Consumer Protection in an Age of Uncertainty Panel 1: The Past & Future of the CFPB (Day 1)

THANKS, MICHAEL.

I'M ONE OF THE PEOPLE THAT WE 

SPENT A COUPLE HOURS EVERY FIVE 

MINUTES DURING THE DODD-FRANK 

PROCESS, AND IT'S GREAT TO BE 

HERE IN ANN ARBOR.

THE ARCHITECTS OF DODD-FRANK CAN

ADDRESS THE GLARING WEAKNESSES 

IN FINANCIAL INSTITUTIONS TO 

PROTECT CONSUMERS EXPOSED BY THE

FINANCIAL CRISIS IN WHICH ALMOST

SUNK THE WORLD ECONOMY.

THE ROUTE OF THE CRISIS WAS A 

CONSUMER PROTECTION FAILURE OF 

MASSIVE PROPORTIONS, WHERE 

MILLIONS OF BORROWERS RECEIVED 

MORTGAGES THAT WERE DESIGNED IN 

WAYS TO MAKE FAILURE MORE LIKELY

TO NOT AND THEY'RE ENTIRELY 

UNABLE TO REPAY.

AS A RESULT, MILLIONS OF 

FAMILIES UNNECESSARILY LOST 

THEIR HOUSES CAUSING LOSS OF 

WEALTH TO FAMILIES AND 

COMMUNITIES.

THESE FORECLOSURES HAD RIPPLE 

EFFECTS THROUGH THE FINANCIAL 

SYSTEM BECAUSE OF LITTLE KNOWN 

LEVERAGE BETS FINANCIAL 

INSTITUTIONS PLACED ON THEM.

THESE FINANCIAL INSTITUTION 

FAILURES CAUSED LARGE 

UNEMPLOYMENT, MORE DE FAULTS, 

MORE MISERY WE'RE YET TO RECOVER

FROM.

HOW WERE ALL OF THESE BAD 

MORTGAGE LOANS POSSIBLE?

SEVERAL REASONS.

FIRST, THERE WAS NO MARKET 

INTELLIGENCE OR EARLY WARNING 

SYSTEM TO RECOGNIZE THE PROBLEM 

UNTIL IT WAS TOO LATE.

SECOND, THERE WAS NO ONE ENTITY 

RESPONSIBLE FOR ATTRACTING OR 

ADDRESSING PROBLEMS IN THE 

FINANCIAL ARENA.

IN FACT, SEVERAL AGENCIES, AS 

MICHAEL MENTIONED, SEVERAL 

AGENCIES HAD CONSUMER PROTECTION

RESPONSIBILITIES FOR BANKS AND 

THE FTC HAD LIMITED ENFORCEMENT 

FOR NON-BANKS.

THE FEDERAL RESERVE HAD WRITING 

AUTHORITY UNDER A NUMBER OF 

STATUTES, BUT CONSUMER 

PROTECTION WAS NOT THEIR TYPE 

PRIORITY AND COULDN'T REALLY 

HAVE BEEN EXPECTED TO BE.

THEY HAD TO DEAL WITH SAFETY AND

SOUNDNESS OF BAINKS AND BANK 

HOLDING AND PROMOTE FULL 

EMPLOYMENT, PAYMENT SYSTEMS, ALL

THIS STUFF CAME BEFORE CONSUMER 

PROTECTION.

THIRD, PREEMPTION OF STATE 

MORTGAGE LENDING FROM NORTH 

CAROLINA WHERE I'M FROM BY 

FEDERAL BANKING REGULATORS 

LIMITED THE ABILITY TO FILL THE 

BREACH WAS ANOTHER PROBLEM.

FOURTH, THERE WAS NO RULES 

PROTECTING BORROWERS IN MORTGAGE

LENDING.

THE CLASSIC ABUSIVE MORTGAGE 

DURING THE BOOM TIME WAS THE 

OVER HALF OF THE LOANS THAT 

MINORITY FAMILIES RECEIVED 

DURING THE BOOM WERE THESE 

SUB-PRIME, VERY BAD MORTGAGES.

THEY'RE OFTEN ORIGINATED BY 

MORTGAGE BROKERS UNDER A 

COMPENSATION STRUCTURE THAT 

EXEMPTED TO PUT BORROWERS IN 

THESE MORTGAGES EVEN IF THEY 

QUALIFIED FOR A CONVENTIONAL 

MIDDLE CLASS MORTGAGE.

THEY WERE OFTEN ORIGINATED ON 

BEHALF OF LARGE, UNREGULATED 

LARGE BANKS, LIKE COUNTRY WIDE, 

NEW CENTURY, AND SOLD TO PRIVATE

SECURITY INVESTORS THROUGH WALL 

STREET.

THEY OFTEN DID NOT DOCUMENT 

INCOME OR ASSETS, PROMOTING 

FRAUD IN WHAT BROKERS REPORTED.

THE LOANS OFTEN DID NOT 

AMORTIZE.

THEY HAD TEASER PAYMENTS OR IN 

THE CASE OF 228, TEASER RATES, 

BOTH LEADING TO HUGE 

UNSUSTAINABLE SHOCK THAT 

FAMILIES SIMPLY COULD NOT 

ABSORB.

TO TOP IT OFF, THERE WAS OFTEN A

VERY LARGE PREPAYMENT PENALTY 

WHICH TOOK THE FAMILY'S EQUITY 

AS A QUID PRO QUO OF BEING ABLE 

TO GET OUT OF A BAD LOAN AND 

INTO A GOOD ONE.

THE AMAZING THING WAS THAT ALL 

THESE MORTGAGE FEATURES, OTHER 

THAN THE OUT RIGHT FRAUD THAT 

THE SYSTEM PROMOTED AND IGNORED,

WERE LEGAL AT THE TIME.

IT IS KIND OF AMAZING TO 

CONTEMPLATE.

AND, FINALLY, A FIFTH PROBLEM 

WAS THAT THERE'S NO FEDERAL 

ENTITY TO SUPERVISE NON-BANK 

LENDERS, AS WELL AS ENTITIES 

LIKE THE CREDIT BUREAUS.

THAT'S QUITE A LIST OF FAILURES 

THAT HELP LEAD TO THE FINANCIAL 

CRISIS.

AND, OF COURSE, MORTGAGES 

WEREN'T THE ONLY TYPE OF PRODUCT

WHERE THESE PROBLEMS EXISTED.

IT WAS JUST THE LARGEST ONE.

A FEW ADDITIONAL EXAMPLES, 

MICHAEL MENTIONED MANY OF THEM, 

PAY DAY LOANS, STUDENT LOANS, 

OVERDRAFT CHARGES BY BANKS, 

TRICKS AND TRAPS WITH CREDIT 

CARDS AND PREPAID CARDS.

THE DODD-FRANK SOLUTION, I 

THINK, STILL WAS A WISE ONE.

CREATE ONE FEDERAL AGENCY WITH 

THE MANDATE TO PROTECT CONSUMERS

OF FINANCIAL PRODUCTS AND ARM IT

WITH A TOOL KIT SUFFICIENT TO 

THE TASK, CAPABLE OF ADDRESSING 

THE FAILURES I JUST DISCUSSED.

FIRST, ESTABLISH ONE AGENCY WITH

INDEPENDENCE FROM POLITICAL 

PRESSURES BY CONGRESS OR THE 

ADMINISTRATION.

THIS INDEPENDENCE IS THE CASE 

WITH ALL OTHER FEDERAL SAFETY 

AND SOUNDNESS REGULATORS AND IS 

PROBABLY EVEN MORE IMPORTANT FOR

AN AGENCY TO PROTECT CONSUMERS.

SECOND, THE AGENCY WOULD SERVE A

MARKET MONITORING FUNCTION AND 

BE INFORMED BY A COMPLAINT DATA 

BASE WHERE CONSUMERS ACROSS THE 

COUNTRY COULD RETAIN REDRESS.

SO PROBLEMS IN MORTGAGE LENDING 

WOULDN'T HAVE COME AS SUCH A 

SURPRISE.

THIRD, RECOGNIZING THAT CFMB MAY

NOT HAVE ALL OF THE ANSWERS OR 

THERE MAY BE TIMES WHEN CFMB IS 

NOT SUFFICIENTLY RIGOROUS IN 

PROTECTING CONSUMERS.

THE AGENCY'S RULES WOULD SERVE 

AS A FLOOR AND NOT A CEILING.

AS A RESULT, STATES COULD 

ENFORCE THEIR OWN LAWS THAT ARE 

MORE PROTECTIVE OF CONSUMERERS.

ALSO STATE ATTORNEY GENERALS 

COULD ENFORCE THE RULES IF CFMB 

DECIDED NOT TO.

FOURTH, PROVIDE THE AGENCY WITH 

THE RULE WRITING AUTHORITY 

SHARED WITH DIFFERENT FEDERAL 

AGENCIES.

THESE RULES WOULD ESTABLISH A 

LEVEL PLAYING FIELD FOR BANKS 

AND NON-BANKS.

THEY WOULD ALSO PREVENT 

RESPONSIBLE LENDERS AND 

PROVIDERS FROM HAVING TO RELAX 

THEIR STANDARDS TO KEEP WITH 

OTHERS WHO DON'T HAVE THOSE 

VIEWS.

FIFTH, THE AGENCY WOULD 

SUPERVISE LARGE BANKS AND LARGE 

NON-BANKS AND ALL MORTGAGE 

LENDERS.

SIXTH, IT WOULD ALSO HAVE 

ENFORCEMENT AUTHORITY IN CASE 

SUPERVISION IS NOT ENOUGH AND 

IT'S REGULATED ENTITIES DON'T 

FOLLOW ITS RULES.

THAT WAS THE VISION THAT THE 

DODD-FRANK ARCHITECTS HAD TO 

ADDRESS THE PROBLEMS THAT LED TO

THE CRISIS.

I THINK WHAT -- I THINK WHAT OUR

PANEL IS GOING TO DO IS TALK 

ABOUT THOSE DIFFERENT TOOLS AND 

HOW THEY'VE BEEN APPLIED, HOW 

THEY MIGHT BE APPLIED IN THE 

FUTURE.

SO AFTER THAT LEAD IN, I THINK 

I'LL INTRODUCE THE -- EACH PANEL

EST ONCE THEY'RE ABOUT TO -- 

PANELIST ONCE THEY'RE ABOUT TO 

TALK.

I THINK PEGGY IS GOING TO GO 

FIRST.

THE ASSISTANT DIRECTOR OF 

SUPERVISION POLICY AT THE 

FINANCIAL BUREAU.

THANK YOU, ERIK.

GOOD MORNING, EVERYONE.

THANK YOU, MICHAEL, FOR INVITING

ME HERE.

AND THANK YOU FOR ASKING ME TO 

COME TO TREASURY BACK IN 2009.

IT'S BEEN EVER SINCE THEN IT'S 

BEEN INTERESTING, CHALLENGING TO

BE INVOLVED AS THE CFBP STORY 

CONTINUES TO UNFOLD.

AS ERIK SAID, I'M HEAD OF 

SUPERVISION POLICY, WHICH AT 

CFPB WHICH HAS THE 

RESPONSIBILITY OF SETTING 

STRATEGY FOR BOTH THE BANK AND 

NON-BANK SUPERVISION PROGRAM, AS

WELL AS ENSURING THAT AS WE 

SUPERVISE THE CALLS WE MAKE ON 

LEGAL VIOLATIONS AND HOW WE 

APPLY OUR EXPECTATIONS ARE 

CONSISTENT ACROSS THE BANK AND 

NON-BANK MARKETS.

I WANT TO SAY A LITTLE BIT ABOUT

MY BACKGROUND.

BEFORE MICHAEL ASKED ME TO COME 

OVER TO TREASURY AND BEFORE I 

GOT STARTED WITH CFMB, BECAUSE 

THAT INFORMS MY REMARKS AND MY 

PERSPECTIVE THAT YOU'LL HEAR 

TODAY.

AND BEFORE THAT, I WAS AT THE 

FEDERAL TRADE COMMISSION.

SO I SPENT MOST OF MY CAREER IN 

THE PUBLIC SECTOR.

AND I WAS AT THE FEDERAL TRADE 

COMMISSION IN THE DIVISION OF 

FINANCIAL PRACTICES, WHICH AS 

ERIK MENTIONED ONLY HAS 

JURISDICTION OVER NON-BANKS AND 

PRIMARILY ENFORCEMENT AUTHORITY 

AS A TOOL.

SO WITH THAT BACKGROUND IN MIND,

I WANT TO TALK ABOUT THREE 

DIFFERENT THINGS.

ONE IS FROM MY VIEWPOINT GIVEN 

THAT BACKGROUND, HOW I THINK THE

OVERSIGHT OF COMPLIANCE WITH 

FEDERAL CONSUMER FINANCIAL LAW 

HAS IMPROVED WITH THE CREATION 

OF THE BUREAU AND WHAT 

DIFFERENCE THE SUPERVISION 

PROGRAM OF THE BUREAU HAS MADE.

AND IN PARTICULAR, I WANT TO 

MENTION THE SUPERVISION OF THE 

CREDIT BUREAUS OF THE LARGEST 

CONSUMER REPORTING AGENCIES, AS 

WELL AS THE FURNITURES TO THOSE 

SYSTEMS AND TALK ABOUT WHY I 

THINK THAT WAS A SIGNIFICANT 

ADDITION TO THE FEDERAL 

OVERSIGHT LANDSCAPE FOR 

CONSUMERS.

AND THEN, THIRD, I WAS GOING TO 

TALK ABOUT ALSO I SAW SOMETHING 

IN THE MATERIALS ABOUT 

TECHNOLOGY.

WE'RE SUPPOSED TO BE TALKING 

ABOUT TECHNOLOGY.

SO I WANT TO TALK ABOUT SOME OF 

THE BENEFITS AND PIT FALLS THAT 

THE BUREAU HAS FOUND AS 

INSTITUTIONS RELY AND PERHAPS 

INCREASINGLY RELY ON TECHNOLOGY 

TO FACILITATE COMPLIANCE.

SO THAT'S PART AND PARCEL OF 

JUST THE WAY THINGS ARE DONE 

THESE DAYS AS YOU ALL KNOW.

SO AS WAS MENTIONED BY MICHAEL 

AND ERIK BEFORE THE CRISIS, 

THERE WAS NO AGENCY WITH 

SUPERVISORY AND ENFORCEMENT 

AUTHORITY OVER BOTH THE BANKS 

AND NON-BANKS TO OVERSEE 

COMPLIANCE WITH FEDERAL CONSUMER

LAW.

THE FTC HAD ENFORCEMENT 

AUTHORITY ONLY.

AND, THEREFORE, THAT MEANT THERE

WAS LIMITED ABILITY TO REALLY 

PREVENT VIOLATIONS FROM 

OCCURRING.

WHEN THERE WAS SMOKE COMING OUT,

HOPEFULLY NOT AT THE HOTEL WHERE

WE'RE STAYING IN, SMOKE COMING 

OUT.

YOU KNOW, THE LAW ENFORCERS SEE 

THAT SMOKE GOES IN.

TRIES TO STOP THE FIRE AND GET 

ANY REMEDIES BACK TO CONSUMERS 

THAT WERE INJURED.

AS OPPOSED TO GOING IN AND 

MAKING SURE THAT THOSE ALARMS 

ARE WORKING.

THEY ARE WORKING.

THEY'RE WORKING.

SO THAT THE FIRE CAN BE 

STOPPED AT THE EARLIEST POINT OR

PREVENTED.

BETTER YET PREVENTED IN THE 

FIRST PLACE.

SO NOW EIGHT YEARS LATER, IT'S A

COMPLETELY DIFFERENT CONSUMER 

PROTECTION REGULATORY LANDSCAPE.

THE BUREAU NOT ONLY HAS 

ENFORCEMENT AUTHORITY, BUT 

SUPERVISORY AUTHORITY AS WELL.

AND THAT EXTENDS ACROSS THE 

LARGEST BANKS AND MANY OF THE 

NON-BANKS THAT ARE BASICALLY 

SOME OF THEM IN THE EXACT SAME 

MARKETS DOING VERY SIMILAR 

THINGS.

SO WE CAN SEE ACROSS THAT 

LANDSCAPE AS WE DO THAT 

SUPERVISORY WORK.

SO WE BUILT OUR SUPERVISOR 

PROGRAM.

I GUESS WE SHOULD MENTION I'M 

USING THAT WORD AS IF EVERYBODY 

KNOWS WHAT THAT MEANS.

THAT'S WHERE BASICALLY EXAMINERS

CAN GO INTO THE INSTITUTION.

IT CAN BE ON-SITE OR OFF SITE.

SO WE HAVE THE AUTHORITY TO ASK 

FOR INFORMATION FROM THE BANK OR

THE NON-BANK ABOUT HOW THEY'RE 

COM

COMPLYING WITH THE LAW.

WE HAVE THE ABILITY TO ASK FOR 

INFORMATION TO HELP THE 

EXAMINERS ASSESS COMPLIANCE WITH

THE LAW.

AND WE CAN LOOK FOR RISK TO 

CONSUMER.

SO IT'S ALL VERY ONGOING, REAL 

TIME INFORMATION GATHERING AND 

ASSESSMENT AS OPPOSED TO A 

LONGER STRETCHED OUT INVEST TORI

PROFICIENCY.

SO IT'S BASICALLY THE PRIMARY 

TOOL IS SETTING EXAM TEAMS TO BE

ON-SITE TO ENGAGE WITH THE 

COMPANY OFFICIALS.

ASK THEM ABOUT WHAT THEY'RE 

DOING, WHAT THEIR COMPLIANCE 

SYSTEM ARE AND TO EVALUATE 

WHETHER THEY'RE COMPLYING WITH 

THE LAW.

