 Thanks, Michael. I'm one of the people that we spent a couple hours every five minutes During that Dodd-Frank process and it's great to be here in Ann Arbor The architects of Dodd-Frank established CFPB So it could address the glaring weaknesses in the regulation of financial institutions to protect consumers that were exposed by the financial Crisis in which almost sunk the world economy The root of the crisis was a consumer protection failure of massive proportions Where millions of borrowers receive mortgages that were designed in ways that made failure more likely than not in which they were entirely unable to repay As a result millions of families unnecessarily lost their houses causing untold pain and loss of wealth to families and communities These foreclosures had ripple effects through the financial system because of little known Leveraged bets financial institutions placed on them These financial system failures had ripple effects through the real economy causing large unemployment more defaults more misery that we're yet to recover from How were all these bad mortgage loans possible? There are several reasons First there was no market intelligence or early warning system to even recognize the problem until it was too late Second there was no one entity responsible for tracking or addressing consumer protection problems in the financial arena In fact several agencies as Michael mentioned several agencies At the federal level had consumer protection responsibilities for banks and the FTC had limited enforcement authority for non banks The Federal Reserve had rule writing authority under a number of statutes But consumer protection was not their top priority and couldn't really have been expected to be They had to deal with safety and soundness of banks and bank holding companies Monetary policy to control inflation and promote full employment payment systems. All this stuff came before consumer protection Third preemption of state mortgage lending protection such as those those passed by North Carolina where I'm from By fed by federal banking regulators and limited ability for state attorneys general to fill the breach Was another problem Fourth there were virtually no substantive rules protecting borrowers in mortgage lending The classic abusive mortgage during the boom time was the 228 subprime loan Over half of the loans that minority families received during the boom were these subprime very bad mortgages They're often originated by mortgage brokers under a compensation structure that Incentive the broker to put borrowers in these mortgages even if they Qualified for a conventional middle-class mortgage They were often originated on behalf of large unregulated non banks like Countrywide New Century AmeriQuest and usually sold to private label security investors through Wall Street They often did not document income or assets promoting fraud in what brokers reported The loans often did not amortize that they had teaser payments as interest only loans or in the case of 228 teaser rates Both leading to huge unsustainable payment shock that families simply could not absorb and to top it off There was a often a very large prepayment penalty Which took the family's equity as a quid pro quo of being able to get out of a bad loan and into a good one The amazing thing was that all these mortgage features other than the outright fraud that the system promoted and ignored We're legal at the time It is kind of amazing to contemplate and Finally a fifth problem was that there was no federal entity to supervise non-bank lenders as well as entities like the credit bureaus Which have a huge impact on who gets loans and at what cost? That's quite a list of consumer protection failures that help lead to the financial crisis And of course mortgages weren't the only type of product where there's kind of problems existed It was just the largest One a few additional examples Michael mentioned many of them payday loans student loans overdraft charges by banks Tricks and traps with credit cards and prepaid cards The Dodd-Frank solution. I think still was a wise one create one federal agency with the mandate to protect consumers of financial products And arm it with a toolkit sufficient to the task Capable of addressing the failures. I just discussed First establish one agency with independence from political pressures by Congress or the administration This independence is the case with all other federal Safety and soundness regulators and it's probably even more important for an agency to protect consumers Second the agency would serve a market monitoring function and be informed by a complaint database Where consumers across the country could obtain redress so problems in mortgage lending wouldn't have come as such a surprise Third recognizing that CFPB may not have all the answers or that there may be times when CFPB is not sufficiently rigorous in protecting consumers The agency's rules would serve as a floor and not a ceiling as a result states could enforce their own laws That are more protective of consumers than CFPB's rules Also state attorneys general could enforce CFPB's rules in case if CFPB decided at a particular time not to Fourth provide the agency with the rule-writing authority that was shared among different federal agencies These rules would establish a level playing field for banks and non banks They'd also prevent responsible lenders and providers from having to relax their standards to compete with others who don't have those views Fifth the agency would supervise large banks and large non banks and all mortgage lenders Six it would also have enforcement authority in case Supervision is not enough and it's regulated entities don't follow its rules That was the vision that the Dodd-Frank architects had to address the problems that led to the crisis I think what I think what our panel is going to do is talk about those different tools and how they've been applied How they might be applied in the future So after that lead in I think I'll introduce the Each panelist once they're about to talk. I think Peggy Tui is going to come first She's the assistant director for supervision policy at the Consumer Financial Protection Bureau Thank You Eric. Good morning everyone. Thank you Michael for inviting me here and thank you for asking me to come to Treasury Back in 2009. It's been ever since then. It's been interesting challenging To be involved as the CFPB story continues to unfold as Eric said I'm head of supervision policy which at at CFPB which has the responsibility of setting Strategy for both the bank and non-bank supervision program as well as ensuring that as we supervise our The the calls we make on legal violations and how we apply Our expectations are consistent across the bank and non-bank markets I want to say a little bit about my background before Michael asked me to come over to Treasury and before I got started with CFPB Because that informs my remarks and my perspective that you'll hear today And before that I was at the Federal Trade Commission so I spent most of my career in in the public sector and I was in at the Federal Trade Commission in the division of financial Practices which as Eric mentioned Only has jurisdiction over non-banks and primarily enforcement authority as a tool so With that background in mind. I want to talk about three different things one is From my viewpoint given that background how I think the oversight of compliance with federal consumer