Special Advisor to the Secretary of the Treasury for the
Consumer Financial Protection Bureau
Thank you, Pam, for that kind introduction. And thank you for inviting me here today. It’s great to speak with a group that is so committed to the work we’re doing at the Consumer Financial Protection Bureau.
I’d like to thank everyone at the CFA for your leadership and extraordinary work on consumer financial reform on behalf of ordinary Americans. Your work was critical to passing the Dodd-Frank Act. Your collective intellect, your experience, and your considerable powers of persuasion helped to create the Bureau. And, your time, the countless hours you have dedicated to consumer protection, is invaluable and greatly appreciated.
And thank you to the CFA for hosting this conference and giving me the opportunity to hear Barney Frank speak again. In light of Congressman Frank’s recent announcement, I want to express my deepest appreciation for his years of service, and especially his consistent and passionate support for the CFPB. His leadership in the area of consumer financial protection has led to historic changes which are only just beginning to bear fruit. We at the CFPB are committed to the legislation that carries his name. Thank you, Congressman Frank.
Last year, my predecessor and my friend, Elizabeth Warren, spoke at this conference. Next year, I hope my colleague and my friend, Rich Cordray, will be here to speak to you as our first director. It is an honor – and quite frankly it’s a daunting challenge – for me to serve between those two terrific public servants.
Last year, Elizabeth talked to you about breathing life into the new Bureau and putting it on the right path to make a difference for American consumers in the years and in the decades to come. Today, I’m proud to report that just four months into our existence, we are well on our way. We are examining banks. We are helping to solve consumer problems with credit cards. And, with our Know Before You Owe projects, we are making student loans and mortgages easier to understand. It’s a great start, but as you know, it is only the beginning of the work that needs to be done.
When I speak publicly about the CFPB, I usually begin by explaining the CFPB. But with this particular audience, I suspect that I do not need to cover that particular ground. You understand the Bureau perhaps better than anyone does. I also usually provide a brief overview of the events that led to the 2008 financial crisis and explain why the Bureau is necessary to prevent history from repeating itself. But again, I suspect that I don’t need to cover this with you. You saw American families dig themselves into debt they didn’t understand and couldn’t afford, one lousy mortgage at a time. You sounded the alarm well before the ship ran aground.
And you continue to help consumers deal with the aftermath of the crisis today. Millions of Americans had a large portion of their nest eggs disappear as the housing market collapsed and stock markets sank. Millions lost their homes or are now living with the threat of foreclosure. And millions struggle each day to make ends meet.
I do want to touch on one idea about the financial crisis that has been getting some attention lately. Three years after our economy teetered on the edge of collapse, some are saying that the problems were caused by an over-zealous government that pressured lenders to increase homeownership in the country – that government drove defenseless lenders into making bad loans. Now, I’ve spent most of my career in finance, in banks, and on Wall Street. As a senior investment banker at a giant global investment bank, my clients were the biggest banks, thrifts, and finance companies in the United States. Based on my experience, I can confirm what you already know: that the financial crisis was not caused by the government forcing banks to make bad loans.
The truth is that it was a lack of government oversight that contributed to the crisis – not just in terms of mortgages, but with all consumer financial products. The government’s efforts were too fragmented, its responsibilities to ordinary Americans too divided among seven different federal agencies. And when no one agency was singularly accountable – as we all saw – consumers got left behind.
Now, I know that bank executives want to serve their shareholders; and indeed, they have an obligation to do so. And in the lead up to the crisis, when a competitor began to steal market share – or to earn outsize profits – by introducing products like option ARMs or no-doc loans, the pressure to follow suit was intense. Plenty of people in the business recognized some of the risks, but they proceeded anyway because everybody else was doing it, there was nobody telling them not to, and because money seemed to be falling from the sky.
I believe that competitive markets can and should be a powerful force for good, but I also believe that competitive markets need sensible, clear, consistent, and well-enforced rules to achieve their potential.
On July 21st, the CFPB inherited rules and regulations from the seven different government agencies that were responsible for consumer financial protection. And now that we are in charge of these regulations, we are taking a fresh look at how they work. When it comes to establishing new rules for consumer financial markets – sensible, clear, consistent, and well-enforced rules – we do not want to simply layer new rules on top of old ones that don’t make sense. Everything we do needs to achieve our goal of creating a more fair, more transparent, more competitive market that works for consumers and the businesses that serve them.
