Prepared Remarks by Richard Cordray
Director of the Consumer Financial Protection Bureau
Society of American Business Editors and Writers
March 16, 2012
Thank you for having me here today. Joseph Pulitzer once said that “our Republic and its press will rise or fall together.” Maybe he would be viewed as self-interested in saying that, but every citizen of this country ought to feel the same way. Like Pulitzer, I deeply believe that reporters play an important role in ensuring our government operates fairly, efficiently, and honestly. This role includes a new task of keeping the Consumer Financial Protection Bureau accountable to the highest standards.
Our country is at a unique moment in its history. Unemployment remains stubbornly high. Over the past decade, the real median income of working-age households has declined. And, while a few at the very top have seen their bank and investment accounts grow substantially, too many others are falling into poverty.
The Consumer Financial Protection Bureau was created to help get our country back on track in the wake of the recent and profound financial crisis. We are the first federal government agency tasked solely with watching out for the interests of the American consumer in the financial marketplace. That role is a unique one. It distinguishes our agency from other government actors that previously shared only a small slice of this responsibility. We are here to see the big picture. We are here to deal with these issues comprehensively. We are here to stand behind and alongside the American middle class.
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We have all seen the middle class getting hammered. Indeed, you have been wearing out the shoe leather and writing stories about the struggles of the middle class for years now. And many of you have been feeling it personally or know a relative or a friend who has. Simply put, getting by in America has become harder. This has not just been since the 2008 financial crisis. The middle class has been pinched for decades. Here in Indiana, as well as in my native Ohio, the middle-class squeeze had been felt long before the recession.
Flashback to the financial crisis four years ago: Many Americans at that time had never heard of subprime mortgages. Today, in large part because of your careful reporting, we know all the gory details. We know about hybrid adjustable rate mortgages. We know about interest-only loans. And we know about lenders who tried to make a quick buck by exploiting unqualified borrowers and their lack of financial savvy. Likewise, four years ago, few people were aware of Wall Street securitization practices. Now, thanks again to your reporting, we have begun to understand how slicing and dicing dodgy mortgages and selling them to investors can spread excessive risk throughout our economy.
If we assess the national conversation over the past several years, it is easy to miss a main player in the drama of the financial crisis. We think first of the unscrupulous lenders and mortgage brokers who made faulty loans. We then think of the Wall Street firms that packaged those faulty loans into sophisticated investments that spread the danger. And, of course, we think of the individual borrowers who took on loans they could not afford and lost their homes. But it is worth remembering that the real pain point today is with a very large group of innocent bystanders. I am talking, of course, about the American middle class.
Many people did all the right things, but lost their jobs when the financial crisis shrank the economy. Others did all the right things, but found themselves underwater even on sensible mortgages because so many nearby houses had fallen into foreclosure. Still others lost considerable amounts of their life savings as trillions of dollars in home equity were vaporized. These trends force other big goals to recede into the distance – like saving for a child’s college education, or being able to retire and live on your savings and investments. Canvassing this scene, one cannot help but think that the biggest incremental losses over the past several years have fallen on those in the middle class.
Couple the financial crisis with another trend over the past several decades and you can see how the picture looks even worse. In the years leading up to the financial crisis, there was a vast expansion of consumer debt. Over a period of less than ten years – from 1999 to 2007 – household debt almost tripled, increasing from $4.6 trillion to $12.5 trillion. Households took on this debt to pay for ever-more expensive medical care, or new household goods, or frankly just to pay the electric bill. During this same period credit products grew more and more dangerous. Credit terms became more complicated and more perilous, with tricks and traps too often hidden in the fine print.
Today, while Americans have reduced their borrowing over the past few years, we remain an incredibly leveraged society. Personal debt can be immense and crushing. Owing vast sums of money can block someone from earning a college degree. It can prevent someone from saving for a down payment on a home. And it can prevent someone from starting a small business that can create jobs.
This is where we stand now in the aftermath of the crisis. You can see how the backbone of this country – our middle class – is under increasing pressure. And so this is where the new Consumer Financial Protection Bureau comes in. I want to talk about three things that are particularly pertinent to American families, and hence to our work: credit cards, student loans, and mortgages.
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One of the biggest sources of American consumer debt is the credit card. Consumers spend trillions a year on their cards. Credit cards give us quick access to money when we need it. People use them to buy everything from a cup of coffee to a car. Nearly 514 million credit cards are in circulation in the United States. That means 1.6 cards for every man, woman, and child in this country.