financial law has Improved with the creation of the Bureau and what difference the supervision program of the Bureau has made and in particular I want to mention the supervision of the credit bureaus of the largest consumer reporting agencies as well as the furnishers to those systems and Talk about why I think that was a significant addition to the federal oversight landscape for consumers And then third I was going to talk about also I saw something in the materials about technology. We're supposed to be doing about technology So I want to talk about some of the benefits and pitfalls that the Bureau has found as Institutions rely and perhaps increasingly Increasingly rely on technology to facilitate compliance So that's part and parcel of just the way things are done these days as you all know So as was mentioned by Michael and Eric Before the crisis there was no agency with supervisory and enforcement authority over both the banks and non-banks Just oversee compliance with federal consumer law the FTC had enforcement authority only And therefore that meant there was limited ability to really prevent violations from occurring the primary tool was after the fact Law enforcement so when there was smoke coming out hopefully not of the hotel where we're staying in Smoke coming out You know the law enforcer see that smoke goes in tries to stop the fire and get you know any Any remedies back to consumers that were injured as opposed to going in and making sure that those alarms are working And so that The fire can be stopped at the earliest point or prevented better yet prevented in the first place so now Eight years later It's a completely different consumer protection regulatory landscape the Bureau not only has enforcement authority but supervisory authority as well and that extends across the largest banks and Many of the non-banks that are basically some of them in the exact same markets doing very similar things And so we can see across that landscape as we do our supervisory work So we've built our supervisor program, and I guess I should mention I'm using that word as if everyone knows what that means. That's where Basically Examiners can go in to the institution. It can be on-site or off-site But we have the authority to ask for information From the bank or the non-bank about how they're complying with the law We have the ability to ask for information to help the examiners assess compliance with the law and We can look for risk to consumers. So it's all very Ongoing real-time information gathering and assessment as opposed to a longer stretched out Investigatory process So it's it's basically the primary tool is sending an exam teams to be on-site to engage With the company officials ask them about what they're doing what their compliance systems are and to evaluate Do transaction testing and to evaluate whether they're complying with the law So we've built this Program and the foundation is to ensure that entities have compliance management systems in place and that they are engaging in ongoing self-monitoring and correction And including where they evaluate the root cause of any problems and they put into place Anything that's needed to try to address those root cause. So that's the basic goal to To aim at prevention of law violations in the first place. It's more comprehensive Then solely looking after the fact whether they violated the law It's trying to make sure they have systems in place to ensure that doesn't happen in the first place That's the primary goal And because we prioritize our supervisor work based on risk It also provides an incentive to meet those expectations in that if we go in and we see a bank or a non-bank With a very robust compliance management system then we are assured that they are doing the self-monitoring self-correction and We the CFPB don't have to spend as many of our resources going back as early and often to look at what they're doing Conversely if we're troubled by what we see then they're higher on our risk Metrics and then they're scheduled for examination reviews more frequently And what we found is that many non banks and banks by the way Have indeed improved with this kind of oversight Because our oversight as as compared to the past first and foremost is solely focused on consumer compliance That's our only focus not as the other regulators had a combined focus that was prying preeminently concerned with safety and soundness and other compliance issues So we we have seen improvement Especially but not only in the non-bank marketplace where they now have Compliance managed systems in place that they never had before One example of that is the biggest consumer reporting agencies The consumer reporting market as many of you know plays a critical role In our economy in consumers lives. It has such an enormous reach and impact Over 200 million Americans have credit files with the biggest credit bureaus And trade lines are furnished voluntarily by over 10,000 providers And it's probably a given how important these credit ports can be in so many aspects of consumers lives And also to those that use the credit ports. It's important to the businesses that use it that that it's be accurate But it it's interesting to me kind of surprising that Despite this critical importance of this infrastructure Until the CFPB there was no federal or state agency that had oversight authority to go in and monitor compliance It had supervisory authority not the states not the federal government It was only again the FTC with kind of and in the states with kind of this after the fact law enforcement Authority and so the CFPB one of the first things we did when we needed to establish a Rule to be able to supervise some of the non-banks our first priority was Establishing a rule that would let the CFPB oversee the credit bureaus and so we did that and so now we have had a regular ongoing supervision program with respect to the largest consumer reporting agencies and Indeed we have found and we did a special report on this a supervisor highlights report in March 2017 and I know I probably won't go into the details here, but indeed we have found that that kind of oversight and that kind of ongoing look by a regulator to see what they were doing to proactively Try to comply with the law has resulted in them increasing their quality management In various respects and so that kind of oversight that kind of asking the questions that kind of expectation and evaluation of Compliance management We think has made a difference. It's not the complete or total answer But we think that has made a difference and has been a good start But in addition it's not just the consumer reporting agencies the Bureau has been able to look holistically at the whole system so Many of the inputs are at issue for the credit reporting system the banks and the non-banks that furnish the data To the credit bureaus and we can look at that too. We can look at the largest banks And their furnishing practices and whether they were complying with the Fair Credit Reporting Act responsibilities They had as well as the key non-banks that would be mortgage companies credit card issuers debt collectors And so we were able to look at different aspects of it to make sure we're covering it all and indeed we found With many of the depository institutions They had not really prioritized Looking at compliance with their furnishing activities. They hadn't really been overseen for that So guess what that was a little bit of