Prepared Remarks by Richard Cordray at the National Consumer Law Center Conference
Director of the Consumer Financial Protection Bureau
National Consumer Law Center Conference
October 25, 2012
I am especially glad to have the opportunity to be here with you today. At the Consumer Financial Protection Bureau, we know how hard you fight for consumers. You have been strong in supporting and defending us, without sacrificing any of your fierce candor about your views. Speaking both for me personally, and for the Bureau, we respect you for that. You are advocates in the truest sense of the word.
We all have witnessed how much consumers have suffered in the financial marketplace over the past five years. The extreme financial crisis of 2007-2008, and the deep recession that followed in its wake, delivered a devastating blow to American households. Household wealth shrank by trillions of dollars and many millions of people saw their credit standing deteriorate even as credit standards were tightened. We are still digging out from the crisis, as evidenced by many facts and figures and many personal stories. Fully 46 million Americans were living in poverty in 2011.
The marketplace can be a hostile place for those who are struggling to stay afloat, who may often pay higher prices for consumer goods, including financial products and services. The cycle of debt makes it difficult for families who find themselves in trouble to get back on track. So today, I would like to talk to you about the efforts we are making at the new Consumer Bureau to improve the daily lives and financial opportunities for consumers.
Let me begin with debt collection. Just yesterday, the Bureau announced that we will now begin supervising the larger consumer debt collectors. We will work to ensure that they all play by the rules, both because every consumer deserves to have the laws enforced that protect their rights and because every actor that operates outside the law is competing unfairly with all those striving to operate honestly within the law.
We are already supervising the debt collection practices of large banks and many nonbank lenders, encompassing both their efforts to collect debts on their own and their relationships with outside debt collectors. With yesterday’s announcement, we are expanding our supervision program to include the larger participants in the consumer debt collection market. Beginning in January, any firm that has more than $10 million in annual receipts from consumer debt collection activities will be subject to our supervisory authority. This authority will extend to about 175 debt collectors, which account for over 60 percent of the industry’s annual receipts.
Our supervision program will allow us to examine these institutions on-site and evaluate the various problems that pose risks to consumers. Some of these problems are quite similar to those that we are already looking at in the credit reporting industry, such as accuracy of information and adequacy of disclosures. As a former public official with responsibility for collecting debts owed to the government, I know that debt collectors have an important role to play, and I know first-hand how hard this work can be. But I also know that it can be done the right way, and that it can be very hard on people when it is done the wrong way.
Inaccurate information used in the debt collection process can be a source of oppression to consumers who may not owe that debt in the first place. Debt collectors – and the creditors on whose behalf they are collecting or who sold the debt to them – bear responsibility for the quality of the information they are using to pursue consumers like those we heard from in yesterday’s field hearing. Debt collectors also need to respond promptly, upon request, to consumers who seek additional information, such as the name of the original creditor or the details of a judgment being enforced.
When consumers encounter problems like these, they need to know how they can dispute the debt. The Bureau will be looking at how debt collectors handle these kinds of complaints, and whether they do so in a timely and effective manner.
The enduring foundation for consumer protection in this realm, of course, is the Fair Debt Collection Practices Act. Multiple officials are now in position to enforce its requirements: the Consumer Bureau, the FTC, and the prudential regulators, along with private parties. State attorneys general also pursue these matters regularly under their own state laws. For us, the main concern is how to coordinate these efforts strategically and effectively in a marketplace that includes not only the larger firms mentioned earlier, but also thousands of smaller companies and law firms. We all share a common and worthy goal: to make sure that consumers are treated fairly and appropriately, in a matter consistent with the law.
We have all heard horror stories about debt collectors who call at inappropriate times and places, who harass or abuse consumers, or who threaten them with arrest or imprisonment. All of these tactics are unacceptable and unlawful. Equally unacceptable are those actors who intentionally defraud consumers. Sometimes the harassment, deception, and fraud go hand-in-hand. We have seen this in cases of phantom debt, where consumers are told they owe a debt and are pressured to pay, though in fact the debt never even existed.
When I was Ohio Attorney General, I brought multiple actions against this kind of misconduct. So did most of my colleagues. The FTC has been active in this space for years and has protected consumers against many offenders. Together, we must plan and act jointly to improve the culture of compliance within this marketplace; we must avoid a regime in which some actors clearly have regarded law enforcement merely as an incidental cost of doing business.
Another market where we are working for change is mortgage servicing. For the first time ever, we have authority to adopt and enforce federal standards that will apply to mortgage servicers across the entire market, including both banks and nonbank firms. This comprehensive reach is important because in today’s marketplace, a combination of regulatory and business considerations has been encouraging the movement of mortgage servicing rights away from depository institutions to nonbank mortgage servicers, which in the past had received very little oversight.
That puts the Bureau’s new role increasingly at a premium. We also have supervisory and enforcement authority with respect to both nonbank and very large bank mortgage servicers, and are already on the ground conducting examinations. We will work with them to improve compliance systems, and we will hold them accountable for treating consumers fairly and in accordance with the law.
Since we unveiled our proposed rules, which we intend to finalize by January, we have sought and received widespread input, including from your group. Our proposal reflects two basic, common-sense standards – no surprises and no runarounds. First, we are working to arm consumers with the information they need to avoid costly surprises. Consumers should be able to get information about how much they owe, what they are paying, and how their payments are being applied at any time. And if consumers fall behind on their mortgages, we want them to know how to assess their options and take action.