Credit cards represent about $700 billion in outstanding household debt. That’s more than $6,000 per household.
The Consumer Financial Protection Bureau now has regulatory authority over this market. We can write rules that help the consumer understand the risks they are taking on. We also have the authority to examine large banks that issue credit cards, which covers most of the market. We want to make sure all rules are being followed. And we have the authority to enforce consumer financial protection laws when they have been violated.
In the short eight months since we received supervisory authority over large banks and their affiliates, we have started on-site examinations. We have been evaluating recent regulatory changes resulting from the CARD Act. And we have begun taking complaints from consumers and helping resolve them. We have helped thousands of people from all over the country finally get resolution on credit card disputes that had been vexing them for months or even years.
And we recently proposed a prototype credit card contract that is shorter and clearer than the average 5,000-word contract in existence now. This effort is part of our larger Know Before You Owe project – because at the Consumer Bureau, we believe that consumers deserve clear disclosures so they can make better informed financial decisions.
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A second market where we play a big role is student loans. For many people, an education opens the door to the middle class and a better life. But this ladder to success can be hard to climb when it involves paying back significant debt. Student loans have now surpassed credit cards as the second-leading source of household debt, outside of mortgages.
There are two types of student loan debt – federal and private. Until we came into existence, there was no federal supervision for much of the private student loan market – a market that affects millions of Americans and is worth a trillion dollars. When private student loan borrowers had billing disputes or other problems, they often had nowhere to turn for help.
For students who are considering taking on student loan debt, we worked with the Department of Education to develop a draft “Financial Aid Shopping Sheet.” Student loans can be complicated and difficult to navigate, and this shopping sheet makes it easier for students to compare financial aid packages. And it helps them to understand the payments they will face after graduation.
For those who are dealing with paying back their loans, just this month we have begun taking consumer complaints on private student loans. The goal is to be there for the student loan borrower: If something is not right, we are here to help solve the problem.
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And, finally, I cannot talk to you about how the middle class is getting hammered without talking about the housing market. We are obviously faced with a tremendous mess. Almost 4 million mortgages are more than 90 days delinquent. Perhaps as many as 10 million borrowers are at risk of default.
Too many middle-class Americans have been caught up in the housing mess. Homeowners may faithfully make mortgage payments only to see the value of their homes drop as the homes around them are either sold in short-sales or foreclosed on. They may be unable to sell their homes and move to find new opportunities elsewhere.
The Consumer Bureau is now playing a big role in this market. As with credit cards and private student loans, we now accept consumer complaints on mortgages to help consumers resolve their problems. In addition, before we came into existence, there was little accountability for mortgage servicers. Typically, consumers do not get to choose their servicer, and mortgage servicing rights can be bought and sold without the consumer’s input. Servicers often ignored homeowner calls or lost the paperwork needed to consider loan modifications.
We plan to issue rules that address several aspects of mortgage servicing, including disclosures, billing statements, and force-placed insurance. We believe that on all of these fronts, businesses need to return to sound practices and sound customer service. Because our authority covers both banks and non-banks that service mortgages, we can address these issues comprehensively for the first time. Notably, nobody could do that before the Consumer Bureau was created.
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Whether it is credit cards, student loans, or mortgages, Americans are facing uphill battles. Picture the people you meet on your beat every day. Nearly every American is affected by the work we do. Whether you cover the big banks or the local businesses in your community, if what you do involves the American middle class and their access to household credit, the Consumer Bureau is now involved too.
We are determined to deliver positive results for American consumers. We stand on the side of American consumers to protect them against illegal practices and see that they are treated fairly. In doing our job, we will not only protect consumers, but also support the honest businesses that serve them and help safeguard the broader economy.
In order to do our job well, however, we need your help. We need you to carry our message and our mission to your readers, and we need you to continue to inform us about the nature and scope of the middle-class challenges you see in your communities every day. Good government needs the Fourth Estate. We need you to explain to us, to inform us, and to hold us accountable.
We have already gone out of our way to make the work of our agency highly transparent. We share a tremendous amount of information on our website at consumerfinance.gov. We have testified before Congress more than a dozen times in less than a year, and we are glad to go see them every time they invite us. Informal meetings with industry, small businesses, and consumer groups are also a regular part of what we do. But, for us, you are an enormous and essential window on our society. We read what you write. We pay attention to your perspectives and opinions. We cheerfully submit to your oversight as you make sure we are doing all that we can for the American consumer. I said “cheerfully” and I mean it.
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