a compliance backwater and and we put a spotlight on that we've looked at that we found some violations of sight of those violations and Have have directed them to improve their compliance So that's just one example of the kinds of Observations we've had and the difference this ongoing oversight Makes in in my view and in my experience So just a little bit about the technology picture Turning to that so as I mentioned many financial institutions many Entities of all types increasingly use technology to facilitate their processes and procedures and in this case compliance and so we found that Some of that is is Really facilitated by service providers that set up compliant systems for all kinds of different entities and one key provision That's I think little known and little understood in Dodd-Frank that was in there Is that the Bureau has the ability to go look and directly at the service riders? And that has been I think very important in this technology area where we can go Kind of to the heart of who's providing the technology to maybe a number of entities And if there's a root cause issue we can detect it and assess it and again Direct them to fix it. We can also just have the same Expectations over them that I talked about with the other entities to try to ensure that they proactively Pay attention to all the technological details that might come into play When say a regulation changes and there needs to be change management Properly executed and tested and so that's been that's been an important part about what we of what we've done in looking at those Technology issues, so I think I'll stop there Thank you, thanks Next we'll hear from Nick Smith He's the senior deputy attorney general and assistant director of the Bureau of Consumer Protection of the Pennsylvania Office of the Attorney General Thanks Eric. It's a mouthful Nick It's too long and thank you Michael for having us here today Thank you for letting me come work for you at Treasury in 2009 and Peggy and Eric. Thank you for Giving me my first job So I I started at Treasury and worked there with these good folks And then I went to the CFPB and I was an enforcement attorney there for four and a half years And then I went into private practice because I wanted to move back to Pittsburgh where I'm from Did that for a little while and for the past year and a half I've been with Attorney General Josh Shapiro running his consumer financial protection unit Some people refer to us as a mini CFPB. That would be less of a mouthful. I think then my official title But I really enjoy the work at the state level and today I'm going to talk about two things One is sort of what state AGs are doing to fill the gap with the federal agencies perhaps doing less in terms of consumer protection and then second I want to talk about what we did when I was at the bureau that involved technology and changing technology So I guess I'll start with the the first thing which is the US Bank case at the CFPB and this ties in nicely with what Peggy just told you about exams because Back in the early days of the CFPB in rich riches tenure We actually assigned enforcement attorneys to go out on exams and provide exam support And the official purpose of that was to give Enforcement attorneys experience learning about the exam process and I think it was a really really great thing the entities hated it and the industry rebelled and rich probably didn't hear about anything more than that for about six months and So finally the bureau decided not to send enforcement attorneys out on exams anymore But I had the good fortune of being assigned to an exam of US Bank Which was a special review to look at this program called the US miles program and it ended up becoming an enforcement action Which is why I can talk about it with you today. Otherwise exams are totally confidential But it was it was a program that was designed for enlisted service members. It was called miles and To the banks credit, I don't want to give them a too bad of a name It was actually a program set up by another bank which they had acquired and it was one of those Examples of a situation where these big banks were gobbling up lots of smaller banks and non-banks and Not necessarily paying much attention to what was going on. So this program Was a subprime auto loan very high interest rates like 17 18 percent APR And they had I think about 50,000 customers over the course of about a decade and We looked at it because we got a complaint and there's a video probably still on the CFPB's website from a father of a soldier And his father wrote into the CFPB and said, you know, my son is spending basically all of his after-tax income on this car loan He had I think a $500 payment monthly and it was like, you know, brand-new pickup truck, of course And then he was spending two or three hundred dollars on insurance The rest on gas and his whole take on pay was like $1,100. So he really didn't have much money to spend other than the truck So we we looked into the the program and the issue that we found actually had to do with a lot an allotment program and Allotments are a means of payment that the military set up a hundred years ago. Maybe longer Basically before the time of online banking Consumers needed to be able to when they were deployed at war They needed to be able to make sure their bills still got paid And so service members could direct the DOD pay office to pay their mortgage You know, they're they're financing for their horse and buggy You know, they're their mother like whoever they wanted to send payments to and this system Existed for a long time and worked fine But flash forward to the 2000s where now everybody in the military is required to have a bank account and almost every bank offers free online bill pay and free ACH transfers This this allotment system was obsolete and not really not necessary anymore But there was a whole industry around military bases that had cropped up that figured out that if they required service members to pay via allotment They would basically eliminate any risk that they would not get paid Because they would get paid straight out of the paycheck and even though a service member could turn off the allotment There's a real emphasis for junior enlisted on paying your bills and not falling behind and you can lose your security clearance if you get a Bad thing on your credit report. So there are still today a lot of shady lenders and creditors outside military bases, but before our case They all required payment by allotment and it made it much easier for them to prey on service members US Bank's miles program did the same thing. You were expected and required to pay with an allotment and The problem that we found that US Bank was doing was they had a third-party service provider That was processing and setting up the allotments and charging service members at three dollars and fifty cent monthly fee for that that service They were not disclosing that fee as part of the Truth and Lending Act disclosure and without getting into too much technical detail Basically, this was an extra $200 over the course of the auto loan that that service members were not being told about up front as part of the cost of the loan and That was a violation of Tila So that was one of the findings we also had some deceptive marketing of add-on products They had a vehicle service contract and extended warranty basically that they were selling and also gap insurance and Their call center