The war on consumer protection

by Jeff Sovern

GOP candidates need to say whether they’d weaken laws meant to prevent another Great Recession.

Everyone is a consumer, and it was only eight years ago that failures of consumer protection contributed to the worst economic downturn since the Depression. So you might think that consumer protection would be a hot topic during the presidential campaign. But no, it has taken a back seat to walls with Mexico, email servers, eminent domain and the like. That’s a shame because if the largely unnoticed war on consumer protection succeeds, it will affect all of us.

Consumer laws are useless unless they are enforced, and so lawmakers have created two enforcement options. The government enforces consumer laws, but because the government has limited resources, lawmakers have also given injured consumers the power to sue companies that have violated some consumer laws. Both options are under attack.

First, the government: Congress created the Consumer Financial Protection Bureau in part to prevent another subprime meltdown. As of last year, the bureau had secured more than $10 billion  in relief for more than 15 million consumers bilked by financial institutions. But that hasn’t stopped stealth attacks on the CFPB. These attacks sound like neutral proposals but depend on the fact that most consumers lack the “inside baseball” knowledge of Washington to realize what is really going on.

For example, the CFPB is led by a single director, enabling the bureau to respond nimbly when banks break the law. But in the name of accountability, House Republicans have introduced legislation to replace the director with a five-member commission with a maximum of three members of the same party. The process of confirming five commissioners could take years, judging by the fact that the current director, Richard Cordray, was confirmed after two years of GOP delays, and then only because Democrats threatened to change the filibuster rules.

Imagine how hard it would be to confirm a fifth commissioner who could break ties. Instead of responding quickly to problems, a commission split among different parties could easily end up deadlocked and ineffective, just like the Federal Election Commission. And exactly how does having five leaders make an agency more accountable than having one?

Another GOP proposal to cripple the bureau would change the way it is funded. Rather than get its money through the Federal Reserve, as it does now, the CFPB would be funded by Congress through its highly politicized appropriations process. That was the funding method used for the former regulator of the mammoth mortgage enterprises Fannie and Freddie. The reason it’s former is that Fannie was able to lobby members of Congress to starve the regulator of money. That left it too weak to control Fannie and Freddie, which eventually needed massive bailouts.

Suits by injured consumers are also under fire. Many such suits can be brought only as class actions because the cost of litigating exceeds the amount individual consumers have at stake. But businesses derail class actions by inserting in their consumer contracts obscure terms saying consumers agree that disputes will be decided by arbitrators rather than in class actions. The conservatives on the Supreme Court have enforced such clauses to bar the use of class actions even if state law is to the contrary. The CFPB has begun the process of regulating class-action waivers in arbitration clauses, but congressional Republicans are trying to block that effort by mandating more study, despite the CFPB’s existing study, which clocks in at 728 pages.

And more attempts to protect businesses at the expense of consumers are underway. The Supreme Court is hearing another case that could decimate efforts to enforce consumer protection laws, while at the state level, the business-supported American Legislative Exchange Council has proposed model legislation that would make it much more difficult for injured consumers to sue for deceptive advertising.

How much should consumer protection matter to voters? Plenty, if they want to stop predatory lenders and other bad actors. For example, when states passed laws before the Great Recession trying to stop predatory lending, George W. Bush’s Treasury Department announced that national banks could ignore the laws. Congress gave the Federal Reserve the power to bar unfair mortgages in 1994, but the Fed under Alan Greenspan and Ben Bernanke didn’t use that power until 2008, far too late to stop the subprime mortgage crisis. As President Obama famously said, “Elections have consequences.”  Those consequences include how well-protected consumers will be.

Voters should ask candidates their positions on consumer protection. Presidential candidate Ted Cruz, who has called for elimination of the CFPB, should have to say whether consumers who have obtained redress because of the CFPB ought to return money to their swindlers — and who will stop the swindlers next time. And candidates should make clear whether they believe we should return to the way things were, with the laws that led to the Great Recession, or whether they support enforcement of consumer protection laws.

Jeff Sovern is a professor of law at St. John’s University School of Law and a coordinator of the Consumer Law & Policy Blog sponsored by the Public Citizen Litigation Group.