SO WE'VE BUILT THIS PROGRAM -- 

AND THE FOUNDATION IS TO ENSURE 

THAT ENTITIES HAVE COMPLIANCE 

MANAGEMENT SYSTEMS IN PLACE AND 

THAT THEY ARE ENGAGING AT 

ONGOING SELF MONITORING AND 

CORRECTION AND INCLUDING WHERE 

THEY EVALUATE THE ROOT CAUSE OF 

ANY PROBLEMS AND THEY PUT INTO 

PLACE ANY THAT'S NEEDED TO TRY 

TO ADDRESS THOSE ROOT CAUSE.

SO THAT'S THE BASIC GOAL IS TO 

AIM AT PREVENTION OF LAW 

VIOLATIONS IN THE FIRST PLACE.

IT'S MORE COMPREHENSIVE THAN 

SOLELY LOOKING AFTER THE FACT 

WHETHER THEY VIOLATED THE LAW.

IT'S TRYING TO MAKE SURE THEY 

HAVE SYSTEMS IN PLACE TO ENSURE 

THAT DOESN'T HAPPEN IN THE FIRST

PLACE.

THAT'S THE PRIMARY GOAL.

AND BECAUSE WE PRIORITIZE OUR 

SUPERVISORY WORK BASED ON RISK, 

IT ALSO PROVIDES AN INCENTIVE TO

MEET THOSE EXPECTATIONS IN THAT 

IF WE GO IN AND SEE A BANK OR 

NON-BANK WITH A VERY ROBUST 

COMPLIANCE MANAGE SYSTEM, THEN 

WE ARE ASSURED THAT THEY ARE 

DOING THE SELF MONITORING, SELF 

CORRECTION, AND WE, THE CFPB, 

DON'T HAVE TO SPEND AS MANY OF 

OUR RESOURCES GOING BACK AS 

EARLY AND OFTEN TO LOOK AT WHAT 

THEY'RE DOING.

CONV

CONVERSELY, IF WE'RE TROUBLED BY

WHAT WE SEE, THEIR RISK MATRIX 

AND SCHEDULED FOR EXAMINATION 

REVIEWS MORE FREAKILY.

WHAT WE FOUND IS MANY -- 

FREQUENTLY.

WHAT WE FOUND IS MANY BANKS HAVE

IMPROVED WITH THIS KIND OF 

OVERSIGHT BECAUSE OUR OVERSIGHT 

AS COMPARED TO THE PAST FIRST 

AND FOREMOST IS SOLELY FOCUSED 

ON CONSUMER COMPLIANCE.

THAT'S THE ONLY FOCUS.

NOT AS THE OTHER REGULATORS HAD 

A COMBINED FOCUS THAT WAS 

CONCERNED WITH SAFETY AND 

SOUNDNESS AND OTHER COMPLIANCE 

ISSUES.

SO WE HAVE SEEN IMPROVEMENT, 

ESPECIALLY BUT NOT ONLY IN THE 

NON-BANK MARKETPLACE WHERE THEY 

NOW HAVE COMPLIANCE MANAGE 

SYSTEMS IN PLACE THAT THEY NEVER

HAD BEFORE.

ONE EXAMPLE OF THAT IS THE 

BIGGEST CONSUMER REPORTING 

AGENCIES.

THE CONSUMER REPORTING MARKET, 

AS MANY OF YOU KNOW, PLAYS A 

CRITICAL ROLE IN OUR ECONOMY, IN

CONSUMER'S LIVES.

IT HAS SUCH AN ENORMOUS REACH 

AND IMPACT.

OVER 200 MILLION AMERICANS HAVE 

CREDIT FILES WITH THE BIGGEST 

CREDIT BUREAUS AND TRADE LINES 

ARE FURNISHED BY OVER 10,000 

PROVIDERS.

IT'S PROBABLY A GIVEN HOW 

IMPORTANT THESE CREDIT REPORTS 

CAN BE IN SO MANY ASPECTS OF 

CONSUMER ER'S LIVES.

IT'S ALSO IMPORTANT TO THE 

BUSINESSES THAT USE IT THAT IT 

BE ACCURATE.

BUT IT'S INTERESTING TO ME 

DESPITE THE CRITICAL IMPORTANCE 

OF THE INFRASTRUCTURE, UNTIL THE

CFPB, THERE WAS NO FEDERAL OR 

STATE AGENCY THAT HAD OVERSITE 

AUTHORITY TO GO IN AND MONITOR 

COMPLIANCE.

HAD SUPERVISORY AUTHORITY.

NOT THE STATE, THE FEDERAL 

AUTHORITIES.

IT WAS THIS AFTER THE FACT LAW 

ENFORCEMENT AUTHORITY.

AND SO THE CFPB ONE OF THE FIRST

THINGS WE DID WHEN WE NEEDED TO 

ESTABLISH A RULE TO BE ABLE TO 

SUPERVISE SOME OF THE NON-BANKS,

OUR FIRST PRIORITY WAS 

ESTABLISHING A RULE THAT WOULD 

LET THE CFBP OVERLOOK THE RULE.

SO NOW WE HAVE A SUPERVISION 

PROGRAM WITH RESPECT TO THE 

LARGEST CONSUMER REPORTING 

AGENCIES.

AND, INDEED, WE HAVE FOUND AND 

WE DID A SPECIAL REPORT ON THIS.

A SUPERVISORY HIGHLIGHTS REPORT 

IN MARCH 2017 AND I PROBABLY 

WON'T GO INTO THE DETAILS HERE.

BUT INDEED WE HAVE FOUND THAT 

THAT KIND OF OVERSIGHT AND THAT 

KIND OF ONGOING LOOK BY A 

REGULATOR TO SEE WHAT THEY WERE 

DOING TO PROACTIVELY TRY TO 

COMPLY WITH THE LAW HAS RESULTED

IN THEM INCREASING THEIR QUALITY

MANAGEMENT IN VARIOUS RESPECTS.

AND SO THAT KIND OF OVERSIGHT, 

THAT KIND OF ASKING THE 

QUESTIONS AND EXPECTATION AND 

EVALUATION OF COMPLIANCE 

MANAGEMENT HAS MADE A 

DIFFERENCE.

IT'S NOT THE COMPLETE OR TOTAL 

ANSWER, BUT WE THINK THAT HAS 

MADE A DIFFERENCE AND BEEN A 

GOOD START.

IN ADDITION, IT'S NOT JUST THE 

CONSUMER REPORTING AGENCIES.

THE BUREAU HAS BEEN ABLE TO LOOK

HOLISTICALLY AT THE WHOLE 

SYSTEM.

SO MANY OF THE INPUTS ARE AT 

ISSUE FOR THE CREDIT REPORTING 

ISSUE.

THE BANKS AND NON-BANKS THAT 

FURNISH THE DATA TO THE CREDIT 

BUR ROWS.

WE CAN LOOK AT THE LARGEST BANKS

AND THEIR FURNISHING PRACTICES 

AND WHETHER THEY WERE COMPLYING,

AS WELL AS THE KEY NON-BANKS.

THAT WOULD BE MORTGAGE 

COMPANIES, CREDIT CARD ISSUE 

ERS, DEBT COLLECTERS.

SO WE WERE ABLE TO LOOK AT 

DIFFERENT ASPECTS OF IT TO MAKE 

SURE WE'RE COVERING IT ALL.

AND, INDEED, WE FOUND WITH MANY 

OF THE DEPOSITORY INSTITUTIONS, 

THEY HAD NOT REALLY PRIOR TIDES 

LOOKING AT COMPLIANCE WITH THEIR

FURNISHING ACTIVITIES.

THEY HADN'T REALLY BEEN OVERSEEN

FOR THAT.

THAT WAS A LITTLE COMPLIANCE 

BACK WATER AND WE PUT A 

SPOTLIGHT ON IT.

WE FOUND VIOLATIONS.

WE CITED THOSE VIOLATIONS.

AND HAVE DIRECTED THEM TO 

IMPROVE THEIR COMPLIANCE.

SO THAT'S JUST ONE EXAMPLE OF 

THE KINDS OF OBSERVATIONS WE'VE 

HAD AND THE DIFFERENCE THIS 

ONGOING OVERSIGHT MAKES IN MY 

VIEW AND IN MY EXPERIENCE.

SO JUST A LITTLE BIT ABOUT THE 

TECHNOLOGY PICTURE TURNING TO 

THAT.

SO AS I MENTIONED, MANY 

FINANCIAL INSTITUTIONS, MANY 

ENTITIES OF ALL TYPES 

INCREASINGLY USE TECHNOLOGY TO 

FACILITATE THEIR PROCESSES AND 

PROCEDURES AND IN THIS CASE 

COMPLIANCE.

AND SO WE FOUND THAT SOME OF 

THAT IS REALLY FACILITATED BY 

SERVICE PROVIDERS.

THAT SETUP COMPLIANCE SYSTEMS 

FOR ALL KINDS OF DIFFERENT 

ENTITIES.

AND ONE KEY PROVISION THAT I 

THINK IS LITTLE KNOWN AND LITTLE

UNDERSTOOD IN DODD-FRANK THAT 

WAS IN THERE IS THAT THE BUREAU 

HAS THE ABILITY TO GO LOOK AND 

DIRECTLY AT THE SERVICE WRITERS.

AND THAT HAS BEEN, I THINK, VERY

IMPORTANT IN THIS TECHNOLOGY 

AREA WHERE WE CAN GO KIND OF TO 

THE HEART OF WHO IS PROVIDING 

TECHNOLOGY TO MAYBE A NUMBER OF 

ENTITIES.

AND IF THERE'S A ROOT CAUSE 

ISSUE, WE CAN DETECT IT AND 

ASSESS IT.

AND, AGAIN, DIRECT THEM TO FIX 

IT.

WE CAN ALSO JUST HAVE THE SAME 

EXPECTATIONS OVER THEM THAT I 

TALKED ABOUT WITH THE OTHER 

ENTITIES TO TRY TO ENSURE THAT 

THEY PROACTIVELY PAY ATTENTION 

TO ALL OF THE TECHNICAL DETAILS 

THAT MAY COME INTO PLAY.

LET'S SAY REGULATION CHANGES.

THERE NEEDS TO BE CHANGE 

MANAGEMENT PROPERLY EXECUTED AND

TESTED.

AND SO THAT'S BEEN AN IMPORTANT 

PART OF WHAT WE'VE DONE IN 

LOOKING AT THOSE TECHNOLOGY 

ISSUES.

SO I THINK I'LL STOP THERE.

ERIK.

THANK YOU.

NEXT WE'LL HEAR FROM NICK SMITH.

HE'S THE SENIOR DEPUTY ATTORNEY 

GENERAL AND ASSISTANT DIRECTOR 

OF THE BUREAU OF CONSUMER 

PROTECTION OF THE PENNSYLVANIA 

OFFICE OF THE ATTORNEY GENERAL.

THANKS, ERIK.

THAT'S A MOUTHFUL, NICK.

 [ LAUGHING ] 

 IT'S TOO LONG.

AND THANK YOU, MICHAEL, FOR 

HAVING US HERE TODAY.

THANK YOU FOR LETTING ME COME 

WORK FOR YOU AT TREASURY IN 

 [ LAUGHING ] 

 AND, PEGGY AND ERIK, THANK 

YOU FOR GIVING ME MY FIRST JOB.

 [ LAUGHING ] 

 SO I STARTED AT TREASURY AND

WORKED THERE WITH THESE GOOD 

FOLKS.

AND THEN I WENT TO THE CFPB AND 

I WAS AN ENFORCEMENT ATTORNEY 

THERE.

I WANTED TO MOVE BACK TO 

PITTSBURGH AND DID PRIVATE 

PRACTICE.

FOR THE PAST YEAR AND A HALF, 

I'VE BEEN WITH ATTORNEY GENERAL 

RUNNING THE CONSUMER PROTECTION 

FINANCIAL UNIT.

SOME REFER TO US AS A MINI CFPB.

THAT WOULD BE LESS OF A MOUTHFUL

THAN MY OFFICIAL TITLE.

BUT I REALLY ENJOY THE WORK AT 

THE STATE LEVEL.

AND TODAY I'M GOING TO TALK 

ABOUT TWO THINGS.

ONE IS SORT OF WHAT STATE 

AGENCIES ARE DOING TO FILL THE 

GAP WITH THE FEDERAL AGENCIES 

PERHAPS DOING LESS IN TERMS OF 

CONSUMER PROTECTION.

AND THEN, SECOND, I WANT TO TALK

ABOUT WHAT WE DID WHEN I WAS AT 

THE BUREAU THAT INVOLVED 

TECHNOLOGY AND CHANGING 

TECHNOLOGY.

SO I GUESS I'LL START WITH THE 

FIRST THING, WHICH IS THE U.S. 

BANK CASE AT THE CFPB.

THIS TIES IN NICELY WITH WHAT 

PEGGY JUST TOLD YOU ABOUT EXAMS.

BECAUSE BACK IN THE EARLY DAYS 

OF THE CFPB IN RICH'S TENURE, WE

ACTUALLY ASSIGNED ATTORNEYS TO 

GO OUT ON EXAMS AND PROVIDE EXAM

SUPPORT.

AND THE OFFICIAL PURPOSE OF THAT

WAS TO GIVE ENFORCEMENT 

ATTORNEYS EXPERIENCE LEARNING 

ABOUT THE EXAM PROCESS.

AND I THINK IT WAS A REALLY, 

REALLY GREAT THING.

THE ENTITIES HATED IT.

AND THE INDUSTRY REBELLED AND 

RICH PROBABLY DIDN'T HEAR ABOUT 

ANYTHING MORE THAN THAT FOR 

ABOUT SIX MONTHS.

AND SO FINALLY THE BUREAU 

DECIDED NOT TO SET ENFORCEMENT 

ATTORNEYS OUT ON EXAMS ANYMORE.

BUT I HAD THE GOOD FORTUNE OF 

BEING ASSIGNED TO AN EXAM OF 

U.S. BANK, WHICH IS A SPECIAL 

REVIEW TO LOOK AT THIS PROGRAM 

CALLED THE U.S. MILD PROGRAM.

AND IT ENDED UP BECOMING AN 

ENFORCEMENT ACTION, WHICH IS WHY

I CAN TALK ABOUT IT WITH YOU 

TODAY.

OTHERWISE EXAMS ARE TOTALLY 

CONFIDENTIAL.

BUT IT WAS A PROGRAM THAT WAS 

DESIGNED FOR ENLISTED SERVICE 

MEMBERS.

IT WAS CALLED MILES.

AND TO THE BANK'S CREDIT, I 

DON'T WANT TO GIVE THEM TOO BAD 

OF A NAME, IT WAS ACTUALLY A 

PROGRAM SET UP BY ANOTHER BANK 

WHICH THEY HAD ACQUIRED.

AND IT WAS ONE OF THOSE EXAMPLES

OF A SITUATION WHERE THESE BIG 

BANKS WERE GOBBLING UP LOTS OF 

BIG BANKS AND NOT NECESSARILY 

PAYING ATTENTION TO WHAT WAS 

GOING ON.

SO THIS PROGRAM WAS A SUB-PRIME 

AUTO LOAN.

VERY HIGH INTEREST RATES.

THEY HAD ABOUT 50,000 CUSTOMERS 

OVER THE COURSE OF ABOUT A 

DECADE.

AND WE LOOKED AT IT BECAUSE WE 

GOT A COMPLAINT.

AND THERE'S A VIDEO PROBABLY ON 

THE CFPB'S WEBSITE FROM A FATHER

OF A SOLDIER.

AND HIS FATHER WROTE INTO THE 

CFPB AND SAID, YOU KNOW, MY SON 

IS SPENDING BASICALLY ALL OF HIS

AFTER TAX INCOME ON THIS CAR 

LOAN.

HE HAD A $500 PAYMENT, I THINK, 

MONTHLY AND IT WAS LIKE, YOU 

KNOW, BRAND NEW PICKUP TRUCK, OF

COURSE.

AND THEN HE WAS SPENDING 2 OR 

$

$300 ON INSURANCE.

THE REST ON GAS.

THE WHOLE TAKE ON PAY WAS 1100 

CLARS.

HE DIDN'T REALLY HAVE MUCH MONEY

TO SPEND OTHER THAN THE TRUCK.

SO WE'VE LOOKED INTO THE PROGRAM

AND THE ISSUE THAT WE FOUND 

ACTUALLY HAD TO DO WITH AN 

ALLOTMENT PROGRAM.

AND ALLOTMENTS ARE A MEANS OF 

PAYMENT THAT THE MILITARY SET UP

BASICALLY BEFORE THE TIME OF 

ONLINE BANKING, CONSUMERS NEEDED

TO BE ABLE TO -- WHEN THEY WERE 

DEPLOYED AT WAR, THEY NEEDED TO 

BE ABLE TO MAKE SURE THEIR BILLS

GOT PAID.

AND SO SERVICE MEMBERS COULD 

DIRECT THE DOD OFFICE TO PAY 

THEIR MORTGAGE.

YOU KNOW, THEIR FINANCING FOR 

THEIR HORSE AND BUGGY.

 [ LAUGHING ] 

 YOU KNOW, THEIR MOTHER -- 

LIKE WHOEVER THEY WANTED TO SEND

PAYMENTS TO.

AND THIS SYSTEM EXISTED FOR A 

LONG TIME AND WORKED FINE.

BUT FLASH FORWARD TO THE 2000s 

WHERE EVERYONE IS REQUIRED TO 

HAVE A BANK ACCOUNT.

THIS ALLOTMENT SYSTEM WAS 

OBSOLETE AND REALLY NOT 

NECESSARY ANYMORE.