in Kentucky was was calling people and telling them It's it's just pennies a day to have this extra product and you might as well buy it And in fact the cost wasn't pennies a day. It was like 40 cents a day or something, which is significantly more than pennies So we found that was a deceptive practice and we ended up taking two Consent orders one with US Bank I think they paid about three and a half million dollars back to service members and then another one with dealers financial services, which was the non-bank marketing partner that had the call center in Kentucky and We required them to give you know Seven million dollars in total back to service members including the one whose father had complained to us in the early days Is that on the complaint database? It is yeah, it's probably in the complaint database server purpose and like I said, there's a great video I think his name is Ari There's a video of the father and the son That the BCFD made and I think Elizabeth Warren made a video too But anyway, the the reason I mentioned this case is because we didn't just stop there with the Settlement and and requiring them to give the money back I was I worked with Holly Petraeus in the early days at the bureau and she led the office of service member affairs and Of course, she was very interested in this case and we kept her team apprised as it was moving along and afterwards When we announced the the settlements She used that to go to the Pentagon and say hey look at this allotment program This this service member was had to pay an extra two hundred dollars because of this this allotment program And you've got all these shady lenders around bases that are taking advantage the allotment program You should really take a hard look at allotments and think about if it's still worth having and so The Pentagon set up a working group I was the policy lead for the CFPB and we had Holly and Seth Frotman on her team and Along make a long story short. It took many meetings, but we convinced depending on to ban the use of allotments for consumer credit They still exist for I think like paying rent and a couple other small things I think you can still pay your mortgage through an allotment, but you can't make a pay a car loan or purchase any Jewelry or other product outside a military base and repay it through allotments, so that was I think a good example of the CFPB embracing innovation Back under under Cordray I know now the CFPB is making a new push with with a sandbox and and other things that they claim will Help consumer-friendly innovation and maybe we'll talk about them later But I think it's important to point out that the CFPB has always been in favor of innovation That's actually good for consumers and in that case we actively said Here's this old system. That's not good for consumers Let's do away with it and encourage people to use the free bill pay and online banking that is is much better for them That than the old system So I want to shift to state AG's filling the gap a lot of people are writing articles about how State AG's are beefing up consumer financial protection efforts, and it's true. We are I think the CFPB is irreplaceable and it is still doing incredibly important work And and I was happy to hear from Peggy this morning that much of the exam work is still going on and and and strong and I mean the AG's cannot replace the CFPB But what we can do is we can be on the on the cutting edge I think take on the cases that may be Ones that the new director is not willing to take on and not willing to bring and and we have seen that the number of enforcement actions has dropped dramatically since Acting director Mulvaney and director Craninger took over So a couple of things we're working on one is the Navian lawsuit That's one where we the CFPB has it an outstanding case against Navian. They filed in January of 2017 There are also five state AG lawsuits against Navian And I think that's a good example of some more that the CFPB is still doing really good work I mean their case is still moving. They're litigating it really hard against the lawyers on the other side They're they're doing great work on discovery They're and they're a good partner to the states and I want to I want to recognize that At the same time the states are working very hard as well on our own lawsuits Because we recognize that the CFPB lawsuit something could happen to it I mean there has been public speculation in the media about meetings with the CEO of Naviates So we are hopeful that the CFPB will keep up its its good work on that case But we're not counting our chickens and we're we're pursuing our lawsuits as though They're the only ones out there and and we need to do that So that's an exciting case I'm happy to talk more about the substantive allegations there There's also Equifax Everyone knows the there's a multi-state investigation of the Equifax data breach that the AGs are are working on That's an exciting one and I think I'll just explain what a multi-state is because some people may not know Back in the 90s State AGs started working together in a very formal way to investigate the tobacco companies and they institutionalized this process of actually banning together and sharing resources and and Signing common interest agreements and it's become a really powerful way for AGs to do work against these big national Entities and it's particularly helpful for smaller AG offices where they may only have five people in consumer protection for the whole state So Equifax is an example of that where of course every state is is interested in that case another good example That was Wells Fargo. We announced the settlement in December of 2018 550 million dollars was was paid to the states and this stemmed from the cases of the Accounts the unnecessary accounts that people created and also the force-placed auto insurance That was a case where the CFPB had done its own actions. They settled one in April of 2018 and We we took a look at that and we thought We need to do our own. There's there's there's more to be done there and the public settlement Includes some findings that went beyond what the CFPB found And it was a it was a good example. I think of Wells Fargo Realizing like okay, the AG's they're gonna they're gonna hold our feet to the fire and I there's a lot I can't talk about that's confidential there But suffice it to say that I think the AG's involvement was was very helpful in that in that matter Another another case that I want to mention that's just a Smaller one, but which is is a fun one is the Dominion cash point case So this is an example of where state AG's try to stop some of the the cross-border stuff that goes on In Pennsylvania, we have a usury limit like many states So payday lending is effectively illegal in Pennsylvania And there's a company called Dominion cash point that was based in Delaware and was making Usurious title loans to consumers from Pennsylvania. They were advertising in Pennsylvania They had a website directed toward Pennsylvania borrowers with with PA in the URL And they encouraged Pennsylvanians to just drive across the border to Delaware and take out a title loan the company has gone out of business, but we sued them because they took five million dollars from Pennsylvania borrowers and We want them to pay back the legal interest portion of that which is about three million dollars. So This was my first state court case I only got to work on federal cases at the bureau