders during his early days on the job.
“Protect people without trampling on capitalism, without choking off access to financial services that are so critical to so many folks,” he said.
Community organizer Don Carlson of Illinois People’s Action, a social justice group, said that philosophy contradicts the mandate Congress set for the CFPB as an independent consumer protection watchdog.
“The Trump administration, once it took power, really has intentionally and in a concerted effort acted to take away any meaningful consumer protections from borrowers, especially working class and low-income borrowers,” Carlson said.
Under Mulvaney, the CFBP scrapped an investigation into the marketing and lending practices of one of the biggest payday lenders in his home state of South Carolina. And the bureau ended another case against a group of lenders in Kansas accused of charging interest rates of nearly 1,000 percent. Mulvaney also put on hold a series of proposed regulations affecting the industry.
Federal election records show that as a congressman, Mulvaney accepted more than $441,000 in campaign contributions between 2010 and 2016 from banks, credit card companies and other finance groups, including short-term lenders.
Mulvaney has said those donations have not affected his decisions as CFPB interim director.
Carlson, of Illinois People’s Action, says tens of thousands of Illinois residents become trapped into short-term, high interest loans each year. .
“There are in the state of Illinois more payday and car title predatory stores than there are McDonald’s, Burger King, Starbucks and Hardee’s fast food stores and coffee stores in the state, and that should be a shocking thing to consider,” Carlson said.
Illinois People’s Action says 77,000 car title loans are issued each year in Illinois. Under the terms of those loans, borrowers put up their autos as collateral. Carlson says about a third of borrowers end up defaulting on the loans and have their cars repossessed.
“For people with bad credit and limited income, they say, ‘Hey we’ll give you the money just give us your car title,’” said Billie Aschmeller, a borrower from Springfield who found it hard to pay back her loan.
Aschmeller lives on disability income of $750 a month. She says she took out a $1,000 loan to help her pregnant daughter buy a crib, car seat and other necessities for the coming baby.
Aschmeller said she knew she would end up paying back more than three times that amount because of her 300 percent interest rate.
“I knew there was a huge interest rate and I knew would have to make payments forever, but at the time I was a desperate mother,” Aschmeller said. “I wanted make sure my child would be OK and grandbaby, and (the loan) was available, it was there, and I said, ‘Well, I’m going to do it.’”
After about a year, Aschmeller says she fell behind the loan payments. That’s when the calls from the car title lender started coming.
“Not only were they calling me every day, then they started calling my family and everyone I listed on my loan as personal references. They called my dad, they called my aunt,” Aschemeller said.
Aschmeller moved out of her small apartment and started sleeping at friends’ homes—or in her car—all in an effort to catch up on her loan payments. There was another reason as well for sleeping in her vehicle.
“I was worried they were going to come take (the car). I kept thinking if they come to repossess my vehicle and I’m in it, they can’t take it. I would hide it in backyards and alleys,” Aschmeller said.
After two years, Aschmeller was able to finally pay off her loan—by selling her car. What started as a $1,000 loan ended up costing her more than $3,000. Now she has no car, something she says restricts her ability to find a part-time job.
“I am afraid to get another car,” she said.
Earlier this year, CFPB interim director Mulvaney decided to delay a set of CFPB rules that would have forced short-term lenders to determine whether borrowers could afford to repay their loans in full, with interest, within 30 days. The bureau, under its previous administrator, had also proposed capping the number of loans borrowers can take out over a specific period of time.
Carlson of Illinois People’s Action said it is unlikely under Mulvaney's leadership that the bureau will follow through on any of those proposals.
“I still have the same fundamental principled misgivings about the way this bureau is structured," Mulvaney has said of his intent to reign in the agency. "I hink it is completely wrong to have an unaccountable federal bureaucracy."
CFPB complaints from McLean County, by issue raised:
Carlson says it is now up to individual states to try to restrict the high-interest, high-default loans that payday and car title loan lenders offer.
Defending The Lenders
In Illinois, state Sen. Kimberly Lightford of the Chicago suburbs and Rep. Christian Mitchell of Chicago have introduced legislation that would cap car title loan interest rates at 36 percent. Their proposal would establish maximum loan term limits, and create customer protections in the event of car repossession.
Jamie Fulmer is senior vice president of Advance America, a short-term lender with 30 locations in Illinois doing about 10 million loan transactions a year.
“Overwhelmingly, in the 20 years we’ve been doing business, customers have expressed great satisfaction for the products we offer,” Fulmer said.
Fulmer said his industry is already regulated on the state level and that consumers know what they are getting into when they sign for these loans.
“We go to great lengths so that the customers understand not only out-of-pocket costs but the associated percentage rate,” Fulmer said. “There is this misconception that we don’t do any assessment of ability to pay. That is just not the experience we have in the marketplace.”
Fulmer accuses the CFPB in the Obama years of trying to destroy the short-term loan industry with strangling regulation.
“The inconsistent application and the confusion that would have ensued would have been bad for customers. By the CFPB’s own admission, it would have eliminated 60 to 70 percent of the industry’s volume, and as a result would have put the industry out of business,” Fulmer said.
Fulmer said less than 3 percent of the complaints placed with the CFPB have been directed against short-term lenders. But pressing a complaint in court against a lender or another financial institution also has gotten harder. Last October, the Republican-led Senate, following the House of Representatives, voted along party lines to repeal a CFPB rule that would have allowed consumers to join together to sue financial institutions.
Most financial companies have contract clauses that force customers to use arbitration during disputes. Banks lobbied heavily to kill the CFPB rule allowing customer class action suits, saying arbitration is cheaper in the end for their customers.
In a speech last October in Congress, Warren said forced arbitration is mainly less expensive for financial companies.
“The banks and their lobbyists actually have got the gall to claim they want to kill the rule because it’s bad for their customers,” Warren said.
“That claim is just laughable According to a rigorous CFPB study, consumers recover an average of $540 million annually from class action settlements. They receive less than a million dollars annually in the arbitration cases the agency reviewed. This is not even close,” she added.
There is also no appeal for consumers in arbitration cases.
Local consumer advocates, like Stacey Tutt of the University of Illinois, point to another problem with forced arbitration: financial companies hire and pay the arbitrator’s fees.
“The person providing the arbitration service is paid typically by the large business that the consumer is having a dispute with … That then creates a bias in the system and an imbalance that makes it difficult for consumers to get the relief they are entitled to,” Tutt said.
Consumers remain worried about the future. Billie Aschmeller, who lost her car because of a title loan, said she hopes the state will adopt stricter regulations involving short-term loan companies, even if the federal government does not.
Lucy, the homeowner who is in a mortgage refinancing dispute, said she is concerned about what will happen to her and others in similar disputes if banks and mortgage lenders prevail in getting additional consumer protections reduced. She worries she now won’t be able to band together with other consumers to force those companies to become more responsive.
“We were not alone in this process, just getting on the internet I found there were so many families who were having the same issues with these servicers, same identical situation, and (we were) not being heard. ”
Even the future of Tutt’s Community Preservation legal clinic for homeowners is uncertain. Tutt said she only has funding through August.
Funding for the clinic came in large part from a $400,000 grant it received as part of a larger settlement that the Illinois attorney general's office reached with five of the nation’s largest banks. Each of the banks faced allegations of fraudulent practices involving improper foreclosures.
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