BUT THERE WAS A WHOLE INDUSTRY 

AROUND MILITARY BASES THAT HAD 

CROPPED UP THAT FIGURED OUT THAT

IF THEY REQUIRED SERVICE MEMBERS

TO PAY VIA ALLOTMENT, THEY WOULD

BASICALLY ELIMINATE ANY RISK 

THAT THEY WOULD NOT GET PAID.

BECAUSE THEY WOULD GET PAID 

STRAIGHT OUT OF THE PAYCHECK.

AND EVEN THOUGH A SERVICE MEMBER

COULD TURN OFF THE ALLOTMENT, 

THERE'S A REAL EMPHASIS FOR 

JUNIOR ENLISTED ON PAYING YOUR 

BILLS AND NOT FALLING BEHIND.

AND YOU CAN LOSE YOUR SECURITY 

CLEARANCE IF YOU GET A BAG THING

ON YOUR CREDIT REPORT.

SO THERE ARE STILL TODAY A LOT 

OF SHADY LENDERS AND CREDITORS 

OUTSIDE MILITARY BASES.

BUT BEFORE OUR CASE, THEY ALL 

REQUIRED PAYMENT BY ALLOTMENT.

AND IT MADE IT MUCH EASIER FOR 

THEM TO PREY ON SERVICE MEMBERS.

U.S. BANKS MILES PROGRAM DID THE

SAME THING.

YOU WERE EXPECTED AND REQUIRED 

TO PAY WITH AN ALLOTMENT.

AND THE PROBLEM THAT WE FOUND 

THAT U.S. BANK WAS DOING WAS 

THEY HAD A THIRD PARTY SERVICE 

PROVIDER THAT WAS PROCESSING AND

SETTING UP THE ALLOTMENTS AND 

CHARGING SERVICE MEMBERS $3.50 

MONTHLY FEE FOR THAT SERVICE.

THEY WERE NOT DISCLOSING THAT 

FEE AS PART OF THE TRUTH AND 

LENDING ACT DISCLOSURE.

WITHOUT GETTING INTO TOO MUCH 

TECHNICAL DETAIL, BASICALLY THIS

WAS AN EXTRA $200 OVER THE 

COURSE OF THE AUTO LOAN THAT 

SERVICE MEMBERS WERE NOT BEING 

TOLD ABOUT UP FRONT AS PART OF 

THE COST OF THE LOAN.

AND THAT WAS A VIOLATION OF 

TELA.

SO THAT WAS ONE OF THE FINDINGS.

WE ALSO HAD SOME DECEPTIVE 

MARKETING OF ADD-ON PRODUCTS.

THEY HAD EXTENDED WARRANTY 

BASICALLY THEY WERE SELLING AND 

ALSO GAP INSURANCE.

AND THEIR CALL CENTER IN 

KENTUCKY WAS CALLING PEOPLE AND 

TELLING THEM IT'S JUST PENNIES A

DAY TO HAVE THIS EXTRA PRODUCT 

AND YOU MIGHT AS WELL BUY IT.

IN FACT, IT WAS LESS THAN 

PENNIES A DAY.

$0.40 A DAY WHICH IS 

SIGNIFICANTLY MORE THAN PENNIES.

SO WE FOUND THAT WAS A DECEPTIVE

PRACTICE.

AND WE ENDED UPTAKING TWO 

CONSENT ORDERS.

ONE WITH THE U.S. BANK.

I THINK THEY PAID ABOUT 

$3.5 MILLION BACK TO SERVICE 

MEMBERS.

AND THEN ANOTHER ONE WITH 

DEALERS FINANCIAL SERVICES, 

WHICH IS THE NON-BANK MARKETING 

PARTNER THAT HAD THE CALL CENTER

IN KENTUCKY.

AND WE REQUIRED THEM TO GIVE, 

YOU KNOW, $7 MILLION IN TOTAL 

BACK TO SERVICE MEMBERS, 

INCLUDING THE ONE WHOSE FATHER 

HAD COMPLAINED TO US IN THE 

EARLY DAYS.

IS THAT ON THE COMPLAINT DATA

BASE?

IT IS, YES.

IT'S PROBABLY IN THE COMPLAINT 

DATABASE.

SERVED A PURPOSE.

LIKE I SAID, THERE'S A GREAT 

VIDEO.

I THINK HIS NAME IS RE.

THERE'S A VIDEO OF THE FATHER 

AND THE SON THAT THE CFPB MADE 

AND I THINK ELIZABETH WARREN 

MADE A VIDEO TOO.

BUT ANYWAY, THE REASON I MENTION

THIS CASE IS BECAUSE WE DIDN'T 

JUST STOP THERE WITH THE 

SETTLEMENT AND REQUIRING THEM TO

GIVE THE MONEY BACK.

I WORKED WITH HOLLY IN THE EARLY

DAYS OF THE BUREAU AND SHE LED 

THE OFFICE OF SERVICE AFFAIRS.

OF COURSE, SHE WAS VERY 

INTERESTED IN THIS CASE, AND WE 

KEPT HER TEAM APPRISED AS IT WAS

MOVING ALONG.

AND AFTERWARDS WHEN WE ANNOUNCED

THE SETTLEMENTS, SHE USED THAT 

TO GO TO THE PENTAGON AND SAY, 

HEY, LOOK AT THIS ALLOTMENT 

PROGRAM.

THIS SERVICE MEMBER WAS -- HAD 

TO PAY AN EXTRA $200 BECAUSE OF 

THIS ALLOTMENT PROGRAM.

AND YOU'VE GOT ALL OF THESE 

SHADY LENDERS AROUND BASES THAT 

ARE TAKING ADVANTAGE OF THE 

ALLOTMENT PROGRAM.

YOU SHOULD REALLY TAKE A HARD 

LOOK AT ALLOTMENTS AND THINK 

ABOUT IF IT'S STILL WORTH 

HAVING.

AND SO THE PENTAGON SET UP A 

WORKING GROUP.

I WAS THE POLICY LEAD FOR THE 

CFPB AND WE HAD HOLLY AND SETH 

ON HER TEAM.

AND ALONG -- TO MAKE A LONG 

STORY SHORT, IT TOOK MANY 

MEETINGS, WE WE CONVINCED THE 

PENTAGON TO BAN THESE FOR 

CONSUMER CREDIT.

THEY STILL EXIST FOR PAYING 

RENT.

I THINK YOU CAN STILL PAY YOUR 

MORTGAGE THROUGH AN ALLOTMENT.

BUT YOU CAN'T MAKE -- PAY A CAR 

LOAN OR PURCHASE ANY JEWELRY OR 

OTHER PRODUCT OUTSIDE OF A 

MILITARY BASE AND REPAY 

ALLOTMENT.

SO THAT WAS, I THINK, A GOOD 

EXAMPLE OF THE CFPB EMBRACING 

INNOVATION BACK UNDER CORDRAY.

I KNOW NOW THE CFPB IS MAKING A 

NEW PUSH WITH A SAND BOX AND 

OTHER THINGS THAT THEY CLAIM 

WILL HELP CONSUMER FRIENDLY 

INNOVATION.

MAYBE WE'LL TALK ABOUT THEM 

LATER.

BUT I THINK IT'S IMPORTANT TO 

POINT OUT THAT THE CFPB HAS 

ALWAYS BEEN IN FAVOR OF 

INNOVATION IN FAVOR OF THE 

CONSUMER.

AND IN THIS CASE WE SAID HERE'S 

THIS OLD SYSTEM NOT GOOD FOR 

CONSUMERS.

LET'S DO AWAY WITH IT AND 

ENCOURAGE PEOPLE TO USE THE FREE

BILL PAY AND ONLINE BANKING THAT

IS MUCH BETTER FOR THEM THAN THE

OLD SYSTEM.

SO I WANT TO SHIFT TO STATE 

AGENCIES FILLING THE GAP.

A LOT OF PEOPLE ARE WRITING 

ARTICLES ABOUT HOW STATE 

AGENCIES ARE BEEFING UP CONSUMER

FINANCIAL PROTECTION EFFORTS.

AND IT'S TRUE.

WE ARE.

I THINK THE CFPB IS 

IRREPLACEABLE AND STILL DOING 

INCREDIBLY IMPORTANT WORK AND I 

WAS HAPPY TO HEAR FROM PEGGY 

THIS MORNING THAT MUCH OF THE 

EXAM WORK IS STILL GOING ON AND 

STRONG.

AND, I MEAN, THE AGs CANNOT 

REPLACE THE CFPB.

BUT WHAT WE CAN DO IS WE CAN BE 

ON THE CUTTING EDGE, I THINK, 

TAKE ON THE CASES THAT MAY BE 

ONES THAT THE NEW DIRECTOR IS 

NOT WILLING TO TAKE ON AND NOT 

WILLING TO BRING.

AND WE HAVE SEEN THAT A NUMBER 

OF UNFORTUNATE ACCIDENTS HAVE 

DROPPED DRAMATICALLY SINCE 

ACTING DIRECTOR MULVANE TOOK 

OVER.

SO A COUPLE THINGS WE'RE WORKING

ON.

ONE IS THE LAWSUIT.

THAT IS ONE WHERE THE CFPB HAS 

AN OUTSTANDING CASE AGAINST 

NAVIANT THEY FILED IN 2017.

THERE ARE ALSO FIVE STATE AG 

LAWSUITS AGAINST NAVIANT.

I THINK THAT'S A GOOD EXAMPLE 

THAT THE CFPB IS DOING GOOD 

WORK.

THEIR CASE IS STILL MOVING IT.

THEY'RE LITIGATING IT REALLY 

HARD AGAINST THE LAWYERS ON THE 

OTHER SIDE.

THEY'RE DOING GREAT WORK ON 

DISCOVERY.

AND THEY'RE A GOOD PARTNER TO 

THE STATES.

AND I WANT TO RECOGNIZE THAT.

AT THE SAME TIME, THE STATES ARE

WORKING VERY HARD AS WELL ON OUR

OWN LAWSUITS BECAUSE WE 

RECOGNIZE THAT THE CFPB LAWSUIT,

SOMETHING COULD HAPPEN TO IT.

I MEAN, THERE HAS BEEN 

PUBLISHING SPECULATION IN THE --

PUBLIC SPECULATION IN THE MEDIA 

ABOUT THE MEETINGS WITH NAVIATN.

SO WE ARE HOPEFUL THAT THE CFPB 

WILL KEEP UP GOOD WORK ON THAT 

CASE, BUT WE'RE NOT COUNTING OUR

CHICKENS.

AND WE'RE PURSUING OUR LAWSUITS 

AS THOUGH THEY'RE THE ONLY ONES 

OUT THERE AND WE NEED TO DO 

THAT.

SO THAT'S AN EXCITING CASE.

I'M HAPPY TO TALK MORE ABOUT THE

SUBSTANTIVE ALLEGATIONS THERE.

THERE'S ALSO EQUI FAX.

EVERYONE KNOWS THERE'S A BREACH 

THAT THEY'RE WORKING ON.

THAT'S AN EXCITING ONE.

AND I THINK I'LL JUST EXPLAIN 

WHAT A MULTI-STATE IS, BECAUSE 

SOME PEOPLE MAY NOT KNOW.

BACK IN THE 90s, STATE AGs 

STARTED WORKING TOGETHER IN A 

VERY FORMAL WAY TO INVESTIGATE 

THE TOBACCO COMPANIES.

AND THEY INSTITUTIONALIZED THIS 

PROCESS OF ACTUALLY BANNING 

TOGETHER AND SHARING RESOURCES 

AND SIGNING COMMON INTEREST 

AGREEMENTS.

AND IT'S BECOME A REALLY 

POWERFUL WAY FOR AGs TO DO WORK 

AGAINST THESE BIG NATIONAL 

ENTITIES.

AND IT'S PARTICULARLY HELPFUL 

FOR SMALLER AG OFFICES WHERE 

THEY MAY ONLY HAVE FIVE PEOPLE 

IN CONSUMER PROTECTION FOR THE 

WHOLE STATE.

SO EQUI FAX IS AN EXAMPLE OF 

THAT WHERE, OF COURSE, IS STATE 

IS INTERESTED IN THAT CASE.

ANOTHER GOOD EXAMPLE OF THAT WAS

WELLS FARGO.

WE ANNOUNCED THE SETTLEMENT IN 

DECEMBER OF 2018.

$550 MILLION WAS PAID TO THE 

STATES.

AND THIS STEMMED FROM THE CASES 

OF THE ACCOUNTS -- THE 

UNNECESSARY ACCOUNTS THAT PEOPLE

CREATED AND ALSO THE 

FORCED-PLACE AUTO INSURANCE.

THAT WAS A CASE WHERE THE CFPB 

HAD DONE ITS OWN ACTIONS.

THEY SETTLED ONE IN APRIL OF 

AND WE TOOK A LOOK AT THAT AND 

WE THOUGHT WE NEED TO DO OUR 

OWN.

THERE'S MORE TO BE DONE THERE.

AND THE PUBLIC SETTLEMENT 

INCLUDES SOME FINDINGS THAT WENT

BEYOND WHAT THE CFPB FOUND.

AND IT WAS A GOOD EXAMPLE, I 

THINK, OF WELLS FARGO REALIZING 

LIKE, OKAY, THE AGs, THEY'RE 

GOING TO HOLD OUR FEET TO THE 

FIRE.

AND THERE'S A LOT I CAN'T TALK 

ABOUT THAT'S CONFIDENTIAL THERE.

BUT SUFFICE IT TO SAY THAT I 

THINK THE AG'S INVOLVEMENT WAS 

VERY HELPFUL IN THAT MATTER.

ANOTHER CASE THAT I WANT TO 

MENTION THAT'S JUST A SMALLER 

ONE BUT WHICH IS A FUN ONE IS 

THE DOMINION CASH POINT CASE.

SO THIS IS AN EXAMPLE OF WHERE 

STATE AGs TRIED TO STOP SOME OF 

THE CROSS BORDER STUFF THAT GOES

ON.

IN PENNSYLVANIA, WE HAVE A USE 

RE LIMIT, LIKE MANY STATES.

SO PAY DAY LENDING IS ILLEGAL IN

PENNSYLVANIA.

THERE'S A COMPANY CALLED 

DOMINION CASH POINT BASED IN 

DELAWARE AND MAKING TITLE LOANS 

TO CONSUMERS FROM PENNSYLVANIA.

THEY WERE ADVERTISING IN 

PENNSYLVANIA.

THEY HAD A WEBSITE DIRECTED 

TOWARDS PENNSYLVANIA BORROWERS 

WITH PA IN THE URL.

 [ LAUGHING ] 

 AND THEY ENCOURAGED 

PENNSYLVANIIANS TO DRIVE ACROSS 

THE BORDER TO DELAWARE AND TAKE 

OUT A TITLE LOAN.

THE COMPANY HAS GONE OUT OF 

BUSINESS.

BUT WE SUED THEM BECAUSE THEY 

TOOK $5 MILLION FROM 

PENNSYLVANIA BORROWERS.

AND WE WANT THEM TO PAY BACK THE

LEGAL INTEREST PORTION OF THAT, 

WHICH IS ABOUT $3 MILLION.

SO THIS WAS MY FIRST STATE COURT

CASE.

I ONLY GOT TO WORK ON FEDERAL 

CASES AT THE BUREAU.

AND NAVIANT IS ALSO FILED IN 

FEDERAL COURT.

I GOT TO LEARN ABOUT THE 

PROCEDURES OF THE PHILADELPHIA 

COURT SYSTEM.

AND FORTUNATELY I HAVE GOOD 

LAWYERS IN OUR PHILLY OFFICE TO 

TUTOR ME ALONG THE WAY.

I'M CONSTANTLY BUGGING THEM 

ABOUT HOW THAT WORKS.

BUT, YOU KNOW, THIS IS A CASE 

WHERE THE OWNERS TOOK ALL THIS 

MONEY FROM CONSUMERS.

THEY'VE NOW SCROLLED IT AWAY IN 

TRUSTS.

AND THEY'RE TRYING TO KEEP IT 

AWAY FROM OUR HANDS.

AND WE REALIZED THAT THEY JUST 

WEREN'T GOING TO GIVE US THE 

MONEY UNLESS WE SUED THEM.

AND SO NOW WE'RE IN DISCOVERY IN

THAT CASE.

IT'S A VERY FAST TIMELINE.

I THINK SCHEDULED FOR TRIAL LIKE

LATER THIS YEAR.

SO THAT'S AN EXAMPLE OF THE KIND

OF THINGS AGs CAN DO AND HAVE TO

DO.

WHERE YOU MIGHT NOT SEE THE CFPB

SUING SUCH A SMALL COMPANY, 

ALTHOUGH SOME OF THE RESPITE 

ACTIONS WERE AGAINST PRETTY 

SMALL COMPANIES.

BUT THE AGs, WE HAVE TO TAKE ON 

PEOPLE AT ALL DIFFERENT LEVELS.

FROM THE BIGGEST WELLS FARGO TO 

THE REALLY SMALLER ONES.

AND DOMINION IS NOT EVEN THE 

SMALLEST.

WE DO HOME IMPROVEMENT 

CONTRACTOR CASES WHERE THERE'S 

TEN PEOPLE THAT GOT BAD PLUMBING

LINES PUT IN THEIR BASEMENT.

I DON'T WORK ON THOSE CASES.

I ONLY DO CONSUMER FINANCE.

BUT THAT'S WHAT THE AG CONSUMER 

PROTECTION OFFICES HAVE TO DO.

SO I GUESS I JUST WANT TO -- I 

JUST WANT TO CLOSE BY 

EMPHASIZING WHAT I SAID BEFORE, 

WHICH IS WE CAN'T REPLACE THE 

CFPB.