and Navi is also filed in federal court so I got to learn about the procedures of the Philadelphia court system and Fortunately, I have good lawyers in our Philly office to tutor me along the way and I'm constantly bugging them about how that works but You know, this is a case where the owners took all this money from consumers they've now squirreled it away and trusts and They're trying to keep it in away from our our hands And we realized that they just weren't gonna gonna give us the money unless we sued them And so now we're in discovery in that case. It's a very fast timeline. I think scheduled for trial like later this year So that's an example of the kind of thing the AGs can do and have to do where you might not See the CFPB suing such a small company. Although some of the respa actions were against pretty small companies But the AGs we have to take on people at all different levels from the biggest Wells Fargo to to the really smaller ones and Dominion's not even the smallest we do home improvement contractor cases where there's like 10 people who got bad plumbing lines put in their basement I don't work on those cases. I only do consumer finance, but that's what the AG consumer protection offices have to do so I Guess I just want to I just want to close by emphasizing what I said before which is we can't replace this the fbb But we're doing our best. We're we're shifting resources away from the plumbers and towards the Wells Fargo's And we're going to continue to do that. I know other states are doing the same thing I'm going out to to New Jersey to help talk to them about what they can do what they they've got some new folks there And they're really excited to do more in consumer finance I'm going to visit with the Michigan AG's office in the coming months a new AG here so You know, I think there's interest all over the country in terms of doing more in consumer financial protection and As long as we keep working hard I think we can survive the next two to four years Until we have a new director of the CFPB Thanks Nick Lisa Donner is next and with us She's the executive director of the Americans for financial reform and thanks Michael for inviting me and Maybe I should I should start by saying it's there are a lot of people in the story who played a huge role from the inside in Building the consumer bureau at different stages of its of its life I feel like we in our partners played a played a role from the outside, but maybe that makes it easier for me to say as a as a framing Device that though we clearly are facing a bunch of challenges right now with the change in leadership of the bureau I do think it's really important to Take a moment and celebrate actually what a huge success The bureau has been and what a difference it has made in consumer protection What a difference it has made in changing the rules and changing the extent to which Institutions feel like they have to follow the rules and what a difference is made in actually leaving us despite the challenges of this moment In a stronger position I think to keep doing better than that and both on consumer regulation and frankly on financial regulation beyond that So I do I do think that's worth celebrating and important to celebrate And I don't say that at all to say, you know, our work is done I think even apart from the challenges of the moment first, I think one of the really important lessons of The history of the bureau and of the fights around it has been that we need to set the bar higher in terms of what we expect and demand on Consumer financial regulation and on outcomes for people and on financial regulation generally And so we should be satisfied for that reason and then also people have talked about a little about Wells here But thinking about an institution like that. We're on the one hand there's been some good regulatory work and some good kind of speaking up from below on the part of the workers and Some changes have been forced and yet We have this giant institution that where you know every time you look there is another round of really troubling abuses in a different Part of the business and so clearly we haven't solved the problem of making fundamental change and an institution like that that Touches so many lives All right, so first a couple comments on on what worked And then or some contributions to the discussion of what worked then on some of the daint the frightening things happening at the moment And then a little on what next You know stating the obvious to an audience that knows this well, but The bureau in it in this first phase of it in the first phase of his life did what it was supposed to do right it used the set of tools that it was given and the sort of structural features that were baked into it and to Pursuits mission and that added up to a significant impact including the 12 billion dollars in consumer relief that we talk about all the time But it's more than that right because of practices that got changed by those enforcement actions So it wasn't just the 12 million dollars and to those people and and include and significant rule-making That both stopped major harms Like the kind of lending that was at the root of the crisis and and set guardrails for sort of more emerging products in markets like in the prepaid space Incredibly important and I think you know Eric talked a little bit about the sort of structural features and the design of the bureau and I think Mike's going to talk a little bit more about some Particular rules and market changes as examples of this so I wanted to talk a second about more of sort of the choices process and structural choices that the bureau made that helped Enable the six some of those successes and I think are useful lessons for effective regulation and I think we should Spend the time to talk more to the people who know this stuff much better than me the people from the inside to think through Some of these lessons as well I think the focus on being consumer facing and treating consumers as the agency's Constituency and building structures and processes to maintain that mission focus are incredibly important You know so the failures and Eric talked about this in the in the bank regulatory world to do this were partially about mission Not having a consumer protection mission uniquely, but not only I mean the SEC has a very substantial consumer protection mission that it has often failed to pay much attention to that element of its mission and Minding safety and soundness ought to be not just about Minding it from the perspective of each individual institution But from the perspective of the system and the public which is different a different perspective on safety and soundness And and there are a bunch of structural forces that move Financial regulators away from a public interest focus including just the power and money of the banks and then all the little ways That that's manifest even when we are being we sort of the consumer advocacy community are being really active and engaged They're not as many of us. We're never going to have even a fraction of the meetings for example with a friendly regulator That industry does there's all kinds of data that they have that we don't have And so we won't there's no way to understand those things unless a regulator is taking that responsibility and serving the public and doing it so I think For example the choice to not just I mean that the complaint database was a statutory requirement, but making it