Prepared Remarks of CFPB Director Richard Cordray at the Rainbow/PUSH Coalition's 46th Annual Convention
Thank you for having me. I also want to thank the Reverend Jackson for his continuing support of the Consumer Financial Protection Bureau and for the invitation to join you. I am glad to have the chance to tell you how we are working to level the playing field for consumers in financial markets. But first, I want to recognize the work done by Rainbow/PUSH to raise awareness about justice in civic life and economic development. Thank you for your service to consumers, especially those with lower incomes and those in communities of color.
As many of you may know, the Consumer Bureau opened its doors just about six years ago. Our responsibility is to support and protect consumers in the financial marketplace, and to stand on their side to see that they are treated fairly. We oversee the largest banks and other financial companies that provide household financial services. Since we opened our doors, the Bureau has returned $12 billion to more than 29 million consumers harmed by unlawful practices.
The Consumer Bureau was created in the wake of the financial crisis that hurt so many people in every community across this country. During that meltdown, millions lost their jobs, millions lost their homes, and almost everyone lost a large part of their life savings. The Consumer Bureau has worked to restore faith in the financial system by enforcing fair lending and consumer protection laws and by setting rules to ensure that these markets work more effectively for everyone. Yet we know the financial recovery over the past decade has been inconsistent from one person to another, one family to another, and one community to another. As always, the financial marketplace is toughest for the disadvantaged, who often pay higher prices and get worse treatment.
Our country is founded on the principle of equal opportunity and the right to “life, liberty, and the pursuit of happiness.” We are nurtured by the promise of upward mobility and the notion that our society has done away with any formal class or caste system. We like to suppose that anyone, regardless of where they begin in life, can climb the economic ladder through their own merit and hard work.
But I am reminded of one of Dr. King’s observations. He said: “It’s all right to tell a man to lift himself by his own bootstraps, but it is a cruel jest to say to a bootless man that he ought to lift himself by his own bootstraps.” Economic injustice denies opportunity and drains wealth. It damages communities and sharpens racial disparities. The mortgage crisis, combined with discriminatory lending practices, widened the racial wealth and income gaps that persist in America. White households in America have an average net worth of $134,000; African-American households average just $11,000. Home ownership and home values show similar patterns. At the Consumer Bureau, we recognize the hard work that Rainbow/PUSH is doing to turn things around and empower consumers in communities around the country.
We too are working toward a level playing field. We want to see a marketplace where everyone has the opportunity to build and sustain prosperity. As the Consumer Bureau works to protect families from predatory practices that strip their wealth, we are also providing tools to help them become more financially capable and access safe and affordable products. We firmly believe that all Americans are entitled to economic justice in the form of equal treatment in the financial marketplace. To us, every consumer counts.
We are pursuing this goal on many fronts, so let me describe what the Consumer Bureau is doing. We are working to end discrimination in mortgage lending. We are looking at ways to expand access to responsible credit for those shut out of the mainstream financial system. And we are finding ways to make responsible financial products available to all consumers. Finally, we are looking closely at how small businesses can get the financing they need.
First, it is well chronicled that lack of access to credit and financial services can be a by-product of discrimination. We would like to believe these practices no longer exist, but experience tells us otherwise. One glaring example is redlining. At one time, housing policies contributed to the geographic segregation of communities of color. Government regulators and private lenders literally drew red lines on maps around these neighborhoods that cut them off from the rest of the housing market. Some sales could not be made, and prices could not respond to supply and demand, because the marketplace was kept from functioning naturally on its own. Here, free market economics could not compete with prejudice.
The Consumer Bureau has been working to root out redlining in its more modern forms. Last year, we took action against BancorpSouth for redlining as well as the use of discriminatory policies to deny loans or charge more for them. In another action last year, we determined that Hudson City Savings Bank was redlining in parts of New York, New Jersey, Pennsylvania, and Connecticut to discourage residents in primarily African-American and Hispanic communities from getting mortgage loans. Through these kinds of cases, we have recovered tens of millions of dollars for consumers who were victims of discrimination.
At the outset of the Consumer Bureau, we announced that we would not tolerate discrimination in mortgages, auto loans, student loans, and other areas, and we have followed through on that commitment. None of us can afford to ignore practices, intentional or not, that unlawfully price out or cut off segments of the population from access to the credit markets.
Even if their situations do not result from redlining, those who cannot obtain credit from mainstream sources are in a similar bind. For the underserved and the economically vulnerable, managing the ways and means of their lives usually costs more, risks more, takes longer, and does less to build a financial future than is true for others. This lack of access can be the result of too little credit history to support a credit score. Some consumers are caught in a Catch-22. They cannot get credit because they have not had credit.
A person’s credit history is documented in their credit file, which is then scored to reflect their creditworthiness. These credit reports, and the familiar three-digit credit scores based on them, play an increasingly important role in people’s lives. For instance, those with a limited credit history may face a range of issues, such as problems in renting an apartment or buying a home. Building and maintaining good credit is important for everyone, but especially for economically vulnerable consumers.