BUT WE'RE DOING OUR BEST.

WE'RE SHIFTING RESOURCES AWAY 

FROM THE PLUMBERS AND TOWARDS 

THE WELLS FARGOS.

 [ LAUGHING ] 

 AND WE'RE GOING TO CONTINUE 

TO DO THAT.

I KNOW OTHER STATES ARE DOING 

THE SAME THING.

I'M GOING OUT TO NEW JERSEY TO 

HELP TALK TO THEM ABOUT WHAT 

THEY CAN DO, WHAT THEY'VE GOT 

SOME NEW FOLKS THERE AND THEY'RE

REALLY EXCITED TO DO MORE IN 

CONSUMER FINANCE.

I'M GOING TO VISIT WITH THE 

MICHIGAN AG'S OFFICE IN THE 

COMING MONTHS.

THE NEW AG HERE.

SO, YOU KNOW, I THINK THERE'S 

INTEREST ALL OVER THE COUNTRY IN

TERMS OF DOING MORE IN CONSUMER 

FINANCIAL PROTECTION.

AND AS LONG AS WE KEEP WORKING 

HARD, I THINK WE CAN SURVIVE THE

NEXT TWO TO FOUR YEARS UNTIL WE 

HAVE A NEW DIRECTOR OF THE CFPB.

THANKS, NICK.

LISA DONNER IS NEXT.

SHE'S THE EXECUTIVE DIRECTOR OF 

THE AMERICANS FOR FINANCIAL 

REFORM.

THANKS, ERIK.

I SHOULD TURN THIS ON.

AND THANKS, MICHAEL, FOR 

INVITING ME.

MAYBE I SHOULD START BY SAYING 

IT'S -- THERE ARE A LOT OF 

PEOPLE IN THIS ROOM WHO PLAYED A

HUGE ROLE FROM THE INSIDE IN 

BUILDING THE CONSUMER BUREAU AT 

DIFFERENT STAGES OF ITS LIFE.

I FEEL LIKE WE AT OUR PARTNERS 

PLAYED A ROLE FROM THE OUTSIDE.

BUT MAYBE THAT MAKES IT EASIER 

FOR ME TO SAY AS A FRAMING 

DEVICE THAT THOUGH WE CLEARLY 

ARE FACING A BUNCH OF CHALLENGES

RIGHT NOW WITH THE CHANGE IN 

LEADER SHIP OF THE BUREAU, I DO 

THINK IT'S REALLY IMPORTANT TO 

TAKE A MOMENT AND CELEBRATE 

ACTUALLY WHAT A HUGE SUCCESS THE

BUREAU HAS BEEN.

AND WHAT A DIFFERENCE IT HAS 

MADE IN CONSUMER PROTECTION.

WHAT A DIFFERENCE IT HAS MADE IN

CHANGING THE RULES AND CHANGING 

THE EXTENT TO WHICH INSTITUTIONS

FEEL LIKE THEY HAVE TO FOLLOW 

THE RULES.

AND WHAT A DIFFERENCE IS MADE IN

ACTUALLY LEADING US DESPITE THE 

CHALLENGES OF THIS MOMENT IN A 

STRONGER POSITION, I THINK, TO 

KEEP DOING BETTER THAN THAT.

BOTH ON CONSUMER REGULATION AND 

FRANKLY ON FINANCIAL REGULATION 

BEYOND THAT.

SO I DO -- I DO THINK THAT'S 

WORTH CELEBRATING AND IMPORTANT 

TO CELEBRATE.

AND I DON'T SAY THAT AT ALL TO 

SAY, YOU KNOW, OUR WORK IS DONE.

I THINK EVEN APART FROM THE 

CHALLENGES OF THE MOMENT, FIRST 

I THINK ONE OF THE REALLY 

IMPORTANT LESSONS OF THE HISTORY

OF THE BUREAU AND THE FIGHTS 

AROUND IT, WE NEED TO SET THE 

BAR HIGHER IN TERMS OF WHAT WE 

EXPECT AND DEMAND ON CONSUMER 

FINANCIAL REGULATION AND 

OUTCOMES FOR PEOPLE AND ON 

FINANCIAL REGULATION GENERALLY.

AND SO WE SHOULD BE SATISFIED 

FOR THAT REASON.

AND THEN ALSO WE TALKED A LITTLE

ABOUT WEALTH HERE.

BUT THINKING ABOUT AN 

INSTITUTION LIKE THAT WHERE ON 

THE ONE HAND THERE'S BEEN SOME 

GOOD REGULATORY WORK AND SOME 

GOOD KIND OF SPEAKING OUT FROM 

BELOW ON THE PART OF THE 

WORKERS.

AND SOME CHANGES HAVE BEEN 

FORCED.

AND YET WE HAVE THIS GIANT 

INSTITUTION WHERE EVERY TIME YOU

LOOK, THERE IS ANOTHER ROUND OF 

REALLY TROUBLING ABUSES IN A 

DIFFERENT PART OF THE BUSINESS.

AND SO CLEARLY WE HAVEN'T SOLVED

THE PROBLEM OF MAKING 

FUNDAMENTAL CHANGE AT AN 

INSTITUTION LIKE THAT THAT 

TOUCHES SO MANY LIVES.

ALL RIGHT.

SO FIRST A COUPLE COMMENTS ON 

WHAT WORKS.

AND THEN -- OR SOME 

CONTRIBUTIONS TO THE DISCUSSION 

OF WHAT WORKED.

THEN ON SOME OF THE FRIGHTENING 

THINGS HAPPENING AT THE MOMENT.

AND THEN A LITTLE ON WHAT NEXT.

YOU KNOW, SAVING THE OBVIOUS TO 

AN AUDIENCE THAT KNOWS THIS 

WELL, BUT THE BUREAU IN THE 

FIRST PHASE OF ITS LIFE DID WHAT

IT WAS SUPPOSED TO DO, RIGHT?

IT USED THE SET OF TOOLS THAT IT

WAS GIVEN AND THE SORT OF 

STRUCTURAL FEATURES BAKED INTO 

IT TO PURSUE ITS MISSION.

AND THAT ADDED UP TO A 

SIGNIFICANT IMPACT, INCLUDING 

THE $12 BILLION IN CONSUMER WE 

LEAF

TALK ABOUT ALL OF THE TIME.

IT GOT CHANGED BY THE 

ENFORCEMENT ACTION.

IT WASN'T JUST THE $12 MILLION 

TO THOSE PEOPLE.

AND INCLUDE SIGNIFICANT RULE 

MAKINGS THAT STOPPED MAJOR HARM 

THAT WAS AT THE LENDING CRISIS 

AND SET GUARD RAILS FOR SORT OF 

MORE EMERGING PRODUCTS AND 

MARKETS LIKE IN THE PREPAID 

SPACE.

INCREDIBLY IMPORTANT.

AND I THINK, YOU KNOW, ERIK 

TALKED A LITTLE BIT ABOUT THE 

SORT OF STRUCTURAL FEATURES AND 

THE DESIGN OF THE BUREAU, AND 

MIKE IS GOING TO TALK A LITTLE 

BIT MORE ABOUT SOME PARTICULAR 

RULES AND MARKET CHANGES AS 

EXAMPLES OF THIS.

SO I WANTED TO TALK A SECOND 

ABOUT MORE OF SORT OF THE 

CHOICES, PROCESS AND STRUCTURAL 

CHOICES THAT THE BUREAU MADE 

THAT HELPED ENABLE THE -- SOME 

OF THOSE SUCCESSES.

AND I THINK ARE USEFUL LESSONS 

FOR EFFECTIVE REGULATION.

AND I THINK WE SHOULD SPEND THE 

TIME TO TALK MORE TO THE PEOPLE 

WHO KNOW THIS STUFF MUCH BETTER 

THAN ME.

THE PEOPLE ON THE INSIDE TO 

THINK THROUGH SOME OF THESE 

LESSONS AS WELL.

I THINK THE FOCUS ON BEING 

CONSUMER FACING AND TREATING 

CONSUMERS AS THE AGENCIES 

CONSTITUENCY AND BUILDING 

STRUCTURES AND PROCESSES TO 

MAINTAIN THAT MISSION FOCUS ARE 

INCREDIBLY IMPORTANT.

YOU KNOW, SO FAILURES AND ERIK 

TALKED ABOUT THIS IN THE BANK 

REGULATORY WORLD.

WE'RE PARTIALLY ABOUT MISSION.

NOT HAVING A CONSUMER PROTECTION

MISSION UNIQUELY.

BUT NOT ONLY THE SEC HAS A VERY 

SUBSTANTIAL CONSUMER PROTECTION 

MISSION THAT IT HAS OFTEN FAILED

TO PAY ATTENTION.

AND MINDING SAFETY AND SOUNDNESS

OUGHT TO BE NOT JUST ABOUT 

MINDING IT FROM THE PERSPECTIVE 

OF EACH INDIVIDUAL INSTITUTION, 

BUT FROM THE PERSPECTIVE OF THE 

SYSTEM AND THE PUBLIC WHICH IS 

DIFFERENT -- A DIFFERENT 

PERSPECTIVE ON SAFETY AND 

SOUNDNESS.

AND THERE ARE A BUNCH OF 

STRUCTURAL FORCES THAT MOVE 

FINANCIAL REGULATORS AWAY FROM A

PUBLIC INTEREST FORCES, 

INCLUDING JUST THE POWER AND THE

MONEY OF THE BANKS.

AND THEN ALL OF THE LITTLE WAYS 

THAT THAT'S MANIFEST.

EVEN WHEN WE, SORT OF THE 

CONSUMER ADVOCACY COMMUNITY, ARE

ACTIVE AND ENGAGED.

THERE'S NOT AS MANY OF US.

WE'RE NOT GOING TO HAVE A 

FRACTION OF THE MEETINGS WITH A 

FRIENDLY REGULATOR THAT INDUSTRY

DOES.

THERE'S ALL KINDS OF DATA THAT 

THEY HAVE THAT WE DON'T HAVE.

SO THERE'S NO WAY TO UNDERSTAND 

THOSE THINGS UNLESS A REGULATOR 

IS TAKING THAT RESPONSIBILITY 

AND SERVING THE PUBLIC AND DOING

IT.

SO I THINK, FOR EXAMPLE, THE 

CHOICE TO NOT JUST -- THE 

COMPLAINT DATABASE WAS A 

STATUTORY REQUIREMENT.

BUT MAKING IT PUBLIC WAS A 

CHOICE.

AND THEN TAKING THE NEXT STEP TO

MAKE THE NARRATIVES PUBLIC WAS A

CHOICE.

AND ALL THOSE THINGS, I THINK, 

KIND OF LOCK IN A VIRTUOUS CYCLE

THAT DATABASE IS MORE ATTRACTIVE

TO PEOPLE IF THEY CAN LEARN 

SOMETHING FROM IT, AS WELL AS 

USE IT, AND IT'S CERTAINLY MORE 

EFFECTIVE IN SHAPING BANK 

ACTIONS IF PEOPLE KNOW THEY'RE 

GOING TO SEE WHAT THEY DID OR 

DIDN'T DO.

AND YOU HEAR FROM ALL KINDS OF 

PEOPLE, INCLUDING PEOPLE WHO 

TALK TO INDUSTRY ABOUT WHAT 

THEIR RESPONSE HAS BEEN.

OR ATTORNEYS WHO IT'S SORT OF 

FUNNY FOR A LAWYER WHO HAS ALL 

OF THOSE TOOLS TO, YOU KNOW, 

SAY, YEAH, BUT ACTUALLY WE GET 

BETTER RESULTS SOMETIMES.

WHEN MY CLIENT FILES A COMPLAINT

BECAUSE THEY KNOW IT'S GOING TO 

BE SEEN.

THEN THROUGH MONTHS OF 

LITIGATION.

DOING THINGS LIKE HOLDING PUBLIC

HEARINGS AROUND THE COUNTRY TO 

TALK ABOUT SUBSTANTIVE ISSUES 

AND HEAR FROM PEOPLE.

DOING THINGS LIKE PUBLISHING 

SUPERVISORY HIGHLIGHTS.

BECAUSE EACH INDIVIDUAL 

SUPERVISORY PROCESS IS PRIVATE.

BUT TELLING THE PUBLIC WHAT IS 

HAPPENING IN THOSE EXAMS I THINK

IS INCREDIBLY IMPORTANT AND 

GIVES YOU A SENSE OF WHAT THE 

AGENCY IS DOING AND HOW YOU 

MIGHT AFFECT CHANGE.

YOU KNOW, CERTAINLY WE SAID TO 

LOTS OF OTHER AGENCIES LIKE YOU 

COULD DO SOMETHING LIKE THAT.

YOU COULD TELL US WHAT YOU'RE 

SEEING AND IT WOULD MAKE A 

DIFFERENCE.

I THINK USING ENFORCEMENT 

ACTIONS TO BOTH MAKE SURE YOU'RE

GETTING MONEY BACK FOR PEOPLE IN

MEANINGFUL WAYS AND TO CHANGE 

CONDUCT AND EDUCATE BOTH THE 

PUBLIC AND INSTITUTIONS ABOUT 

WHAT THE LAW IS AND THE 

EXPECTATION THAT IT WILL BE 

FOLLOWED.

WILLINGNESS TO GO AFTER BIG AND 

SOMETIMES SMALL ACTORS WHEN 

THEY'RE DOING EXOTIC THINGS.

JUST BECAUSE THE PRACTICE WAS 

WIDESPREAD.

NOT THAT MEANS YOU HAVE TO LET 

IT GO.

AND USING RESEARCH AND REPORTS 

REALLY EFFECTIVELY.

BOTH TO INFORM RULE WRITING AND 

TO SHAPE THE CONVERSATION AND 

EXPOSE PROBLEMS AS FOR AN 

EXAMPLE WAS DONE ON A STUDENT 

LOAN.

SO THAT'S SORT OF A PIECE OF THE

GOOD NEWS.

IN TERMS OF WHERE WE ARE NOW, 

FIRST I THINK IT'S TRUE AT THE 

SAME TIME THAT THOUGH THE FOLKS 

IN CHARGE I THINK ESSENTIALLY 

DON'T BELIEVE THE BUREAU SHOULD 

EXIST AND DON'T AGREE WITH THE 

MISSION, THEY CAN'T JUST WISH IT

AWAY.

RIGHT.

THERE'S INSTITUTION THERE AND 

THEY CAN'T MAKE IT GO AWAY.

THAT'S A GOOD THING.

THAT DOESN'T MEAN THEY CAN'T DO 

A BUNCH OF HARM.

SO I'M GOING TO TALK ABOUT A 

COUPLE OF THE PIECES OF WHAT WE 

ARE MOST WORRIED ABOUT THAT IS 

HAPPENING RIGHT NOW.

ONE PIECE IS A REAL CHANGE IN 

THE APPROACH TO ENFORCEMENT.

AND OBVIOUSLY WE CAN'T SEE A 

BUNCH OF THAT BECAUSE YOU CAN'T 

SEE WHAT DOESN'T HAPPEN.

OR YOU CAN'T SEE THE DETAILS OF 

WHAT DOESN'T HAPPEN.

BUT YOU CAN SEE SOME NUMBERS 

ABOUT WHAT DOESN'T HAPPEN.

AND OUR COLLEAGUE CHRIS PETERSON

DID AN EXHAUSTIVE ACCOUNTING IN 

THE LAST COUPLE OF WEEKS OF 

ENFORCEMENT ACTIONS BEFORE AND 

AFTER THE CHANGE IN LEADERSHIP.

AND IN THE PEAK ENFORCEMENT 

YEAR, WHICH WAS 2015, THERE WERE

LAST YEAR THERE WERE 11.

THE AVERAGE RECOVERY OR MONEY 

BACK FOR CONSUMERS IN THOSE 

CASES WAS CLOSE TO 57 MILLION 

PER CASE.

THIS IS NOT QUITE A FAIR NUMBER.

BUT 2.4 MILLION FOR THOSE CASES.

SO ABOUT 43 MILLION IN 

RESTITUTION FOR EACH WEEK OF THE

TENURE.

THERE WAS A BUNCH OF LEGACY 

CASES.

BUT 925,000 A WEEK UNDER THE 

PRESENT DIRECTOR.

NONE.

DISCRIMINATION OF ONE KIND OR 

ANOTHER VERSUS NONE.

SO THAT'S A BIG CHANGE.

THE UNDERMINING OF THE OFFICE OF

FAIR LENDING AND EQUAL 

OPPORTUNITY BY STRIPPING OF IT 

AND REPURPOSING IT TO ADVOCACY 

COORDINATION AND EDUCATION 

RATHER THAN DEMANDING COMPLIANCE

WITH THE LAW.

CLOSING THE OFFICE FOR STUDENTS 

AND YOUNG CONSUMERS AND SORT OF 

REASSIGNING THAT STAFF TO SERVE 

WITHIN THE OFFICE OF FINANCIAL 

EDUCATION.

AND THEN TURNING AROUND THE RULE

MAKING AGENDA SO THAT INSTEAD OF

A FOCUS ON CONSUMER PROTECTION 

RULES, A LOT OF THE RULE MAKING 

ENERGY HAS BEEN FOCUSED ON SORT 

OF REVERSING CONSUMER 

PROTECTION, INCLUDING NOTABLY 

OBVIOUSLY IN THE THINGS NOT 

DONE, TAKING AN OVERDRAFT RULE 

OFF THE AGENDA OF THINGS TO DO.

TAKING THE SMALL BUSINESS DATA 

COLLECTION RULE OFF THE AGENDA 

OF THINGS TO DO.