public Was a choice and then move taking the next step to make the narratives public Was a choice and all those things I think kind of lock in a virtuous cycle of Databases more attractive to people if they can learn something from it as well as use it and it's certainly more effective in shaping bank Actions if they know people are going to see what they did or didn't do and I think that You know you hear from all kinds of people including you know people who talk to industry about what their response to it was ban or attorneys who it's sort of funny for a lawyer who has all those tools to You know say yeah, but actually we get better results sometimes But you know when my client files a complaint because they know it's going to be seen then you know through months of litigation Doing things like holding public hearings around the country to talk about substantive issues and hear from people doing things like publishing Supervisory highlights so because each individual supervisory process is private but telling the public what is Happening in those Exams I think is incredibly important and gives you a sense of what the agency is is doing and how you might affect change You know certainly we said to lots of other agencies like you could do something like that On the Volcker rule for example, you could tell us what you're seeing and it would make a difference I think using Enforcement actions to both, you know, make sure you're getting money back for people in meaningful ways and to change Conduct and to educate both the public And institutions about what the law is and the expectation that it will be followed willingness to go after big and Sometimes small actors when they're doing exotic things but just because the practice was widespread not to make have that mean that you had to Let it go and using research and reports Really effectively both to inform rule writing and to shape the conversation And expose problems as for example, it was done so successfully in student lending So that's a that's sort of a piece of the good news and in terms of where we are now first, I think it's true at the same time that Though the folks in charge, I think, you know, essentially don't believe the bureau should exist and don't agree with its mission They can't just wish it away, right? And there's there's an institution there and they can't make it go away And that's a good thing that doesn't mean they can't do a bunch of harm So I want to talk about a couple of the the pieces of what we are most worried about That is happening right now and one piece is a real change In the approach to enforcement and obviously we don't we can't see a bunch of that because you don't can't see what doesn't happen But you or you can't see the details of what doesn't happen But you can see some numbers about what doesn't happen and our colleague at CFA Chris Peters had actually just looked did a did an exhaustive counting in the last couple weeks of enforcement actions before before and after the change in leadership and The in the peak enforcement year, which was 2015 There were 55 enforcement actions brought Last year there were 11 the average recovery or money back for consumers in those cases Dirt when director Cordray was in charge was close was close to 57 million per case Cranage has only been there a moment. So this is not a quite a fair number But 2.4 million For those cases so about 43 million in restitution in restitution for each week of Cordray's tenure 6.4 million under Mulvaney. There were a bunch of legacy cases still to again It's not been very long yet, but 925,000 a week under the present director 15 student lending cases versus none 11 cases of lending discrimination of one kind or another versus none So that's a big change The undermining of the office of fair lending an equal opportunity by stripping it of law enforcement authority and kind of repurposing it to advocacy coordination and education Rather than demanding compliance with the law closing the office for students and young consumers And sort of reassigning that staff to serve within the office of financial education and then turning around the rulemaking agenda So that instead of a focus on consumer protection rules a lot of the rulemaking energy has been focused on sort of reversing consumer protection including notably obviously In the things not done and taken the overdraft an overdraft rule off the agenda of things to do Taking the small business data collection rule off the agenda of things to do Rolling back proposing to roll back the payday rule And putting out for proposal this sandbox proposal that that nick referred to which We think is is an incredibly dangerous Proposal that would if it goes forward as it as it was written it essentially would allow individual employees Without in in 60 days people agencies giving itself 60 days to respond to requests for sweeping exemptions and exceptions with no public input and very little visibility No requirement that the company not currently be facing litigation or enforcement actions They're willing to accept applications from trade associations or service providers who serve whole markets not just individual providers So it's sort of a giant it's a giant loophole to almost anything or everything with no process Which seems like an astoundingly dangerous as as well as you know extreme case of overreach Proposal and then Earlier, I guess that you know the last sort of it's not wasn't a rulemaking but a a lot of time and energy It felt like got spent when Mulvaney first came to the Bureau on this art this request for information process Requesting comment on a whole bunch of very process but very important process issues about the Bureau that felt like an exercise in Inviting industry to you know write its come write its complaints down And you know we had the opportunity to comment as well But they were the questions were often very vague or very broad there was very little time There were questions was very difficult to respond to if you didn't have the perspective of somebody who had been inside the process And it's not clear what's happening with regard to those RFI so just sort of an example of a great deal of energy being expended on deregulation really not religion and a series of like you know warning flags on Things to watch out for in terms of change. I mean some of the changes suggested included like stopping sharing information For example and making it putting up barriers to make it more difficult to effectively use what you learn with one piece of information Gathering to take action to change those practices So how do we think about our job? in I guess maybe one last thing to say here on the to do my one sentence on the on the fintech front I would say one of the things that I think is particularly worrisome in this moment is the Is things under the banner of fintech? That's partially what the sandbox is being characterized as and so on the financial technology is necessarily bad by any by any means Or that there can't be good new products or that there it can't there can't be good reasons to be interested in innovation But it does feel like the word fintech or innovation is being used as kind of a generic fairy dust So you sprinkle on anything and that's an excuse to not have to look too closely and a reason to not be regulated and it also seems like It is true that there's there can be a particular lack of visibility for some products that happen Substantially online and so