Prepared Remarks by Richard Cordray
Director of the Consumer Financial Protection Bureau
National Association of Attorneys General
March 6, 2012
Thank you for having me here today. It is always a special occasion to speak with a group of people when you have walked in each other’s shoes and you understand one another’s concerns. When I was the Ohio Attorney General, I always enjoyed these NAAG meetings because I knew I was among colleagues who could appreciate the pressures exerted by the kinds of tough decisions we all had to make day in and day out. Many of those same intangibles remain relevant to me now in my new role as the first director of the Consumer Financial Protection Bureau.
A year ago, I came to speak to you. At that time, I was newly hired as the Chief of Enforcement at the Consumer Bureau. We had not yet opened our doors for business. We were just a tiny crew huddled into a few cramped offices. We spent our days trying to figure out how we were going to accomplish the many responsibilities Congress had set for us. But something special happened that day when my handful of staff and I came to visit you. Former Attorney General Jim Tierney said to me later, “I knew exactly who your people were. They had that look on their face.” Puzzled, I asked him, “What look is that?” And he said, “They had that look like they just know they are going to change the world.”
Time will tell if we actually will change the world for the better. But over the past year, we have had to think very hard about how we can begin to create a fairer, more transparent financial marketplace for American consumers. Making prices and risks clear. Protecting people against fraud. And standing up for consumers to make sure they are treated fairly. That is our new job.
Back then, we joined General Cooper and the rest of you in NAAG’s Presidential Initiative to develop a strong and lasting partnership between the State Attorneys General and the new Consumer Bureau. Today, I want to talk to you about the progress we have made and about how we have already begun to work closely with your staffs. Quite bluntly, we need your experience, your perspectives, and your coordination in a strategic effort to root out fraud and unfairness in the financial marketplace.
Already, we are excited to work with you on our new Repeat Offenders Against Military (ROAM) database, which will track completed enforcement actions against companies and individuals who repeatedly scam military personnel. By providing a national clearinghouse for such information, we will make it difficult – if not impossible – for predators against our military to roam from one base to another, shrouded in their relative anonymity as they cross state lines. Giving credit where it is due, I want to point out that this idea originated with General Schneiderman, and we were pleased to take him up on this suggestion.
We are also excited about several working groups we have underway with your staff. We are meeting regularly to discuss the challenges posed to our mutual constituents by payday loans, foreclosure scams, auto loans, and debt collection. These substantive groups allow us to keep each other updated and to launch joint initiatives in areas where we share jurisdiction. While we had been somewhat hamstrung for our first six months by not having a director, I am glad to say that problem has now been solved.
And so we are picking up momentum week by week, and we will be getting results for the people we serve. We are taking this same approach with the Federal Trade Commission, which has been a great and generous partner to our fledgling agency.
To advance these efforts, you will shortly be receiving a Memorandum of Understanding from us to establish a general framework to share information on consumer financial protection issues. A quick turnaround on this will help accelerate our partnership with each of you. We want to expand on what you already do so well – and we want you to take advantage of new resources we bring to the arena, including new analytical tools and insight into market trends.
In the Dodd-Frank Act, Congress gave us a broad range of tools to address the problems in the financial marketplace, and to fix them. Through our highly capable research team, we analyze what is happening with consumer financial products from mortgages to credit cards to payday loans. Through our supervision team, we are able to go on-site and examine those banks with more than $10 billion in assets, as well as their affiliates. We also are beginning to examine nonbank providers of consumer financial products and services, many of them for the first time at the federal level.
The enforcement team that I helped build can commence actions against market players who cheat consumers – and their competitors – by not following federal consumer financial laws. We also have the fair lending office, which works to ensure that individuals receive fair, equitable, and nondiscriminatory access to credit, as well as offices dedicated to protecting specific consumer groups with unique issues and challenges – notably servicemembers, students, and older Americans – while also helping enable consumers to make sound financial decisions for themselves and their families.
With this array of tools, we can pick and choose those best suited to solve the problem at hand. Sometimes consumers simply need to Know Before You Owe, which is our signature initiative on mortgages, credit cards, and student loans. Sometimes writing a new rule makes the most sense. Sometimes our supervisory authority can identify and correct problems before they get out of hand. And sometimes holding a bad actor accountable through investigations and enforcement action is necessary. Our goal is straightforward but the responsibility looms large: We are determined to make consumer financial markets work better for all Americans, for the honest businesses that serve them, and for the economy as a whole.
The scope of our work together is brought into stark relief in the aftermath of the recent financial crisis, which has left a tremendous mess for us to clean up. Almost 4 million mortgages are more than 90 days delinquent. Perhaps as many as 10 million borrowers are at risk of default. So fixing the mortgage markets remains an urgent priority. We know you are all dealing with it in your respective states, and you will be for some time to come. We share your deep concern about the far-reaching effects on our communities.
The recent mortgage settlement was an important step forward. The five largest mortgage servicers, accounting for more than half of the market, will now be subject to improved servicing standards, backed by a strong and capable monitor to enforce the settlement terms. Servicers will have to properly document their authority to file a foreclosure action, as the law always required. The people who now benefit from these improvements should thank you, General Miller and General Suthers and all of you who worked so persistently to complete this process, which began when I was still the Ohio Attorney General and the robo-signing scandal first erupted.
Going forward, the Consumer Bureau now has an enormous role to play in ensuring that the great financial meltdown does not happen again. We now have the ability to examine participants in all segments of the mortgage market, and our authority over nonbanks will be especially helpful. Before the crisis hit, only part of this market was subject to federal oversight. How could that ever be expected to work? It most certainly did not. Bad practices drove out the good; our responsible community banks and credit unions were literally robbed of market share; and the whole stinking mess eventually collapsed, dragging down many innocent people along with it. I firmly believe that had the Consumer Bureau been in place ten years ago, the crisis would have been headed off before it metastasized.