ROLLING BACK -- PROPOSING TO 

ROLL BACK THE PAY DAY RULE.

AND PUTTING OUT FOR PROPOSAL 

THIS SAND BOX PROPOSAL THAT NICK

REFERRED TO, WHICH WE THINK IS 

AN INCREDIBLY DANGEROUS PROPOSAL

THAT IF IT GOES FORWARD AS IT 

WAS WRITTEN, IT ESSENTIALLY 

WOULD ALLOW INDIVIDUAL EMPLOYEES

WITHOUT -- IN 60 DAYS, AGENCIES 

GIVING THEMSELVES 60 DAYS TO 

RESPOND TO REQUESTS FOR SWEEPING

EXEMPTIONS AND EXCEPTIONS WITH 

NO PUBLIC INPUT AND VERY LITTLE 

VISIBILITY.

NO REQUIREMENT THAT THE COMPANY 

NOT CURRENTLY BE FACING 

LITIGATION OR ENFORCEMENT 

ACTIONS.

THEY'RE WILLING TO ACCEPT 

APPLICATIONS FROM TRADE 

ASSOCIATIONS OR SERVICE 

PROVIDERS WHO SERVE WHOLE 

MARKETS.

NOT JUST INDIVIDUAL PROVIDERS.

SO IT'S SORT OF A -- IT'S A 

GIANT LOOPHOLE TO ALMOST 

ANYTHING OR EVERYONE WITH NO 

PROCESS WHICH SEEMS LIKE AN 

ASTOUNDINGLY DANGEROUS, AS WELL 

AS EXTREME CASE OF OVERREACH 

PROPOSAL.

AND THEN EARLIER, I GUESS, THE 

LAST SORT OF -- IT WASN'T A RULE

MAKING, BUT A LOT OF TIME AND 

ENERGY IT FELT LIKE DODD SPENT 

WHEN IT FIRST CAME TO THE BUREAU

ON THIS REQUEST FOR INFORMATION 

PROCESS REQUESTING COMMENT ON A 

WHOLE BUNCH OF VERY PROCESS -- 

VERY IMPORTANT PROCESS ISSUES 

ABOUT THE BUREAU THAT FELT LIKE 

AN EXERCISE IN INVITING INDUSTRY

TO, YOU KNOW, WRITE ITS 

COMPLAINTS DOWN.

AND WE HAD THE OPPORTUNITY TO 

COMMENT AS WELL.

BUT THE QUESTIONS WERE OFTEN 

VERY VAGUE OR VERY BROAD.

THERE WAS VERY LITTLE TIME.

PORTIONS VERY DIFFICULT TO 

RESPOND TO IF YOU DIDN'T HAVE 

THE PERSPECTIVE OF SOMEBODY WHO 

HAD BEEN INSIDE THE PROCESS AND 

IT'S NOT CLEAR WHAT'S HAPPENING 

WITH REGARD TO THOSE.

SO JUST SORT OF ANOTHER EXAMPLE 

OF A GREAT DEAL OF ENERGY BEING 

EXPENDED ON DEREGULATION REALLY.

AND THE SERIES OF LIKE WARNING 

FLAGS ON THINGS TO WATCH OUT FOR

IN TERMS OF CHANGE.

I MEAN, SOME OF THE CHANGE -- 

THE CHANGES SUGGESTED INCLUDED 

LIKE STOPPING SHARING 

INFORMATION, FOR EXAMPLE.

MAKING IT -- PUTTING UP BARRIERS

TO MAKE IT MORE DIFFICULT TO 

EFFECTIVELY USE WHAT YOU LEARN 

WITH ONE PIECE OF INFORMATION 

GATHERING TO TAKE ACTION TO 

CHANGE THOSE PRACTICES.

SO HOW WE THINK ABOUT OUR JOB IN

-- I GUESS MAYBE ONE LAST THING 

TO SAY HERE ON THE TO DO MY ONE 

SENTENCE ON THE FRONT.

I WOULD SAY ONE OF THE THINGS 

THAT I THINK IS PARTICULARLY 

WORRISOME IN THIS MOMENT IS 

THINGS.

THAT'S PARTIALLY WHAT THE SAND 

BOX IS BEING CHARACTERIZED AS.

IT'S NOT THAT THERE CAN'T BE 

GOOD NEW PRODUCTS OR THAT THERE 

CAN'T BE GOOD REASONS TO BE 

INTERESTED IN INNOVATION.

BUT IT DOES FEEL LIKE THE WORD 

IS BEING USED KIND OF AS A 

GENERIC FAIRY DUST THAT YOU 

SPRINKLE ON ANYTHING AND THAT'S 

A REASON TO NOT LOOK AND NOT BE 

REGULATED.

AND IT ALSO SEEMS LIKE IT IS 

TRUE THAT THERE CAN BE A 

PARTICULAR LACK OF VISIBILITY 

FOR SOME PRODUCTS THAT HAPPEN 

SUBSTANTIALLY ONLINE.

AND SO IT'S A CONTEXT IN WHICH 

THE PUBLIC IS EVEN MORE 

DEPENDENT ON AN EFFECTIVE 

REGULATOR TO MAKE SURE THAT WE 

HAVE FAIR OUTCOMES.

SO IT'S PARTICULARLY WORRISOME 

TO NOT HAVE THAT CONFIDENCE AT A

TIME WHEN NEW PRODUCTS ARE BEING

DEVELOPED AND DECISIONS BEING 

MADE.

ALL OF THAT I'M GOING TO RETURN 

TO MY CHEERFUL PERSPECTIVE.

 [ LAUGHING ] 

 FOR A SECOND.

ALL THAT SAID, IT DOES FEEL LIKE

WE ARE IN A GOOD -- BECAUSE OF 

THE WORK OF THE BUREAU AND 

BECAUSE OF THE ORGANIZING WORK 

OUTSIDE OF IT, WE ACTUALLY ARE 

AT A FAIR POSITION TO RESIST ALL

OF THESE CHANGES.

I DON'T EXPECT THAT THE SAND BOX

PROPOSAL WILL BE FINALIZED AS 

WRITTEN AND PREVAIL.

AND I THINK WE HAVE BEEN AN 

INCREDIBLY POSITION ON THE HILL 

FOR A LONG TIME AND WE'VE HAD 

TWO YEARS OF HOSTILITY FROM BOTH

HOUSES AND THE ADMINISTRATION 

AND YET MANAGED TO NOT SEE ANY 

FUNDAMENTAL STRUCTURAL CHANGES 

IN THE BUREAU.

AND THAT'S BECAUSE I THINK THE 

SORT OF INITIAL THEORY THAT THE 

WAY TO PROTECT IT FROM THE 

LONG-TERM WAS NOT TO BE TIMID 

AND CAREFUL, BUT TO BE CAREFUL 

TO DO THE RIGHT THING AND TO 

HAVE AN IMPACT WAS RIGHT.

AND BECAUSE HAVING AN AGENCY 

WHERE THE FACTS MATTER AND WHERE

THE VOICES OF CONSUMERS MATTER 

IS USEFUL FOR MAKING POLICY 

CHANGE.

BUT IT'S ALSO USEFUL FOR OUR 

ORGANIZING.

BECAUSE IT GIVES US A REASON TO 

KEEP MAKING THOSE ARGUMENTS AND 

KEEP ORGANIZING THOSE VOICES.

AND THAT HAS HELPED US NOT ONLY 

WITH REGARD TO THE BUREAU, BUT 

WITH REGARD TO CONGRESS AND TO 

THE BROADER PUBLIC.

SO I THINK WE JUST ARE IN A 

STRONGER POSITION BECAUSE OF 

HAVING HAD THOSE PUBLIC 

CONVERSATIONS THAN WE WOULD BE 

HAD WE NOT DONE SO AS EVIDENCE, 

FOR EXAMPLE, BY NOT HAVING HAD 

THE PAY DAY RULE OVERTURNED BY A

CRA.

THAT WAS A REAL RISK AND A REAL 

WIN.

SO I THINK WE CLEARLY HAVE 

PLENTY OF DEFENSIVE WORK TO DO.

BUT I THINK WE ALSO HAVE AN 

OPPORTUNITY TO BE AMBITIOUS BOTH

ABOUT SOLUTIONS AND ABOUT HOW WE

DESCRIBE THE PROBLEMS AND MAKE 

SURE THAT WE DON'T GET STUCK IN 

KIND OF A NARROW VIEW OF WHAT 

CONSUMER PROTECTION IS.

BUT THAT WE FRAME WHAT IS AT 

STAKE AS WHAT IT IS, WHICH IS 

THAT THESE ARE REALLY 

FUNDAMENTAL MATTERS OF PEOPLE'S 

ECONOMIC SECURITY, THEIR HEALTH,

THEIR HAPPINESS, THEIR HOMES, 

AND ALSO FUNDAMENTAL -- 

FUNDAMENTALS OF JUSTICE AND 

DECENCY.

IS OUR FINANCIAL SYSTEM 

PUNISHING PEOPLE FOR BEING POOR 

OR IN SOME OTHER WAY VULNERABLE.

IS IT INCREASING RACIAL WEALTH 

GAP OR ARE WE DEMANDING IT DID 

SOMETHING DIFFERENT THAN THAT.

AND THAT'S A CONVERSATION THAT 

WE CAN PREVAIL AROUND IF WE 

CONTINUE TO HAVE IT.

SO I'LL STOP THERE.

THANK YOU.

MIC

MIKE CALHOUN WILL BE OUR LAST 

PANELIST.

SO THANK YOU, AGAIN, TO 

MICHAEL AND THE ORGANIZERS OF 

THIS CONFERENCE.

AND I THINK JUST YOU REALLY ARE 

FORTUNATE HERE TO HAVE THE 

ARCHITECTS AND THE BUILDERS OF 

THE CFPB AND DODD-FRANK HERE 

TODAY.

MICHAEL WAS THE POINT PERSON FOR

THE ADMINISTRATION.

AND AT THE VERY FRONT LINE, AS 

WELL AS THE GENERAL, IF YOU 

WILL, OF THE WHOLE CAMPAIGN.

SO I WANTED TO START BY GIVING A

LITTLE BACKGROUND ON THE CENTER 

FOR RESPONSIBLE LENDING.

BECAUSE IT TIES INTO MY 

COMMENTS, WHICH WILL BE IN THREE

AREAS.

FIRST A LITTLE MORE DETAIL ABOUT

HOW OUT OF WHACK THE SYSTEM WAS 

BEFORE THE CRISIS AND BEFORE 

CFPB.

IT'S MORE ON SOME OF THE CHANGES

AND SOME EXAMPLES, AS LISA 

MENTIONED, ABOUT VERY SUCCESSFUL

TRANSFORMATIONS REALLY OF HOW 

AREAS AND PRODUCTS WORK.

AND THEN FINALLY SOME OF THE 

FUTURE ISSUES, INCLUDING SOME 

FUTURE CAUTIONS.

SO THE CENTER FOR RESPONSIBLE 

LENDING IS A POLICY ARM OF SELF 

HELP CREDIT UNIONS WHICH WAS 

STARTED IN 1980.

THE COMMUNITY AND FINANCIAL 

DEVELOPMENT INSTITUTION.

WE WERE FOUNDED TO ADDRESS THE 

RACIAL WEALTH GAP, WHICH IN 1980

WAS 10 TIMES ON AVERAGE FOR 

WHITE BLACK HOLDS AND TODAY IT 

STANDS THERE AND IS HEADED IN 

THE RIGHT DIRECTION STILL.

OUR INITIAL FOCUS WAS ON SMALL 

BUSINESS LENDING AND MORTGAGE 

LENDING.

SO WE DID A LOT OF MORTGAGE 

LENDING.

TODAY WE OPERATE ABOUT 60 

BRANCHES.

HAVE ABOUT 150,000 RETAIL 

CUSTOMERS AROUND THE COUNTRY.

WE PROVIDE THE FULL RANGE OF 

CONSUMER FINANCES.

EVERYTHING FROM BAKE ACCOUNTS, 

CREDIT CARDS, HOME MORTGAGES, 

AND THEN AS WELL AS CONSUMER 

MORTGAGES.

AND HOW WE GOT INTO THE POLICY 

BRANCH WAS OUR -- IT WAS IN THE 

LATE 1990s.

AND WE HAD EXPERIENCE OF 

BORROWERS THAT WE HAD PUT INTO 

HOME LOANS COME BACK TO US ON 

THE BRINK OF FORECLOSURE.

AND WE LOOKED AT THESE AND THEY 

WERE TRULY UNBELIEVABLE.

THEY WOULD HAVE DOUBLE DIGIT 

INTEREST RATES.

TEN POINTS OR MORE OF UP FRONT 

FEES.

CREDIT INSURANCE THROWN IN AT 

OUTRAGEOUS TERMS.

AND AS ERIK MENTIONED, THEY WERE

TOTALLY LEGAL AT THE TIME.

AND SO WE TEND TO BE A WALKING 

GROUP.

SOME PEOPLE TEND TO SAY A WELL 

DESIGNED SPREAD SHEET IS OUR 

VISION OF BEAUTY IN SELF HELP.

 [ LAUGHING ] 

 SO WE SET OUT AS WE TEND TO 

DO AND SET OUT IN TERMS OF 

LAWYERS AND RESEARCHED THE 

OFFICES AROUND THE STATE TO SEE 

HOW WIDESPREAD.

IS THIS JUST A HANDFUL OF FOLKS 

AND DID SOME OTHER RESEARCH.

AND THE RESULTS WERE PRETTY 

ASTOUNDING.

SO AT THE MACRO LEVEL, WE FOUND 

THAT IN NORTH CAROLINA, THE 

LEADING SUB PRIME MEMBER AT THE 

TIME, THE ASSOCIATES, HAD 88 

OFFICES IN NORTH CAROLINA ALONE.

WE'RE A DECENT SIZE STATE, BUT 

THAT'S A BUNCH OF OFFICES.

ANOTHER THING WE LEARNED IS THE 

COMPANY WAS AN AFFILIATE, A 

DIVISION AT THE TIME AND TIED TO

WHERE WE ARE TODAY, A FORD MOTOR

COMPANY.

AND IT WAS SO WILDLY PROFITABLE,

THIS DIVISION WAS MAKING MORE 

MONEY THAN THE ENTIRE REST OF 

THE COMPANY, INCLUDING ALL OF 

THE CAR BUILDING AND SELLING AT 

THE TIME.

SO THIS IS -- YOU KNOW, THEY 

WRAP THIS UP.

THIS IS ABOUT ACCESS.

THIS WAS ALL ABOUT THE MONEY AND

EXTRAORDINARY SUMS OF IT.

AND THEN FINALLY, AND I'LL TIE 

THIS INTO ANOTHER POINT, WE 

FOUND LOOKING AT THE DEEDS THAT 

IN THE COURSE OF ABOUT THREE 

YEARS, THESE FOLKS HAD 

REFINANCED ONE IN FIVE OF THE 

HABITAT FOR HUMANITY HOMEOWNERS 

OUT OF -- ZERO INTEREST 

MORTGAGES INTO THESE 

UNBELIEVABLY ABUSIVE MORTGAGES.

AND YOU WOULD ASK WHY WOULD 

ANYBODY EVER GIVE UP THEIR ZERO 

INTEREST MORTGAGE.

IT TURNED OUT THESE WERE THEIR 

PERFECT TARGET.

BECAUSE THESE WERE 

OVERWHELMINGLY RE FINANCED LOANS

TO PEOPLE WHO WERE STRUGGLING TO

MAKE IT MONTH TO MONTH.

AND THE HABITAT FOR HUMANITY 

OWNERS WERE HOUSE POOR.

THEY HAD HOME EQUITY, VERY SMALL

INCOME.

THEY HAD OTHER CREDIT.

CREDIT CARDS INSTALLMENT LOANS.

AT THAT TIME PAY DAY LOANS WERE 

LEGAL IN NORTH CAROLINA.

THANKFULLY NO MORE.

AND THE SALES PITCH WAS 

REFINANCE YOUR HOME WITH US.

WE'LL CATCH YOU UP ON ALL YOUR 

DEBTS.

WE'RE GOING TO REFINANCE ALL OF 

THAT INTO YOUR HOME, SIGN THE 

PAPERS.

YOU DON'T HAVE TO BRING ANY CASH

TO CLOSING.

BUT BURIED IN ALL OF THAT FINE 

PRINT IS YOU JUST LOST ALL OF 

YOUR HOME EQUITY.

SO HABITAT WHEN THEY LEARNED OF 

THIS QUICKLY TOOK STEPS TO BLOCK

THAT.

BUT THE POINT ABOUT THE CRISIS 

AND TWO THINGS, JUST THE DEPTH 

OF THE CRISIS, AS MICHAEL AND 

THE OTHERS IN THE ADMINISTRATION

KNEW, WE WERE WITHIN LIKE A WEEK

OR TWO OF PEOPLE NOT GETTING 

THEIR PAYCHECKS.

THAT THEY DID NOT PUBLICIZE THAT

BECAUSE OF THE PANIC IT WOULD 

HAVE CREATED.

BUT THE EXTRAORDINARY STEPS THAT

WERE TAKEN WERE NOT JUST BECAUSE

WE'RE GOING TO HAVE SOME BANKS 

FAIL.

BUT IT WAS GOING TO BE A DEEP 

ECONOMIC WINTER WHERE PEOPLE 

COULDN'T BUY FOOD NEXT WEEK.

I MEAN, WE WERE THAT CLOSE.

AND THE CRAZY THING WAS THIS WAS

NOT JUST AN AVOIDABLE CRISIS, IT

WAS AN ENABLED CRISIS BY THE 

PEOPLE WHO WERE SUPPOSED TO STOP

IT.