it's a context in which we're the public is even more dependent on an effective regulator To make sure that we have fair outcomes And so it's particularly worrisome to not have that confidence at a time when new products are being developed and decisions are being made All that I'm going to return to my cheerful perspective For a second all that said It does feel like We are in a good because of the work of the Bureau and because of the organizing work outside of it We actually are in a fair position to resist all of these changes I don't expect that the sandbox proposal will be finalized as written and prevail and I think You know we have been an incredibly defensive position of posture on the hill for a long time And we've had two years of hostility from both houses of Congress and the administration and yet Managed to not see any fundamental structural changes in the Bureau And that's because I think the sort of initial theory that the way to the way to protect it for the long term was Not to be timid and careful about to be careful to do the right thing And to have an impact was right and because having an agency where The facts matter and where the voices of consumers matter Is useful for making policy change But it's also useful for our organizing because it gives us a reason to keep making those arguments and keep Organizing those voices and that has helped us not only with regard to the Bureau, but with regard to Congress and to the broader public as I think we're in a we just are in a stronger position Because of having had those Those public conversations then we would be had we not had we not done so as evidence for example by Not having had the payday rule overturned by a by a CRA, right? That was a real a real risk and a real a real Win so I think we clearly have plenty of defensive work to do But I think we also have an opportunity to be ambitious Both about solutions and about how we describe the problems and make sure that we don't get stuck in kind of a narrow view Of what consumer protection is but that we frame what is at stake as what it is Which is that these are really fundamental matters of people's economic security their health their happiness their homes And and also are fundamental to their fundamentals of justice and decency Is our financial system punishing people for being poor or for being in some other way vulnerable? Is it increasing inequality or is it adding to the corrosive wealth racial wealth gap? Or are we demanding that it do something different than that and that's a conversation that we can we can prevail around If we if we continue to have it loudly Let's stop there. Thank you. Thanks Mike Calhoun president of the center responsible lending will be our last panelist So thank you again to Michael and the organizers of this conference and I think just put a you really are Fortunate here to have the architects and the builders of the CFPB and of Dodd Frank here today Michael was the point person for the administration and at the very front line as well as The general if you will this whole campaign So I wanted to start by giving a little background on the Center for Responsible Lending Because it ties in to my comments, which will be in three areas first a little more detail about how out of whack the system was Before the crisis and before CFPB some more on some of the changes and some examples as Lisa mentioned about very successful transformations really about areas and products work and Then finally some of the future issues Including some future cautions so the Center for Responsible Lending is the policy arm of self-help credit unions which was started in 1980 their CFDI community financial development Institution and we were founded to address the racial wealth gap which in 1980 was 10 times as much wealth on average for white households as For black households and today it stands there and is headed in the wrong direction still Our initial focus was on small business lending and in mortgage lending. So We did a lot of mortgage lending today. We operate about 60 branches have about 150,000 Retail customers around the country where we provide the full range of Consumer finances everything from bank accounts credit cards home mortgages and then as well as consumer mortgages And how we got into the policy branch was our was in the late 1990s and we had the experience of Barwers that we have put into home loans come back to us on The brink of foreclosure and we looked at these loans they had and they were truly unbelievable They would have double-digit interest rates ten points or more of upfront fees Credit insurance thrown in at outrageous terms and as Eric mentioned they were totally Legal at the time and so we tend to be a walkie group Some people have said, you know a well-designed spreadsheet is our vision of beauty So we set out as we tend to do and sent out interns and lawyers and researched The register needs offices around the state to see how widespread Is this just a handful of folks and did some other research and the results were pretty astounding and So at the macro level we found that in North Carolina The leading subprime lender at the time the associates had 88 offices in North Carolina alone Now we're a decent sized state, but that is a bunch of offices the other thing we learned was This company was an affiliate a division at the time and a tie to where we are today a Ford Motor Company and It was so wildly profitable this division was making more money Than the entire rest of the company including all the car building and selling At the time so this is you know, they wrap this up and know this is about access This was all about the money and the extraordinary Summs of it and then finally and I'll tie this in to another point We found Looking at the rest your deeds that in a course of about three years These folks had refinanced one in five of the Habitat for Humanity homeowners Out of their zero interest mortgages Into these unbelievably abusive Mortgages and you would ask why would anybody ever give up? There's zero interest mortgages turned out these were their perfect target Because these were overwhelmingly refinanced loans to people who were struggling to make it month to month and The Habitat for Humanity owners were house poor. They had home equity very small income They had other credit credit cards installment loans at that time payday loans were legal in North Carolina Thankfully no more and the sales pitch was Refinance your home with us will catch you up on all your debts. We're going to refinance all that into your home Sign the papers. You don't have to bring any cash to closing but buried in all that fine print is you just lost all your home equity and So habit out when they learned of this quickly took steps to block that but the point about the crisis and two things just the depth of the crisis is Michael and the others in the administration knew we were within like a week or two of people not getting their paychecks That they did not publicize that because of the panic it would have created But the extraordinary steps that were taken were not just because we're gonna have some banks fail But it was going to be a deep economic winter where people couldn't buy food next week I mean, we were that close to the precipice and the crazy thing was this was Not just an avoidable crisis. It was an enabled Crisis by the people who were supposed to stop it. So so let me give you an example so just First how out of whack this