Second, we are seeking to tackle the problem of consumers getting the runaround in various ways, including by mandating that they receive timely decisions on their applications for loss mitigation options, including loan modifications. Servicers would be required to have policies and procedures in place to ensure that they are providing accurate and current information to borrowers. And they would have to engage in more careful oversight of their contractors and foreclosure lawyers.
Importantly, our proposed rule requires servicers that make loss mitigation options available in the ordinary course of business to review borrowers for all loss mitigation options for which they may be eligible. If an application is denied, servicers must also provide information to borrowers about the denial and, for a loan modification denial, more detailed information and an opportunity for the borrower to appeal. These procedures must be followed before a servicer can move forward with a foreclosure sale.
In our rulemaking proposals, we asked whether we should do more. You have clearly and forcibly communicated to us your concern about a servicer’s ability to “dual track” a borrower by moving forward with a foreclosure proceeding while a borrower is pursuing loss mitigation options. Our proposal already would restrict the servicer’s ability to proceed with a foreclosure sale when the borrower has submitted a completed application for a loss mitigation option. We are currently digesting and analyzing the comments we have received from NCLC and others on other ways that dual tracking might be restricted further. You know as well as we do that the intricate details matter greatly on this issue, and we are thinking very carefully about it.
We have seen striking similarities between the mortgage market that preceded the crisis and the private student loan industry as it existed at that time – in aggressive marketing, risky underwriting, and loans originated for immediate sale. The Bureau recently released a report on private student loan servicing based on thousands of complaints, stories, and other input. The report described complaints from private student loan borrowers that they are sometimes surprised by the terms and conditions of their loans, feel their loan servicer often fails to give clear or responsive answers, and believe they have few options to refinance or modify repayment for a better deal.
We want to ensure that lenders and school financial aid counselors are working together in everyone’s best interest. We want student loan borrowers to have the information they need to fully understand and cope most effectively with their private student loan obligations, and we need lenders and servicers to work well with individual borrowers.
It is plainly not in our interests, as a society or as a country, to have so many people with potential and ambition whose hopes and dreams are buried under student loan debt that they cannot navigate successfully. We all want these people to be able to create a better future for themselves and all those who are depending on them. So the work we are doing here is highly important.
The other area that I wanted to highlight for you today is the difference we are beginning to make through the exercise of our enforcement authority. Among the glaring deficiencies that led up to the financial crisis were some very specific problems: a patchwork supervisory regime that covered only part of the mortgage market; a lack of singular focus by any regulator on consumer financial protection; and weaknesses in the regulatory regime created by the pressures from charter shopping.
The financial reform law that you fought for, and now the Consumer Financial Protection Bureau that you insisted be an essential part of that law, are helping to address each of these deficiencies. Along with those problems, however, was the need for stronger and more consistent enforcement of the federal consumer financial laws. And we are now showing through the use of our enforcement authority that we will focus, as we should, on practices that violate the law and cause meaningful consumer harm.
Since July, we have launched three major public enforcement actions against companies who were deceiving and misleading consumers. Although we are currently active on many fronts, the timing was such that each of these early actions involved credit card practices. By developing strong partnerships with our fellow regulators – who are joining us, you should be aware, in fighting hard for consumers – we have thus far been able to achieve the return of about $425 million in refunds to millions of consumers. And we have exacted significant penalties as deterrence against future actions of the same kind. By issuing public orders that are very specific as to the conduct at issue, we have effectively signaled to other market participants that they need to clean up their own practices sooner rather than later, and that too is in the process of having further positive effects.
More activity on this front, and on other fronts, will follow in due course. But we want you to know that we fully intend to be the “cop on the beat” that was envisioned when the financial reform law was enacted. Taken together, our regulatory, supervisory, and enforcement authority will make a real difference in the lives of consumers, showing them that there is someone now standing on their side and making sure they are treated fairly in the financial marketplace that often seems so intimidating, hostile, and complex for them to navigate.
That is an important step forward, and you are the people who deserve credit for accomplishing that. We are grateful to you and your allies every day for making it possible for us to pursue this very satisfying work.
We are guided in this work by our mission statement, which we formulated in our early days and I will quote to you: “The consumer bureau is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives.”
We inform our mission statement also with the broad vision statement that guides our work. We envision “a consumer finance marketplace where customers can see prices and risks up front and where they can easily make product comparisons; in which no one can build a business model around unfair, deceptive, or abusive practices; and that works for American consumers, responsible providers, and the economy as a whole.”
We are already using a great many of the tools that Congress gave us to fulfill this mission and this vision, and though it will take years of dedication and hard work to make the kind of progress that we intend and expect to make, we hope that you and all Americans can see that we are headed in the right direction. We understand that as we go, we will have much spirited conversation around our goals and the best means of achieving them.
We have those kinds of animated discussions every day within the Bureau, believe me, and we welcome your voice and your perspective at all times. We know who our friends are, and we know that it is the responsibility of our true friends to tell us what they think, even or perhaps especially when they suspect we may not find it easy or convenient to hear it.
Thank you again for having me here with you today, and thank you always for your friendship in our joint cause, to help improve the ways and means of people’s financial lives.