SO LET ME GIVE YOU AN EXAMPLE.

SO JUST FIRST HOW OUT OF WHACK 

THIS SYSTEM IS SO YOU UNDERSTAND

HOW WE ENDED UP THERE.

IN THE LINGO OF AGENCIES, THESE 

FINANCIAL REGULATORS WERE WHAT 

YOU WOULD CALL CAPTURED 

AGENCIES, MEANING THE INDUSTRIES

THAT WERE SUPPOSED TO REGULATE 

REALLY CONTROL THEM.

AND IN THIS SENSE, IT WAS 

LITERALLY TRUE TO AN 

EXTRAORDINARY EXTENT.

SO AS ERIK EXPLAINED, YOU WERE 

-- YOU COULD SOMETIMES YOU COULD

PICK WHICH AGENCY WOULD BE YOUR 

REGULATOR.

SO IN PARTICULAR IN THE WORLD OF

BANKS, YOU GOT TO PICK WHETHER 

THE NATIONAL -- GENERAL NATIONAL

BANK REGULATOR, THE OCC, OFFICE 

OF COMPTROLLER CURRENCY, WAS 

YOUR REGULATOR.

THIS WAS BIG FOR AGENCIES 

BECAUSE THE AGENCIES -- AND THIS

WAS DESIGNED TO GIVE THEM 

INDEPENDENCE, BUT IT HAD THIS 

PERVERSE EFFECT -- THEIR BUDGETS

WERE PAID 100% BY THE FEES OF 

THE BANKS THAT THEY REGULATE.

AND SO THERE WAS THIS FAMOUS 

MOMENT WHERE COUNTRY WIDE, WHICH

BECAME A VERY SUBSTANTIAL BANK, 

THOUGHT THAT THE OCC WAS DANTING

TO PERHAPS CONSTRAIN SOME OF 

THEIR RECKLESS MORTGAGE LENDING.

AND SO THEY SAID BASICALLY SO 

LONG.

WE'RE MOVING TO THE OTFs.

AND, BY THE WAY, THAT'S 

ONE-FOURTH OF YOUR OVERALL 

AGENCY BUDGET THAT'S GOING WITH 

US.

AND THAT SENT SHOCK WAVES, SHOCK

WAVES THROUGH THE AGENCIES.

IT WAS WE WANT TO REMIND YOU 

WHO'S BOSS HERE AND DON'T FORGET

IT.

AND IT DID.

AND LITERALLY, ALTHOUGH THIS 

STILL HAPPENS TODAY, IN PUBLIC 

SPEAKING AND WRITTEN DOCUMENTS, 

THE BANK AGENCIES REFERRED TO 

THE BANKS AS THEIR CUSTOMERS.

AND THEY COMPETED BY WHO COULD 

BEST SERVE AND DEFEND THEIR 

CUSTOMERS.

AND SO YOU SAW THIS HAPPEN IN A 

COUPLE OF WAYS.

SO, FOR EXAMPLE, THE OCC AND 

OTHER AGENCIES DID THIS TOO.

RATHER THAN, AS YOU'VE HEARD, 

NICK DESCRIBED WORKING WITH 

STATES, THEY SERVED AS DEFENDERS

OF THEIR BANKS AGAINST STATE 

ENFORCEMENT ACTIONS.

THE MOST WELL KNOWN OF THESE 

WERE -- WAS WITH PROVIDIAN, A 

SUB-PRIME CREDIT CARD COMPANY.

AND CALIFORNIA AG DID AN 

EXTENSIVE INVESTIGATION, FOUND 

WIDESPREAD ABUSES.

AND THE OCC CAME IN AND SAID 

WE'LL TAKE OVER THE 

INVESTIGATION AND THEN ENTERED 

INTO A SWEETHEART SETTLEMENT 

WITH HIM.

THEY SAW THEMSELVES, THAT WAS A 

SERVICE THAT THEY PROVIDED TO 

THEIR CUSTOMERS.

THE OCC BY STATUTE HAS A GOOD 

BIT OF DISCRETION ABOUT 

PREEMPTING STATE LAWS AND SAYING

BANKS, NATIONAL BANKS, DON'T 

HAVE TO COMPLY WITH STATE LAWS.

IN THE CASE OF THE MORTGAGES AND

USE OF MORTGAGES, THE STATES 

WERE STARTING TO NOTICE THIS 

PROBLEM.

AND SO WE WORKED IN 1999 NORTH 

CAROLINA PASSED THE FIRST STATE 

PREDATORY LENDING LAW AND HAD 

SOME TOUGH PROVISIONS.

WE PASSED OTHER ONES, WORKED 

WITH GROUPS.

LISA WAS INVOLVED IN PASSING A 

NUMBER OF THESE.

AND ULTIMATELY CLOSE TO TWO 

DOZEN OF THESE LAWS WERE PASSED.

SO THE RESPONSE OF THE OCC IN 

RESPONSE TO THEIR REQUEST FROM 

THEIR CUSTOMERS WAS TO ISSUE A 

RULE SAYING THAT NATIONAL BANKS 

DID NOT HAVE TO COMPLY WITH ANY 

OF THESE STATE LAW PROTECTIONS 

AGAINST ABUSIVE MORTGAGES.

AND THAT NOT ONLY PROTECTED 

THEM, IT CREATED AN UNEVEN 

PLAYING FIELD.

AND SO THE STATE CHARTERED BANK 

STARTING GOING TO STATE 

LEGISLATORS AND SAYING WE WANT 

PARITY.

IF THE NATIONAL BANKS GET 

EXEMPTION, YOU CAN'T TREATI US, 

THE LOCAL BANKS.

AND THEN YOU HAVE THIS RAY CE ON 

THE BOTTOM ON THE SCOPE OF 

REGULATION THERE.

AND THEN GOING BACK TO OUR 

HABITAT EXAMPLE.

THE FEDERAL RESERVE WAS IN A

RESPONSIBILITY AND THE AUTHORITY

TO PROTECT AGAINST ABUSIVE 

MORTGAGE REFINANCING BY ANY 

ENTITY, BANK OR NON-BANK.

AND THEY DIPPED THEIR TOE IN 

THIS WATER ONCE.

AND THIS WAS IN EARLY 2000.

THEY WERE KIND OF ASHAMED ABOUT 

WE WERE BEATING THEM AND OTHERS 

PRETTY HARD ABOUT THIS TIME.

THEY WERE KIND OF ASHAMED ABOUT 

THE HABITAT REFINANCING.

BECAUSE, YOU KNOW, PEOPLE WORKED

FOR HABITAT VOLUNTEER.

PEOPLE WERE PRETTY OUTRAGED.

SO THEY PROPOSED A RULE THAT 

WOULD PUT RESTRICTIONS ON 

REFINANCING OF ZERO INTEREST 

MORTGAGES FROM NON-PROFITS ARE 

FROM GOVERNMENTAL ENTITIES WHICH

WERE WIDESPREAD.

PRETTY MODEST STEP.

THEY DECIDED IT WAS A LEAP TOO 

FAR, THOUGH, AND WITHDREW THE 

PROPOSED RULE.

IT TOOK NO ACTION WHATSOEVER TO 

PROTECT THOSE BORROWERS AFTER 

SHOWING THE ABUSES THERE.

THE OTHER THING THAT WAS DONE 

WAS THERE WAS BASICALLY AN 

UNWRITTEN BUT WIDELY RECOGNIZED 

RULE WITHIN THE -- WITHIN THESE 

REGULATORS WOULD BE THE ONLY 

STANDARDS THAT THEY WOULD ISSUE 

WERE VEAGUE ASPIRATIONAL 

STATEMENTS.

BECAUSE THEIR FEAR WAS, FIRST OF

ALL, THE BANKS WANTED TO HAVE A 

LOOSE STANDARD THAT THEY WOULD 

BE JUDGED BY BY THE SUPERVISOR.

BUT ALSO UNDER THE LEGAL 

STANDARDS, YOU COULD USE 

NATIONAL BANK RULES AS AN 

EXAMPLE.

AND STATES DID THIS IN PRIVATE 

LITIGANTS DID TOO COULD BE 

EVIDENCE THAT SOMETHING WAS AN 

UNFAIR TRADE PRACTICE.

AND SO THE BANKS DIDN'T WANT ANY

STANDARDS THERE BY THE 

REGULATORS THAT COULD BE USED BY

STATE AGs OR PRIVATE LITIGANTS.

AND SO, FOR EXAMPLE, THE OCC 

RESPONSE ON THESE PREDATORY 

LOANS IS TO SAY BANKS SHOULD NOT

CHARGE UNREASONABLE FEES.

THAT IS AS FAR AS THEY WENT.

AND THE BANKS WERE ADAMANT THAT 

THEY SHOULD NOT HAVE ANYTHING 

CLOSE TO A BRIGHT LINE STANDARD,

WHICH IS, AS WE'LL TALK ABOUT A 

LITTLE LATER, WHEN THEY HAD A 

REAL ENFORCER LIKE DIRECTOR 

CORDRAY, THEY SUDDENLY WANTED 

VERY SPECIFIC STANDARDS.

 [ LAUGHING ] 

 THEY'RE LIMITED HOW FAR.

AND, YOU KNOW, SO IT'S --

 [ LAUGHING ]

 IT'S BASICALLY HOW MUCH IT 

CHANGED.

SO ABOUT ALL OF THIS GOING ON, 

THE OTHER THING I'LL SAY REAL 

QUICKLY, CRL, THIS WAS -- THERE 

WAS A LOT OF EVIDENCE AND A LOT 

OF PEOPLE KNEW THIS WAS THE 

HOUSE OF CARDS THAT WAS GOING TO

COLLAPSE.

CRL USING INDUSTRY DATA 

PUBLISHED A REPORT IN 2006 WHEN 

WE SAID THERE WOULD BE TWO -- 

WELL OVER 2 MILLION FORECLOSURES

OF SUB-PRIME LOANS, AND WE 

THOUGHT THAT WAS A VERY LOW 

ESTIMATE.

THE RESPONSE OF INDUSTRY WAS TO 

REQUEST A GAO STUDY AGAINST US 

FOR SO DISRUPTING THIS 

WELL-FUNCTIONING MORTGAGE 

MARKET.

FOR THOSE OF YOU WHO SAW THE BIG

SHORT, IT REALLY IS ACCURATE.

LISA HAS A CLOSE FRIEND WHO WAS 

THE PRIME CHARACTER IN THE BIG 

SHORT.

AND IT REALLY WAS THAT CRAZY AT 

GROUND LEVEL.

SO YOU WOULD THINK AFTER THE 

COMING GOES TO THE EDGE OF THE 

ABYSS THAT INDUSTRY WOULD BE 

ABLE TO CHASE THEM.

THAT THERE WOULD BE THIS 

CONSENSUS THAT WE NEEDED TO 

CHANGE THINGS.

WELCOME TO WASHINGTON DC.

 [ LAUGHING ] 

 SO NOT SAID IS THE 

DODD-FRANK ACT PASSED.

BUT INDUSTRY VILIFIED, NOT ALL 

OF THEM, LET ME BE CLEAR, BUT TO

A VERY LARGE PERCENT, VILIFIED 

THE EFFORT AND MICHAEL BAR.

I REMEMBER INDUSTRY MEMBERS 

COMING AND SAYING THAT MICHAEL 

BAR, THE GULL OF HIM.

WE ASKED FOR CHANGES IN THE BILL

AND HE SAYS, WELL, WILL YOU 

SUPPORT THE BILL IF I GIVE YOU 

THE CHANGES.

AND THEN HE WON'T GIVE THEM TO 

US UNLESS WE'RE GOING TO SUPPORT

THE BILL.

 [ LAUGHING ] 

 AND THEY'RE LIKE THE GULL OF

HIM.

AND I HAD THAT HAPPEN ON 

MULTIPLE OCCASIONS.

AND THE BILL ULTIMATELY PASSES 

BY A RAZOR-THIN MARGIN.

I MEAN, IT WAS DOWN TO THE VERY 

LAST VOTES.

SO THAT IS -- THAT IS THE STATE 

OF WHERE WE WERE WHEN THE CFPB 

WAS PASSED.

AND FOR US AND WITHIN OUR SHOP, 

WE TALK ABOUT CREATION OF CFPB 

IS SIMILAR TO THE CREATION OF 

THE EPA AND HOW IT REALLY WAS A 

MILESTONE IN HOW THIS COUNTRY 

LOOKED AT THE ENVIRONMENTAL 

PROBLEMS, A RECOGNITION OF THE 

IMPACT OF IT AND THE NEED OF 

COORDINATED SCOPE.

AND IT REALLY -- EVEN IN 

UNFRIENDLY ADMINISTRATIONS, IT 

REALLY HAS CHANGED HOW THE 

COUNTRY LOOKS AT ENVIRONMENTAL 

REGULATION.

SO GOING QUICKLY BECAUSE I WANT 

TO LEAVE TIME FOR QUESTIONS FROM

THIS QUITE KNOWLEDGEABLE AND 

EXPERT AUDIENCE, THE CHANGES 

REALLY WERE SEE CHANGES 

PARTICULARLY WHEN YOU LOOK BACK 

AT JUST HOW AMAZINGLY 

DYSFUNCTIONAL THE SYSTEM WAS.

AND THEN THE OTHER PART OF IT, 

WHICH ABOUT THE WELCOME TO 

WASHINGTON, YOU ALSO HAD WHAT 

CONSIDER CONSIDERED CAPTURED 

COMMITTEES.

SO THE WAY YOU DO THINGS IN 

WASHINGTON, IF YOU'RE A BANK, 

YOU GIVE ALL YOUR POLITICAL 

CONTRIBUTIONS TO THE BANKING 

COMMITTEE MEMBERS AND 

LEADERSHIP.

AND SO THE BANKING COMMITTEE 

MEMBERS ARE EXPECTED TO 

PRIMARILY RAISE THEIR CAMPAIGN 

CONTRIBUTIONS FROM THE INDUSTRY 

THAT THEY REGULATE.

IN FACT, THERE ARE EVEN SOME 

COMMITTEES WHERE YOU ONLY CAN 

GET ON ONE BECAUSE THEY'RE SO 

LUCRATIVE FOR FUNDRAISING.

AND SO IT'S VERY HARD TO GET 

ANYTHING THROUGH THOSE 

COMMITTEES.

SO, FOR EXAMPLE, THE MILITARY 

LENDING ACT DID NOT GO THROUGH 

THE NORMAL COMMITTEE STRUCTURE 

BECAUSE IT WOULDN'T HAVE MADE IT

THROUGH.

WE COULDN'T GET A HEARING 

THROUGH THE MATRIX COMMITTEE 

STRUCTURE.

IT WENT THROUGH AS AN AMENDMENT 

TO THE DEFENSE APPROPRIATIONS 

ACT.

SO IT WENT THROUGH ARMED 

SERVICES.

I'LL GIVE A SHOT OUT TO NOT ONLY

SENATOR SHELBY WHO SIGNED OFF ON

IT AND DID NOT REQUIRE IT TO GO 

THROUGH HIS COMMITTEE.

BECAUSE HE KNEW IT WOULDN'T GET 

THROUGH HIS COMMITTEE AND HE 

WANTED IT TO PASS.

SO THE BIG CHANGES, THE NON-BANK

SUPERVISION IS THE HUGE CHANGE 

BECAUSE SO MUCH OF THE BAD 

ACTIVITY WAS THERE.

AND THAT IS STILL CONTINUING.

THE PUBLIC COMPLAINT DATABASE, 

LIKEWISE, WE TALKED WITH 

LENDERS.

AND MOST OF THE MAJOR BANKS HAVE

OFFICIAL PROGRAMS DESIGNED TO 

PREVENT COMPLAINTS FROM 

CUSTOMERS FROM ESCALATING FROM A

COMPLAINT BEING FILED WITH THE 

BUREAU.

AND SO THAT'S PART OF WHAT LISA 

WAS DESCRIBING AND NICK THAT 

PEOPLE FIND THAT FILING THESE 

COMPLAINTS WITH THE BUREAU IS 

REMA

REMARKABLY EFFECTIVE AND SIMPLY 

RAISING THE THREAT OF FILING A 

COMPLAINT WITH THE BUREAU IS 

VERY EFFECTIVE WITHIN THE 

INSTITUTIONS THEMSELVES.

THE ENFORCEMENT, AS I SAID, THE 

INDUSTRY NOW WANTS TO CABIN 

ENFORCEMENT BY HAVING THE RULES 

AS SPECIFIC AS POSSIBLE.

AND THEN THE AG ENFORCEMENT.

I MEAN, ONE OF THE NOT WIDELY 

RECOGNIZED PROVISIONS OF 

DODD-FRANK AT THE TIME OF CFPB 

IS IT SPECIFICALLY AUTHORIZED 

AGs TO ENFORCE THE RULES AND THE

UDAP AUTHORITY OF THE CFPB THAT 

WAS PUT IN THERE PRECISELY FOR 

THESE TIMES WHEN WE KNEW -- WHEN

WE WERE PASSING WORKING ON 

DODD-FRANK AND CFPB, WE ALWAYS 

SAID THERE WILL BE A JAMES WATT 

HEAD OF THE CFPB.

AND THAT'S JUST LIFE IN 

WASHINGTON DC FOR THOSE OF YOU 

WHO ALL REMEMBER HIM AS HEAD OF 

THE INTERIOR WHERE HE WAS PRETTY

MUCH WANTED TO NULLIFY THE 

AGENCY AT THE TIME.

AND SO THERE WERE SAFEGUARDS TO 

BE BUILT IN THERE TO THE EXTENT 

THEY COULD.