In 2015, our analysis of the data showed that 26 million Americans have no credit history at all. We call this “credit invisibility.” More than 450,000 adults here in Chicago, about one-in-five, are held back by their limited credit histories. Among them are people with lower incomes who do not or cannot take the more traditional routes of building up credit. In a recent study, we found real differences in how people establish a credit record between lower-income and higher-income neighborhoods.
The Consumer Bureau has established a priority to see that responsible financial products and services are made more readily available, especially for those who are underserved or shut out. The use of “alternative data” is being suggested as a way to build a credit history and gain access to credit by drawing from sources like rent payments or mobile phone payments. The idea is that by filling in more details of a consumer’s financial life, this information may paint a more complete and perhaps more accurate picture of their creditworthiness. This could help make credit more widely available to millions of consumers. We are looking at the benefits and risks in using alternative data, what it means for fair lending practices, and what the future may hold.
For consumers who are credit invisible, or struggling to establish a credit record, the use of low-risk, responsible products that build credit and provide consumers with financial education can be a good option. Products such as secured credit cards can provide people with a means of entry into the credit market.
The same is true of banking products. Millions of vulnerable consumers live on the edge and may end up excluded from the banking system if they incur too many overdrafts that they are unable to repay. In an era of income volatility, and given the reality of unexpected expenses, many cannot predict from week to week how much money they will bring in or have to spend. Thus they are more likely not to have enough money in their accounts to cover their bills.
What would help are safer accounts designed to prevent overdraft fees. By offering consumers a bit more choice, banks and credit unions could help more people enjoy the benefits of a banking relationship. What does that mean? It means the security of your money, the safety of not having to deal in cash, reduced costs of accessing your money, and the opportunity to save and build more financial history over time. We see an opportunity here for banks and credit unions to build loyalty and earn trust among the broader public.
We will continue to encourage banks and credit unions to offer such products and give them a higher profile. Notably, these safer products do not even have to be a typical checking account. Reloadable prepaid cards can be used to make payments, withdraw cash at ATMs, or receive direct deposits. Some cards also let consumers set money aside in savings. This market is now huge: the amount put on prepaid cards grew from less than $1 billion in 2003 to nearly $100 billion in 2015. This makes it one of the fastest growing financial products in the United States. The Consumer Bureau recently announced strong new federal protections for prepaid accounts to make them safer and more transparent, and to help people manage their money.
The importance of access to financial services is not restricted to the realm of personal finance. For entrepreneurs starting or expanding a small business, credit access is crucial. Without it, they cannot take advantage of opportunities to grow. When that happens, we all pay for it. By creating jobs and nurturing communities, small businesses help drive America’s economic engine. It is estimated that they have created two out of every three jobs since 1993, and they provide work for almost half of all employees in the private sector.
When these small businesses succeed, it benefits our communities and our economy. One study found that counties with higher percentages of their workforce employed by small businesses had higher local income, higher employment rates, and lower poverty rates. The Reverend Jackson has put the point very well. He said: “When you create more small businesses, you create small entrepreneurship. Out of that comes self-determination and employment.”
Congress has directed the Consumer Bureau to develop rules for small business lenders to collect certain information and report it back to us. We are now seeking public input to help us carry out this directive in a thoughtful and cost-effective way. This inquiry recently took us to Los Angeles, where we heard compelling stories about how important small businesses are for creating wealth and opportunity in communities of color and immigrant communities. Obviously, anything that discourages lending can drain these communities of economic vitality. For this reason, we will be developing data collection and reporting rules that promote, rather than hinder, small business lending.
Before I close, I want to ask all of you to keep the Consumer Bureau up to date on what you see and hear from the people you work with every day. Please encourage those whose lives you touch to contact us with problems or questions. We are glad to help. Any consumer who thinks they are being treated unfairly in the financial marketplace can submit a complaint to us. More than 1.2 million people have done that, and many have gotten results. You can file a complaint online at consumerfinance.gov or by calling our toll-free number to speak with our very helpful consumer response team at (855) 411-CFPB (2372). If you want to share an experience – either positive or negative – you can check out our online “Tell Your Story” feature. We need to hear from you. What you tell us makes us aware of current problems and helps us prioritize our work.
So these are all elements of what we are doing at the Consumer Bureau to shape a financial marketplace that offers equal justice to all Americans. We are enforcing the laws that say credit cannot be denied to communities of color, or offered on worse terms than to others in similar circumstances. And we want to see credit offered on terms that consumers can actually afford to repay, without leaving them worse off. Addressing these issues effectively will help our communities build and sustain prosperity and opportunity. Indeed, that is what America must be about – making every consumer count. We look forward to continuing our work alongside Rainbow/PUSH and other groups to make this aspiration a reality. Thank you again for having me here today.
The Consumer Financial Protection Bureau (CFPB) 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. For more information, visit www.consumerfinance.gov.