Over the next year, the Consumer Bureau will be putting in place new mortgage rules to protect consumers. We will be issuing a rule requiring mortgage servicers to provide consumers with better information in their billing statements. We will also be issuing rules on “force-placed insurance” to prevent servicers from charging for this product unless there is a reasonable basis to believe that borrowers have failed to maintain their own insurance. And we will issue new rules around hybrid, adjustable-rate mortgages. Consumers will be notified months ahead of their first interest rate adjustment and they will receive a disclosure of their new monthly payment, along with any available options to head off the higher rate, such as refinancing and renegotiation of loan terms.
We welcome your input on these tasks. But there are also other areas where we believe that we can forge an effective partnership with you. One that we wanted to discuss today is debt collection.
At a NAAG meeting last year in North Carolina, a speaker presciently warned that illegal debt collection activities would become a special and growing concern in the aftermath of the financial crisis. Just last week, we saw figures confirming his warning: Thirty million Americans are subject to third-party debt collectors. People have a lot of debt. And, let us face it: It is hard to collect debt in a tough economy.
I want to emphasize that many debt collectors play by the rules, work diligently to do the right thing, and comply with the law. But all too often they have insufficient or inaccurate information about the debts they are supposed to collect. Those who follow the law are placed at a competitive disadvantage in contrast to those who do not, and their reputations are harmed when they are lumped in with their competitors who engage in illegal activities.
When I was Ohio Attorney General, we had numerous headaches over debt collection. Sometimes the problems were jurisdictional. Sometimes the players were tiny, fly-by-night operators. Sometimes, they were larger companies. All too often, going after illegal debt collection activities felt like that old game at the carnival, “Whack a Mole.” As soon as we got one, another popped up.
But nothing much has seemed to change. Debt collection remains one of the top sources of consumer complaints on the state and federal level. While debtors need to pay back their creditors, the methods used by some debt collectors are just unconscionable. Harassment. Inexcusable language and threats. Repeated late-night phone calls. Collectors erroneously telling relatives they are responsible for the debt of the deceased. Calling military superiors about a servicemember’s debt and threatening their security clearance. Repeated efforts to collect debts from the wrong consumers. Some of this activity is downright illegal, and none of it comports with any proper vision of a civilized society.
You work on debt collection issues all the time at the state level. For example, General Swanson recently brought a case accusing one of the country’s largest debt buyers with defrauding Minnesota’s courts and citizens by filing robo-signed affidavits. You may have encountered the tactic known as “sewer service” – lawsuits filed on undocumented debt claims, leading to default judgments when service is not effectuated (with contested lawsuits usually being withdrawn). Yet often the same debt collectors magically are able to find the debtor once they have a judgment in hand, which they then collect on. These tactics harm consumers both directly and indirectly, by damaging their credit reports.
We also know of the yeoman’s work the FTC is doing on the federal front to curb illegal debt collection. Over the past year, the FTC commenced seven debt collection cases, the highest number of debt collection cases that it has brought or resolved in any single year. In doing so, it obtained multimillion-dollar penalties as well as far-reaching injunctive relief. These victories represent great strides in attempting to rein in abusive debt collectors.
But even with the aggressive and creative work being done by the FTC and the states, I fear that some debt collectors view law enforcement merely as a cost of doing business. We can look back and find that many of us have sued the same parties at different times; they have paid their settlements or judgments, promised to sin no more, and gone right out to do the same things all over again.
If we can collaborate together towards a national strategic plan, we can address illegal debt collection more effectively. These practices affect all kinds of people – young and old, urban and rural, people of all races and religions – it can affect anyone who struggles with repaying a debt. The worst practices undermine our basic humanity, turning people into mere account ledger entries and spawning treatment that flatly disregards all common courtesy on the way to violating the law.
We intend to forge a strategic partnership with you and with our federal government colleagues in this arena – the Federal Trade Commission and the Department of Justice – to transform this situation in a more lasting way. Our goal is to help the honest debt collectors do their jobs responsibly and see that the rest are either rehabilitated or run out of business once and for all. Until we do so, we will be failing all those people who are counting on us to change the world for the better – including ourselves.
As we put our heads together to tackle this problem, the Consumer Bureau now has the benefit of those new tools I mentioned. Significantly, we recently issued a proposed rule to supervise all debt collectors in the United States with more than $10 million in annual receipts resulting from collection activities. Everyone in this room is familiar with enforcement actions, which will be an important part of addressing problems in this marketplace. But you may not be as familiar with supervision.
When this proposed rule becomes final, our supervision authority will then allow us to go on-site with debt collectors, examine their operations from the inside, and determine whether a collector is complying with the law. We will set forth our expectations through public examination procedures, encourage robust compliance programs, communicate expectations confidentially to the entity throughout the examination and rating process, and ensure appropriate corrective action where necessary. These supervisory efforts would cover more than 60 percent of market activities.
By comprehensively assessing large collectors, as well as many of the bank creditors who originate the debt, supervision would allow us to understand and address the systemic problems posing risks to consumers. By proactive coordination among federal and state law enforcement, we can help Americans dig themselves out of the residue of this financial crisis, without being plagued by the indignity of illegal debt collection tactics.
As U.S. Attorney General Robert Kennedy once said: “All of us might wish at times that we lived in a more tranquil world, but we don’t. And if our times are difficult and perplexing, so are they challenging and filled with opportunity.” In our day as in his, I say Amen to that assessment, and I thank you all for your much-needed service to the United States of America.