AND I WANT TO -- YOU KNOW, THE 

ONE REFORM -- I THINK THE IDEA 

OF BLOWING UP THE CFPB IS 

UNLIKELY, AS LISA SAID.

BUT I DO WANT TO REMIND PEOPLE 

THAT TWO YEARS AGO THERE WERE 

OPEN PLANS OF USING SPECIAL 

PROCEDURES, BUDGET 

RECONCILIATION TO, IN FACT, 

ABOLISH THE CFPB AND DISTRIBUTE 

ITS STAFFS BACK TO THE PREVIOUS 

AGENCIES THAT HAVE BEEN 

INEFFECTIVE.

IT WAS THE GREAT WORK CFPB HAD 

DONE THAT MADE THAT POLITICALLY 

UNPOPULAR, AS WELL AS A LOT OF 

WORK BY GROUPS.

I THINK THE ONLY -- THE TWO 

THREATS THAT ARE OUT THERE NOW, 

I THINK ONE THAT GETS LESS 

POPULARITY IS GOING TO A 

COMMISSION RATHER THAN A SINGLE 

DIRECTOR.

MANY OF US ARE VERY STRONGLY 

AGAINST THE COMMISSION BECAUSE 

WE HAVE SEEN THAT THE 

COMMISSIONS ARE SORT OF THE 

WORST OF BOTH WORLDS.

THAT IF YOU -- THE COMMISSIONS 

DID NOT DO SO WELL UNDER THE 

OBAMA ADMINISTRATION.

AND THEY WOULD DO JUST AS POORLY

TODAY LOADED UP WITH 

APPOINTMENTS FROM THE CURRENT 

ADMINISTRATION.

AND ONE OF THE IRONIES IS THE 

MODEL FOR THE CFPB STRUCTURE WAS

TAKEN FROM THE REGULATOR OF THE 

FEDERAL HOUSING FINANCE SYSTEM, 

INCLUDING FANNY AND FREDDIE MAC.

AND THAT BILL WAS DRAFTED IN 

LARGE PART BY REPUBLICANS WHO 

SPECIFICALLY SOUGHT A SINGLE 

DIRECTOR BECAUSE THEY KNEW 

THAT'S WHAT THEY NEEDED TO HAVE 

EFFECTIVE ACCOUNTABILITY AND 

OVERSIGHT OF FANNIE MAE AND 

FREDDIE MAC WHO THEY WANTED 

REIGNED IN.

SO THAT WAS CLOSELY COPIED FOR 

THE CFPB, AND I THINK THE SAME 

REASONING APPLIES THAT IF YOU 

WANT THE EFFECTIVENESS AND 

ACCOUNTABILITY.

THE OTHER IS SOME THREAT THAT 

THEY WERE TRYING TO PUT IT UNDER

APPROPRIATIONS WHICH WOULD 

HUGELY WEAKEN IT.

BECAUSE THEN YOU GET BUDGET 

WRITERS.

SO, FOR EXAMPLE, IN THIS WHOLE 

HOUSING CRISIS, LISA TALKED 

ABOUT IT AND NICK TALKED ABOUT 

THE MORTGAGE BROKERS WERE 

SELLING THESE LOANS AND GOT 

INCENTIVES.

THEY GOT PAID TWICE AS MUCH TO 

SELL YOU ONE OF THESE RISKY 

LOANS.

IF THEY SOLD YOU A STANDARD 30 

YEAR FIXED RATE PRIME LOAN.

WELL, HUD STARTED TO REGULATE 

THAT PRACTICE.

AND SO THE BROKERS WENT AND GOT 

A BUDGET WRITER PUT ON HUD'S 

BUDGET SAYING THEY COULDN'T 

REGULATE THE BROKERS.

AND SO THAT'S ANOTHER REASON WHY

WE'RE SO CONCERNED ABOUT EVER 

GETTING TO APPROPRIATED FUNDING.

SO LET ME QUICKLY GO THROUGH A 

COUPLE OF PLACES WHERE -- I 

MEAN, YOU'VE SEEN REAL C 

CHANGES.

ONE IS IN MORTGAGE, BOTH 

ORIGINATION AND SERVICING.

IT IS JUST A TOTALLY DIFFERENT 

WORLD.

MORTGAGES ARE FUNDAMENTALLY 

SAFER.

BORROWERS ARE TREATED 

FUNDAMENTALLY BETTER.

AND MOST IN INDUSTRY AGREE THAT 

IT IS A BETTER SYSTEM.

THERE ARE PLACES WHERE THEY WANT

TWEAKS AROUND THE EDGES.

BUT IN GENERAL THEY THINK THE 

CFPB WAS CERTAINLY VERY CLOSE TO

THE MARK IN THE REGULATIONS 

THERE.

ANOTHER WOULD BE WITH CREDIT 

CARDS WHERE, AS I THINK YOU ALL 

REMEMBER, IT WAS A PRETTY 

DYSFUNCTIONAL WILD, WILD WEST 

MARKET.

AND A COUPLE OF THE PRACTICES 

WERE THINGS LIKE THE ESCALATING 

LATE FEES.

THEY WERE MAKING A THIRD OF 

THEIR TOTAL REVENUES OFF OF FEES

RATHER THAN THE INTEREST THEY 

CHARGED.

THEY WOULD GIVE YOU A TEASER 

RATE AND THEN RAISE THE RATE ON 

YOUR BALANCES.

IN MOST PARTICULARLY FOR 

BORROWERS WHO WERE LESS WEALTHY,

IT WAS HARD FOR THEM TO MOVE 

THOSE BALANCES AT TIMES.

SO THEY WERE JUST STUCK WITH THE

HIGHER PAYMENT.

AND THEN THE ONE THAT SORT OF 

BROUGHT IT TO THE HEAD WERE 

THESE OFFERS OF FREE FINANCING.

ZERO INTEREST FINANCING FOR SIX 

MONTHS OR A YEAR.

AND THIS IS WHERE THERE'S SOME 

ALIGNMENT WITH INDUSTRY THAT THE

INDUSTRY WORRIES ABOUT THE RATES

AT THE BOTTOM THAT THEY SAW IN 

THE MORTGAGE WHERE IF YOU DID 

NOT HAVE TEASER RATES, YOU COULD

NOT COMPETE BECAUSE THEY LOOKED 

CHEAPER TO BORROWERS.

WE ACTUALLY HAD CREDIT CARD 

COMPANIES COME TO US BEFORE 

DODD-FRANK AND ASK US TO WORK ON

CREDIT CARD LEGISLATION BECAUSE 

THEY COULD NOT COMPETE FAIRLY 

WITH EACH OTHER AND JUST WERE 

CANNIBALIZING EACH OTHER'S 

BUSINESS TO MEET THE MARKETING 

PLOYS, THEY HAD TO MAKE THESE 

WILD OFFERS.

BUT TO MAKE THE NUMBERS WORK, 

THEY HAD TO LOAD IN FINE PRINT 

SO THAT NOBODY WOULD ACTUALLY 

QUALIFY TO ACHIEVE ALL OF THOSE 

BENEFITS.

AND THEY DIDN'T LIKE THAT.

SO TO WIND UP HERE WITH SOME -- 

THE ISSUES GOING FORWARD, I 

THINK OVERDRAFT, STUDENT 

LENDING.

WADE HENDERSON IS GOING TO TALK 

ABOUT STUDENT LENDING IS A 

THREAT ON THE MAGNITUDE OF THE 

SUB-PRIME MORTGAGE CRISIS FOR 

COMMUNITIES OF COLOR.

ARBITRATION.

THE CFPB DID ITS PART AND PUT 

OUT A RULE.

WE NEED TO CONTINUE TO FIGHT 

AGAINST MANDATORY ARBITRATION.

AND THEN TWO AREAS LISA HAS 

TALKED ABOUT THESE PROPOSALS TO 

CHANGE, IF YOU WILL, HOW THE 

BUREAU OPERATES AND WHAT SOME OF

THE FOUNDATIONAL RULES ARE.

LIKE WHAT IS THE SCOPE.

THE PAY DAY RULE IS IN LARGE -- 

THE EFFORTS BY CFPB TO REWIND 

AND REPEAL THE PAY DAY RULE IS 

IN LARGE PART AN ATTEMPT TO 

REWRITE THE STANDARD AND GREATLY

WEAKEN THE STANDARD OF WHAT'S AN

UNFAIR, DECEPTIVE TRADE PRACTICE

AND HOW DO YOU PROVE IT.

AND WE THINK TOTALLY 

UNJUSTIFIED, ILLEGAL WAY.

ANOTHER AREA THAT CUTS ACROSS 

AND MAYBE ONE OF OUR SPEAKERS 

LISA RICE WILL BE HERE TOMORROW,

IS DESPERATE IMPACT.

THAT HUD IS COMING OUT WITH A 

RULE THAT TRIES TO NOT REPEAL IT

BUT TO MAKE IT TOTALLY 

INEFF

INEFFECTIVE, WHICH WOULD BE A 

HUGE SETBACK ACROSS THE WHOLE 

BOARD FOR CIVIL RIGHTS 

ENFORCEMENT.

SO SOMETIMES -- IN CONCLUSION, 

SOMETIMES CONSUMER PROTECTION IS

COMPARED, AND NICK CAN RELATE TO

THIS AS HACKING BACK THE JUNGLE.

THERE IS A WHOLE COTTAGE 

INDUSTRY COMING UP WITH NEW 

TWISTS AND TURNS OF HOW DO YOU 

TAKE ADVANTAGE OF CONSUMERS.

THESE ADMINISTRATIVE CHANGES I 

AGREE TOTALLY WITH LISA ABOUT 

HOW FUNDAMENTAL THEY HAVE AND I 

THINK HOW STICKY THEY ARE.

AND ONE CAUTIONARY TALE ABOUT 

NOT LETTING OUR GUARD DOWN.

IN THE 1970s FOR THOSE OF US 

DOING CONSUMER PROTECTION WORK 

BACK THEN, THERE WERE TWO 

EVENTS.

ONE WAS RALPH NADER PROPOSED A 

CONSUMER PROTECTION AGENCY.

IT PASSED ONE HOUSE IN '75.

THE DECISION WAS TO NOT 

COMPROMISE BECAUSE THEY WERE 

GOING TO PASS IT AFTER CARTER 

GOT ELECTED.

AFTER CARTER GOT ELECTED, 

INDUSTRY RAISED THE HUGE 

CAMPAIGN AND KILLED THE BILL AND

IT DIED.

AT THE SAME TIME, THE FTC WASN'T

AS LIMITED IN RULE MAKING 

AUTHORITY WHEN IT WAS ORIGINALLY

SET UP AS IT IS TODAY.

IN FACT, IT HAD VAST RULE MAKING

AUTHORITY IN THE '70s.

AND UNDERTOOK A RANGE OF RULE 

MAKING ACROSS FUNERAL SERVICES, 

ILLEGALLY BUNDLED AND 

DECEPTIVELY PRESENTED.

USED CAR SALES.

THEY WERE ADDRESSING ALL OF 

THOSE.

AND LED BY THE CHAMBER OF 

COMMERCE, THEY TOOK -- 

ESSENTIALLY TOOK AWAY THE RULE 

MAKING AUTHORITY.

THEY LIMITED TECHNICALLY TO 

"JUDICIAL RULE MAKING" WHICH IS 

NOT THE ORDINARY RULE MAKING AND

HAS NOT BEEN USED SINCE.

SO THESE AUTHORITIES CAN BE 

TAKEN AWAY.

WE NEED TO BE VIGILANT.

BECAUSE THE BENEFIT OF THE CFPB 

FOR CONSUMERS AND OVERALL 

ECONOMY HAS BEEN EXTRAORDINARY 

AND WE NEED TO MAKE SURE IT 

CONTINUES.

THANKS, MIKE.

SHOULD WE OPEN IT UP TO 

QUESTIONS TO THE AUDIENCE?

[ INAUDIBLE ].

WHERE IS THE MIC?

J

J

.

THANK YOU SO MUCH.

I'M LISA SERVON.

I HAVE A QUESTION THAT DOESN'T 

PROBABLY HAVE AN EASY ANSWER.

I'M IN THE INCLUSION IN THE U.S.

AND UK.

AND ONE OF THE THINGS, THERE'S A

LOT OF SIMILARITIES IN THE 

ENVIRONMENT AND THE AGENCIES AND

POLICIES THAT HAVE BEEN CREATED 

TO DEAL WITH THESE ISSUES.

ONE OF THE THINGS THAT REALLY 

SURPRISED ME THE MOST, THOUGH, 

WAS THE EXTENT TO WHICH THE 

FIRMS THAT ARE REGULATED BY THE 

FCA, THE FINANCIAL CONDUCT 

AUTHORITY THERE, APPROVE OF THE 

MISSION AND HAVE REALLY BOUGHT 

INTO IT.

SO I OPENED MY LAPTOP.

SO 68% OF THOSE FARMS RATE THE 

OVERALL EFFECTIVENESS OF THE FDA

BETWEEN A 7 AND A 10.

AND FOR THOSE CLAIMING A LOW 

EFFECTIVENESS RATING, 1 TO 3, 

DOING MORE TO PREVENT 

WRONGDOING.

THAT'S WHY THEY RATED IT LOW.

AND SO IT'S CLEARLY A REALLY 

DIFFERENT ENVIRONMENT THAN IT IS

HERE.

EVEN THOUGH THERE'S SO MUCH 

SIMILARITY IN THE CONTEXT.

AND, AGAIN, I DON'T THINK 

THERE'S AN EASY ANSWER.

BUT I WONDER IF YOU COULD JUST 

SPECULATE ON THAT.

AND WHY THERE ISN'T MORE BUY-IN.

I MEAN, THERE ARE OBVIOUS 

ANSWERS, BUT THERE'S OBVIOUS 

ANSWERS THERE TOO THAT HAVE NOT 

TURNED OUT TO BE THE TRUTH IN 

TERMS OF WHY THERE'S SUCH 

SUPPORT.

DOES ANYBODY KNOW THINKING 

ABOUT THE FCA?

SO I WOULD JUMP IN SOME 

BECAUSE PAY DAY LENDING.

YES.

YOU HAVE A LOT OF 

INTERNATIONAL -- PAY DAY LENDING

IS NOT SO MUCH MA AND PA AS IT 

IS BIG INTERNATIONAL FINANCIAL 

COMPANIES.

AND A NUMBER OF THOSE AND 

INSTALLMENT LENDERS OPERATE THE 

U.K. AND U.S. MARKETS.

I THINK SOME OF IT IS YOU LOOK 

AT THE U.K. AND EUROPE MORE 

BROADLY IS THERE'S AN 

EXPECTATION OF GREATER 

GOVERNMENT OVERSIGHT AND 

REGULATION.

YOU LOOK ACROSS THE BOARD, THEY 

DON'T TOLERATE THE INTERCHANGE 

FEE MONOPOLY THAT WE HAVE HERE.

THEIR PRIVACY STANDARDS ARE MUCH

GREATER.

AND SO I THINK A LOT OF IT IS 

JUST A BASELINE.

THERE'S AN EXPECTATION AMONG 

BOTH CONSUMERS AND INDUSTRY THAT

THERE WILL BE RULES OF THE ROAD 

AND YOU'RE NOT OUT THERE TO 

DEFEND ON YOUR OWN OR DO 

WHATEVER YOU WANT.

THANK YOU.

I COULD ADD, IT'S NOT 

DIRECTLY IN RESPONSE TO YOUR 

QUESTION, BUT I THINK THERE'S 

SUPPORT FROM THE BANKING 

INDUSTRY FOR TO BE LOOKING 

ACROSS BANK AND NON-BANK MARKETS

DOING SIMILAR THING WITH THE 

SAME LEVEL OF OVERSIGHT THROUGH 

SUPERVISION.

SO PREVIOUS TO THE CFPB, THERE 

WAS OFTEN THIS TERM USED THAT 

THEY'RE NOT REGULATED.

THE NON-BANKS ARE NOT REGULATED.

THAT ALWAYS BOTHERED ME.

OF COURSE, THEY'RE SUBJECT TO 

THE SAME LAWS AND REGULATIONS.

I THINK WHAT PEOPLE MEANT BY 

THAT IS THEY'RE NOT OVER SEEN IN

THE SAME WAY IN THE WAY YOU 

DESCRIBE WHERE THERE'S SOMEONE 

REALLY KIND OF OVERSEEING THEIR 

COMPLIANCE AND TRYING TO ENSURE 

THAT THEY HAVE COMPLIANCE 

MANAGED SYSTEM IN PLACE TO TRY 

TO PROACTIVELY COMPLY.

NOT JUST WAITING TO GET CAUGHT.

AND SO I THINK THERE IS SUPPORT 

FOR THAT CONSISTENT LOOK.

AND IT'S PARTICULARLY IMPORTANT 

IN THE MORTGAGE MARKETS WITH THE

GROWTH OF THE NON-BANK SECTOR 

AND MORTGAGE ORIGINATION.

AND THAT HAS BEEN THE CASE FOR A

WHILE IN MORTGAGE SERVICING, BUT

THAT'S GETTING EVEN STRONGER, I 

THINK.

THAT WAS GREAT.

IT'S REALLY SORT OF WORRISOME TO

GO DOWN HISTORY ROAD LIKE YOU 

ALL HAVE JUST TAKEN US.

THE QUESTION I HAVE IS A COUPLE 

OF THEM.

ONE, LISA, YOU SUGGESTED THAT 

THE CFPB AND THE EFFORTS BEHIND 

CONSUMER PROTECTION SHOULD HAVE 

ACTUALLY GONE FURTHER THAN THEY 

DID IN THE OBAMA ADMINISTRATION 

UNDER THE DIRECTOR.