There’s a lot of work we need to do to fix what has become a broken market. It’s a testament to just how bad things have gotten that we have to write rules to fix very basic matters of the marketplace. For example, we are writing rules requiring mortgage lenders to assess whether a borrower can actually pay them back. And, we are writing rules making sure that monthly bills sent by mortgage servicers include key information about the loan. This might seem pretty basic but, as I’m sure you know all too well, it matters a great deal, and it’s not something to be taken for granted.
While our rule writers are concentrating on tasks like those, our Supervision, Enforcement, and Fair Lending offices are hard at work making sure that banks with more than $10 billion in assets comply with existing consumer financial laws. And once Rich Cordray is in place as our director, we’ll not only supervise these large banks, but also – for the first time at the federal level – we will supervise providers outside the banking system, including mortgage companies, payday lenders, and private student lenders.
As you know, non-banks are particularly important in a market like mortgages. During the housing bubble, after all, many problematic loans were not made by banks but by non-banks for Wall Street securitization. With Rich in place, we will be able to ensure that brokers, originators, and servicers play by the same rules regardless of their charter. It shouldn’t matter if you’re a thrift, bank, ILC, finance company, or investment bank. If you want to be in the business of consumer finance, then you’ve got to play by the same rules as everybody else.
Consumer protection in financial services is a hard job. You know that better than anyone. The writers of the Dodd-Frank Act recognized that if you don’t make someone singularly accountable for doing a hard job, then you shouldn’t expect it to get done well. Congress set up a governance structure with one director – ensuring that the main bank regulator looking out for consumers has the same structure and accountability as the main regulator looking out for safety and soundness of banks, which is the Office of the Comptroller of the Currency. And Congress made sure that, like all of the other banking regulators, the Bureau is outside of the appropriations process. Independent funding of the CFPB and other bank supervisors ensures that we are not at the mercy of outside influences when it comes to protecting consumers or ensuring the safety and soundness of our nation’s financial institutions.
Our goal is to be an open agency, sharing with the public not only what we are doing but how we are doing it. In the first four months, we have been hard at work to promote a consumer financial market where consumers know what they are getting into, where firms follow the rules, and where consumers are protected and empowered.
So far, the Bureau has succeeded in attracting an amazingly talented group of leaders supported by an equally remarkable, diverse, and energetic staff deeply committed to the mission of this agency. We have travelled across the country to meet and to listen to consumers, consumer and civil rights organizations, big banks, community banks, investors, and trade organizations. Among our accomplishments: We have started our consumer education campaign. We have come a long way in re-designing the TILA and RESPA mortgage disclosure forms. We have published examination procedures for mortgage servicing and we have published our general Supervision and Examination Manual, the guide for our examiners in the field. In collaboration with the Department of Education, we have also drafted a one-page “financial aid shopping sheet” to provide students and their families with important information such as estimated monthly payments after leaving school. And, finally, we are working hard to shed light on the private student loan market. In just four months, we have shown our dedication to our mission.
Going forward, we will be tough but fair. We will be disciplined but nimble. And we will help fix the broken markets that exist today, and we will help make sure they are not broken in the future. You can count on us to make sure that consumer financial markets actually work – for consumers, for the honest firms that serve them, and for the economy as a whole. We’ll give families the assurance they need to borrow for a home or for a child’s education. We’ll give our nation’s financial institutions the confidence they need to innovate and to compete. And if we succeed, everybody wins.
When we visit with Americans all over the country, the economic anxiety is palpable. We hear from people about their student loan and credit card debts, and we hear from people about how they are facing foreclosure. When we listen to these stories, they trouble us but they motivate us too. The serious problems faced by millions of Americans drive us to work harder and to do more to make a difference.
As I look around this room, I see so many impassioned people who can help us with our mission. You were here when the CFPB was just an idea. You were here with us when we were created. And now we need you here with us as we move forward. To succeed in our mission, we need you to continue to hold us accountable, to educate us, and to challenge us when you think we’ve made a wrong turn. Knowing many of the people in this room, I’m confident that you will not shirk from either the task of supporting us or the task of challenging us to do better.
Thank you again for having me.