Un-Warrented: American Consumers Lose Their Biggest Defender

My problem is that, while enforcement is a critical part of the bureau’s legislative mandate, I have always believed that two equally important missions of the CFPB involve financial literacy education for consumers and its role as a policymaker and advocate for middle class families. Professor Warren’s skills and credentials in these areas are above reproach. She has been an educator for most of her life and perhaps her greatest strength is policymaking in the consumer protection space. By contrast, Mr. Cordray has little background in either of these areas. Though I have no doubt he is a quick study.

Mr. Cordray’s considerable success as the Ohio Attorney General was earned primarily on behalf of large institutions rather than individual consumers. For example, in pursuing Bank of America for misleading statements and lack of disclosure regarding the condition of Merrill Lynch during the acquisition of the failing brokerage giant, the primary beneficiaries of Cordray’s laudable success were largely Merrill’s bondholders, the vast majority of whom probably weren’t teachers, firefighters or taxi drivers. That said, Cordray was the very first state Attorney General to sue a bank for robo-signing, which puts him way ahead of the curve in my book.

The fact is that if you take a good look back at the financial crisis that began in 2008 and continues today, most of it is attributable to predatory and irresponsible mortgage practices that were deplorable but NOT illegal. In other words, I believe that the most important role of the CFPB in this regard is the creation of new policies and rules to protect individual borrowers and consumers, not to enforce existing laws that were and are—obviously—inadequate. In particular, the mortgage crisis makes it clear that no one had to break the law to con us. The vast majority of those creative option-ARMS were perfectly legal, terribly innovative and clearly, as Warren Buffett labeled them, weapons of mass destruction. So while it is obviously very important to enforce the law, it is more important to make effective laws and rules that can then be efficiently enforced.

Additionally, one of the other root causes of our current financial malaise was the lack of financial literacy among the general population in this country. The victims of the legal con run by all those avaricious bankers and brokers were excellent targets, because they really didn’t know much about money, or mortgages, or borrowing in general—but unfortunately now they’re getting a crash course in foreclosure. There is no law, however wise and rigorously enforced, that can substitute for a financially educated populace. Knowledge is, after all, power. In sum, in order to prevent a repeat of recent financial history, the CFPB must ensure that Americans know as much about financial matters as they do about Kim Kardashian, and it must make and enforce new rules that protect consumers within every financial strata, not just the folks who buy the bonds issued by firms like Merrill Lynch.

The good news is that Richard Cordray is a really smart, dedicated, and talented public servant. Although when first appointed as Enforcement chief, he described his tenure as a “layover in Washington” until he could return to Ohio to run again, it is likely that the power and prestige of his new position will inspire him to change his mind and engage his considerable intellect. Lost in the excitement and gravity of recent events is the trivia factoid that Cordray was a five-time Jeopardy champion!

I don’t know about you, but I’ve always felt that anybody who could win Jeopardy, especially a five-time champion, could do anything they might want to do if they put their mind to it.