IT WOULD BE GREAT TO HEAR YOU 

TALK ABOUT THAT.

MIKE, THE OTHER NIGHT I SAT DOWN

FOR ENTERTAINMENT TO WATCH ON 

HBO THE UNTOLD STORY OF THE 2008

FINANCIAL CRISES.

 [ LAUGHING ] 

 I DIDN'T SEE YOU IN IT, 

MICHAEL.

 [ LAUGHING ] 

 I CAN -- AND I WAS WATCHING 

IT WITH SOMEBODY WHO IS NOT IN 

OUR FIELD.

AND HE'S LIKE DIDN'T THE 

GOVERNMENT KNOW WHAT WAS 

HAPPENING?

LIKE, YOU KNOW, HOW WAS THIS NOT

KNOWN?

AND I REMEMBER A CONFERENCE THAT

BEN BURNACKE WAS ASKED ABOUT IN 

THESE LOW INCOME COMMUNITIES.

AND THE ANSWER WASN'T QUITE 

FULFILLING AT THAT POINT.

NOW THAT WE'RE TEN YEARS POST, 

WHAT WOULD YOU SAY ABOUT LIKE 

WHAT WAS KNOWN, WHAT WAS 

IGNORED, NOTWITHSTANDING ALL OF 

THE POINTS YOU JUST MADE ABOUT 

CAPTIVE.

BUT LIKE WHAT HAPPENED?

ALL OF YOU.

RIGHT.

I ACTUALLY WANT TO START WITH 

THAT SECOND QUESTION TOO.

IS YOUR MIC ON?

OOPS.

CAN YOU HEAR?

IS IT ON NOW.

YEAH.

BECAUSE I THINK LOTS OF US HAVE 

THINGS TO SAY ABOUT WHAT WAS 

KNOWN.

AND I DO THINK IT'S A VERY 

IMPORTANT STORY.

AND THERE'S A COUPLE OF PIECES 

OF IT THAT FEEL EVEN MORE VIVID 

TO ME IN RETROSPECT THAN THEY DO

AT THE TIME.

I THINK AS MIKE WAS SAYING, WE 

-- THERE WAS PLAIN AS DAY 

EVIDENCE OF THE FORECLOSURES 

THAT WERE EXPANDING IN THOSE 

COMMUNITIES, PRIMARILY 

COMMUNITIES OF COLOR AND LOW 

INCOME COMMUNITIES THAT WERE 

TARGETED WITH PREDATORY LOANS.

EVEN BEFORE THOSE FORECLOSURES 

STARTED, THERE WAS PLAIN AS DAY 

EVIDENCE OF THE STRUCTURALLY 

ABUSIVE FEATURES OF THE 

MORTGAGES BEING SOLD, BOTH ON 

THE ABILITY TO PAY SIDE AND ON 

THE EQUITY EXTRACTING HIGH FEES 

AND PREPAYMENT PENALTIES SIDE.

AND ON THE KIND OF STRUCTURAL 

INCENTIVES TO SCREW IT UP.

COSTS CREATED, BY THE WAY, BY 

THE PREMIUM SYSTEM AND THE WAY 

THAT PEOPLE WERE PAID.

SO PEOPLE KNEW IT FROM THEIR 

LIVED EXPERIENCE.

THEY KNEW IT BECAUSE THEY SHOULD

HAVE KNOWN IT BECAUSE THE 

EVIDENCE WAS NOT THAT HARD TO 

FIND.

AND THEY KNEW IT BECAUSE THEY 

SHOULD HAVE KNOWN IT BECAUSE 

PEOPLE WERE BRINGING IT TO THE 

REGULATORS.

AND THE RESPONSE FROM THE 

REGULATORS IN MY EXPERIENCE WAS 

VERY OFTEN TO SORT OF REFUSE TO 

LOOK AT THE EVIDENCE THAT THEY 

HAD AND TO SAY THAT'S JUST WHAT 

YOU'RE BRINGING US.

THIS IS JUST ANECDOTE.

BRING US DATA.

WHICH WAS A PARTICULARLY 

TERRIBLE ANSWER WHEN THEY, IN 

FACT, COULD HAVE GOTTEN THE 

DATA, HAD THEY CHOSEN TO.

AND HUD DID DO ONE -- WE TALKED 

ABOUT THIS LAST NIGHT A SECOND.

YOU KNOW, THROUGH MUCH, MUCH, 

MUCH ADVOCACY, HUD DID A REPORT,

PRETTY MODEST CAREFUL REPORT.

THEY WERE NEVER ABLE TO MAKE IT 

INTO ANYTHING.

AND SO THERE WAS -- IT WAS AN 

EXTRAORDINARILY WILLFUL FAILURE 

TO KNOW, BECAUSE THERE WAS SO 

MUCH MONEY BEING MADE ON THE 

OTHER SIDE.

IT WAS ENORMOUSLY PROFITABLE AND

PEOPLE DID NOT WANT IT TO STOP.

AND SO THEY DIDN'T SPEND IT.

AND NONE OF THE PEOPLE --

DID THEY SEE IT WAS GOING TO 

GET -- EVERYBODY THOUGHT PRICES 

WERE -- EVALUATIONS WERE GOING 

TO KEEP GOING UP.

YEAH.

IT'S HARD NOT TO GO BACK TO -- 

IT'S HARD FOR PEOPLE TO BELIEVE 

THINGS THAT THEY ARE PAID NOT TO

BELIEVE.

AND THAT PEOPLE WITH FANCY 

DEGREES AND FANCY SUITS TOLD 

THEM NOT TO BELIEVE.

AND WHEN THE PEOPLE WHO WERE 

HURT FIRST WERE NOT THEIR 

NEIGHBORS.

IT REALLY WAS FINANCIAL.

YOU CANNOT BELIEVE THE AMOUNT OF

MONEY AGAIN SO -- I MEAN, WHAT 

WE OFTEN USED OUR TESTIMONY WE 

HAD FROM LENDERS IN THE BUSINESS

SAID I GET PAID TWICE AS MUCH 

FOR DOING A NO DOCK LONE AS I DO

FOR DOING A DOCUMENTED LOAN.

IT'S LESS WORK.

AND THE REASON IS BECAUSE THEY 

DIDN'T REALIZE THIS, THE NO DOCK

LOANS, THE OPTION ARM LOANS, 

THESE 228 LOANS ALL CARRIED 

HIGHER INTEREST RATES THAN A 

REGULAR 30 YEAR, FIXED RATE 

MORTGAGE.

BORROWERS OFTEN DIDN'T 

UNDERSTAND THAT.

BUT WE OFTEN FOUND BORROWERS 

WOULD GIVE FULL DOCUMENTATION 

FOR THEIR LOANS AND DIDN'T EVEN 

KNOW THEY GOT A NO DOCK LOAN.

AND THE LENDERS HAD RULES DO NOT

INCLUDE ANY OF THE DOCUMENTATION

PAPERS IN THE FILE.

BECAUSE THEY ALSO DIDN'T WANT TO

SHOW THE MISMATCH.

AND THEN EVEN AT THE REGULATOR 

LEVEL, THE REPORTS IN 2007, THE 

REGULATORS BRAGGED THAT THEY HAD

SET A RECORD FOR THE LOWEST 

NUMBER OF BANK FAILURES.

THE LONGEST STREAM OF LOW BANK 

FAILURES BECAUSE ALL OF THIS 

MONEY WAS POURING IN.

THE LOSSES HADN'T HIT YET.

BUT THE EXTRAORDINARY AMOUNTS OF

MONEY.

SO THE BROKER GETS PAID MORE, 

THE LENDER GETS PAID MORE, THE 

SECURE TIESER GETS PAID MORE.

AND THE YIELD IS BETTER THAN 

WHAT THEY SUDDEN.

AND THEY ALL WANTED VOLUME.

MORE AND MORE AND MORE OF IT.

SO WE HAD -- I REMEMBER THE 

PROBLEM -- THIS IS WHERE THEY 

DID NOT HAVE ENOUGH LOANS.

THERE WAS SO MUCH DEMAND.

SO BIG ESTABLISHED FIRMS, 

BERR-STERN CAME TO US AND TALKED

TO US AND WE SAID STAY AWAY FROM

US.

THEY SET UP A MORTGAGE COMPANY 

AND THEY NEEDED RAW MATERIALS 

FOR THESE LOANS.

EVEN THAT WASN'T ENOUGH.

SO THEY SET UP -- THEY SET UP 

WHAT'S THE FINANCIAL EQUIVALENT 

OF FANTASY FOOTBALL FOR 

SUB-PRIME MORTGAGES WHERE YOU 

COULD BET AND BUY SECURITIES, 

SYNTHETIC SECURITIES, BASED ON 

HOW THESE MORTGAGES PERFORMED, 

EVEN THOUGH THEY WEREN'T 

DIRECTLY TIED TO THE MORTGAGES 

BECAUSE THERE WEREN'T ENOUGH 

MORTGAGES TO GO AROUND, BECAUSE 

EVERYBODY WANTED IN ON THIS 

BONANZA AND FEEDING FRENZY.

AND WHEN YOU TALK TO -- WHEN 

YOU TALK TO DIFFERENT 

INSTITUTIONS, WHEN WE 

CONFRONTED, YOU KNOW, EVERYBODY 

PRETENDED THAT THEY WEREN'T 

RESPONSIBLE.

AND THEY WERE JUST -- THEY WERE 

JUST ONE PART OF A SYSTEM THAT 

SOMEBODY ELSE CONTROLLED.

SO, YOU KNOW, THE LENDERS WHO 

WERE USING THE WALL STREET MONEY

WOULD SAY THIS IS HOW THE MONEY 

COMES TO US.

WE HAVE NO CHOICE.

THIS IS HOW WE DO IT.

AND THE WALL STREET MONEY WOULD 

SAY WE'RE NOT MAKING THE LOANS.

WE CAN'T TELL THEM WHAT TO DO.

WHICH COMES DOWN TO THE 

QUESTION.

BUT THERE IS SOME TRUTH IN 

THAT.

I MEAN, SO WE WERE A MORTGAGE 

LENDER.

AND WE SAW 80% OF OUR VOLUME GO 

AWAY.

BECAUSE WE WERE TELLING PEOPLE 

HERE IS A GOOD, FULLY DOCUMENTED

SAFE 30 YEAR FIXED-RATE 

MORTGAGE, AND THE BROKER WAS 

SAYING DON'T GIVE ME YOUR 

DOCUMENTATION.

I'M GOING TO GIVE YOU THIS 

TEASER RATE MORTGAGE THAT 

DOESN'T ESCROW THROUGH YOUR 

TAXES, ET CETERA.

IT LOOKS CHEAPER.

AND IT IS VERY HARD IN THE 

INDUSTRY WHEN THERE'S A RACE TO 

THE BOTTOM TO SAY, NO, I'M JUST 

GOING TO GIVE UP ALL OF THAT 

MARKET SHARE AND STAY WITH MY 

STANDARDS.

AND SO THERE HAS BEEN SOME 

CONVERSION WITHIN THE INDUSTRY 

THAT THEY RECOGNIZED IT'S 

ACTUALLY BETTER BUSINESS MODEL 

FOR THEM TO HAVE REASONABLE 

BASIC RULES OF THE ROAD.

I DO THINK THERE HAS BEEN A 

CHANGE.

AND, AS I SAY, THE BIG BANKS ARE

NOT ASKING TO ROLE BACK THE 

CREDIT CARD RULES.

THE BASIC OF THE MORTGAGE, 

ORIGINATION SERVICING RULES.

AND ANOTHER QUESTION, IT 

WASN'T SO MUCH MEANT -- YOU 

KNOW, THERE WAS -- THERE WERE 

MORE RULES YET TO BE WRITTEN AT 

THE BUREAU.

AND A BUNCH OF IMPORTANT STUFF 

THAT DIDN'T GET GOTTEN TO.

AND A BUNCH OF PLACES WHERE WE 

THOUGHT RULES SHOULD HAVE BEEN 

-- PARTICULAR RULES SHOULD HAVE 

BEEN STRONGER THAN THEY WERE.

I WAS TALKING LESS ABOUT THAT, 

THOUGH, AND MORE ABOUT SORT OF 

BEING AMBITIOUS ABOUT THE BIG 

PICTURE AND I THINK OF STUDENT 

LENDING AS MIKE SAID AS ONE 

PLACE WHERE WE ARE FACING A HUGE

CRISIS.

THAT'S CERTAINLY NOT JUST ABOUT 

MATTERS WITHIN THE CFPB 

JURISDICTION BUT IS A HUGE 

CRISIS THAT NEEDS TO BE TREATED.

OR, YOU KNOW, I THINK OF LIKE 

THE CREDIT REPORTING SYSTEM, FOR

EXAMPLE, WHERE THERE'S A SET OF 

PROBLEMS THAT PEGGY TALKED ABOUT

AND THAT'S ABOUT ACCURACY AND 

ACTUALLY MAKING SURE THAT ERRORS

ARE CORRECTED AND THE 

INFORMATION ISN'T -- AND THEN 

ABOUT BEING THOUGHTFUL ABOUT 

WHAT ADDITIONS OR SUBTRACTIONS 

TO WHAT INFORMATION IS USED HAS 

WHAT

CORDRAY.  

BUT THEN ALSO THERE'S A SET OF 

QUESTION A DEEPER SET OF 

QUESTIONS ABOUT THE WAY THE 

CREDIT SCORING SYSTEM FUNCTIONS.

LIKE WHAT ARE THE PROBLEMS WITH 

THE SYSTEM THATTEN IF THE 

TECHNICAL DETAILS ARE RIGHT IF 

YOU HAVE LESS WEALTH, YOU'RE 

MORE LIKELY TO BE LATE ON YOUR 

BILLS.

AND IF YOU HAVE LESS FAMILIAL 

WEALTH YOU HAVE FEWER PLACES TO 

TURN.

WHAT ABOUT TURNING THE EXISTING 

EXISTENCE OF WEALTH INTO SYSTEM 

THAT KEEP CHARGING YOU MORE OR 

DENYING ACCESS TO BETTER 

PRODUCTS.

THAT FEELS LIKE THE KIND OF NEXT

ORDER OF QUESTION THAT WE SHOULD

BE ASKING ABOUT.  

WE WILL TAKE MAYBE ONE MORE 

QUESTION.

FOR THE PEOPLE WATCHING ON THE 

VIDEO SCREEN.

THEY COMPLAINED ABOUT ALL OF US 

NOT SPEAKING INTO THE MIC.  

ONE THING THEY MENTIONEDS 

SUBPRIME LOANS.

TWO REALLY QUICK ONES.

ONE IS AFTER BANKRUPTCY THE 

FIRST THING THAT GENERAL MOTORS 

WAS A SUBPRIME LENDER.

AND THE SECOND THING IS ANYONE 

HEARD WHAT ROSHIDA HAD TO SAY AT

THE HEARING ON SUBPRIME LOANS IN

HER DISTRICT I WAS WONDERING IF 

ANYONE HAS ANY COMMENTS.  

ABSOLUTELY.

ONE OF THE CHALLENGES WITH THIS 

IS IT'S HARD TO GET PEOPLE TO DO

APPLE TO APPLE COMPARISON OF 

DEFAULT RATE WITH MORTGAGES.

THEY USE THE MORTGAGE DEFAULT 

RATE -- WELL THAT'S A BENCHMARK.

PEOPLE KNOW WHAT THAT IS.

AUTOS THEY FLIP THROUGH -- YOU 

GO FROM LATE PAYMENT TO USING 

YOUR CAR IN 60 DAYS IN MOST 

STATES.

AND SO THEY WILL ADVERTISE WE'RE

ONLY 4% DELINQUENT.

THOSE PEOPLE WILL CYCLE THROUGH 

FOR DEFAULT RATE.

THE SUBPRIME AUTO IS A DISASTER.

SANTANDER HAVE HAD PROBLEMS 

THERE.

THEY WERE GOING AFTER A LOT OF 

THEM AS WELL AS THE OTHER 

REGULATORS.

THAT'S ONE THING IS THE PORT 

CFPB HAS CHANGED THE WHOLE 

ENVIRONMENT.

IF YOU LOOK AT THE OTHER 

REGULATORS.

I THINK THE OTHER REGULATORS ARE

DOING A BETTER JOB BECAUSE OF 

THE CFPB HAS DONE.

FEDERAL SERVE HAS GONE AFTER 

WEALTH PRETTY HARD.

ASSET CAP AND ALL THESE THINGS.

THAT WAS NOT HOW IT WAS DONE 

PRE-DODD FRANK.

I DO THINK IT'S CHANGE INSTEAD 

ONE SPECIFIC POINT TIEING THE

AUTO AND THE EXPECTATIONS FOR 

OTHER REGULATORS.

YOU KNOW, AUDIT -- CFPD GOT 

THEMSELVES EXEMPTED.

AS CONSOLATION PRIZE THEY FTC 

HAS REGULAR -- IT'S TERRIBLE 

IMPOSSIBLE PROCESS.

BUT REGULAR RULE-MAKING 

AUTHORITY IN THAT AREA.

THEY HAVEN'T DONE ANYTHING WITH 

IT.

AND YOU KNOW, THE KIND ON BONUSY

YIELD SPREAD THAT WERE A PROBLEM

IN MORTGAGE MARKET STILL EXIST 

IN THE AUTO FINANCE MARK AND 

DRIVE RACIAL DISCRIMINATION.

AND YOU KNOW WE SHOULD ALL BE 

DEMANDING THAT THE FTV ACT ON 

ITS AUTHORITY TO DEAL WITH 

ABUSIVE AUTO LOANS.  

CAN WE ACKNOWLEDGE OUR PANEL.

[APPLAUSE]