system is so you understand how we ended up there in in the lingo of agencies These financial regulators were what you would call captured agencies meaning the industries they were supposed to regulate really controlled them and in this sense it was literally true to an extraordinary extent so as Eric explained You were you could sometimes you could pick which agency would be your regulator So in particular in the world of banks you got to pick whether the National General National Bank regulator the OCC office control currency are the office of Thrift supervision was your regulator and This took on big importance for the agencies because the agencies and this was designed to give them independence, but it had this perverse effect Their budgets were paid 100 percent by the fees of the banks that they regulate and So there was this famous moment where countrywide Which became a very substantial bank Thought that the OCC was deigning to perhaps constrain some of their reckless mortgage lending And so they said basically So long We're moving to the OTS and by the way That's one fourth of your overall agency budget that's going with us and that sent shockwaves Shockwaves through the agencies it was we want to remind you who's boss here and don't forget it and and it did literally and although this still happens today in Public speaking and in written documents the bank agencies referred to the banks as their customers and They competed by who could best serve and defend their customers and so you saw this happen in a couple ways so for example The OCC and other agencies did this too Rather than as you've heard Nick described working with states They served as defenders of their banks against state enforcement actions the most well-known of these were was with Providian a subprime credit card company and California AG did an extensive investigation found widespread abuses and The OCC came in and said we'll take over the investigation and then entered into a sweetheart Settlement with them that they saw themselves. That was a service that they provided to their customers The OCC by statute has a good bit of discretion about Preempting state laws and saying banks national banks don't have to comply with state laws In the case of the mortgages and abusive mortgages The states were starting to notice this problem And so we worked in 1999 North Carolina passed the first state predatory lending law and it had some tough provisions We passed other ones worked with groups Lisa was involved in passing a number of these and Ultimately close to two dozen of these laws were passed so the response of the OCC and In in in response to their request from their customers was to issue a Rule saying that national banks did not have to comply with any of these state law protections against abusive mortgages and that not only Protected them It created an uneven playing field and so the state chartered banks started going to state legislatures and saying we want parity If the national banks get exemption you can't treat us Local banks worse than the national banks and do and then the non banks and so you got this race to the bottom on the scope of regulation there and then Going back to our habitat example The Federal Reserve Was in a 1992 law was given the responsibility and the authority to protect against abusive mortgage refinancing by any entity bank or non bank and They dip their toe in this water once and this was in early 2000 They were kind of ashamed about we were beating them and others pretty hard about this time They were kind of ashamed about the habitat refinancing because you know that people work for have to volunteer people were pretty outraged So they proposed a rule That would put restrictions on refinancing of zero-interest mortgages from nonprofits are Are from governmental entities, which were widespread pretty modest step They decided it was a leap too far though and withdrew the proposed rule. It took no action whatsoever to protect those borrowers After having a record showing the abuses there The other thing that was done was there was Basically an Unwritten but widely recognized rule Within the within these Regulators would be the only standards that they would issue were vague aspirational statements because their fear was that You first of all the bank the banks wanted to have a loose standard that they would be judged by by the supervisor but also under the legal standards You could use national bank rules as an example and states did this in private litigants This too could be evidence that something was an unfair trade practice And so the banks didn't want any standards there by the regulators that could be used by State AGs or private litigants and so for example the OCC response on These predatory loans was to say banks should not charge unreasonable fees That was that was as far as they went and And the banks were adamant that they should not have anything close to a bright line standard Which is as we'll talk about a little later when they had a real enforcer like director corporate They suddenly wanted very specific standards limited how far and Yeah, so it's amazing how much it changed So The With all this going on the other thing I'll say real quickly CRL that this was there was a lot of evidence a lot of people knew that this was the house of cards It was going to collapse CRL using industry data Published a report 2006 where we said there would be To well over two million foreclosures of subprime loans and that we thought that was a very low estimate the response of industry was to request a See a GAO study Against us for so disrupting this well-functioning mortgage market For those of you who saw the big short It really is accurate Lisa has a close friend who was the prime Character in the big short and that it really was that crazy at ground level So you would think after the economy goes to the edge of the abyss and all this that industry would be a little Chasen that there would be this consensus that we needed to change things Welcome to Washington DC so Not said is the the Dodd-Frank Act passed But Industry vilified Not all of them. Let me be clear, but to a very large set vilified the effort and Michael Barr I remember industry members coming and saying That Michael Barr the gall of him we asked for changes in the bill And he says well will you support the bill if I give you the changes and then he won't give him to us Unless we're gonna support the bill and they're like the gall of him And I had that happen on multiple occasions, so And the bill ultimately passes by a razor thin margin I mean it was down to the very last votes So That is that is the state of where we were when CFPB was passed and For us and within our shop we talk about creation of CFPB is Similar to the creation of the EPA and how it really was a milestone and how this country looked at the environmental problems a recognition of the impact of it and the need of coordinated scope and it really Even in unfriendly administrations it really has changed how the country looks at environmental regulation And so going quickly because I want to leave time for questions from this quite knowledgeable and expert audience The changes Really were sea changes particularly when you look back at just how amazingly dysfunctional The system was and then the other part of it which about the welcome dog to Washington You also had what were considered captured Committee so the way you do things in Washington if if you're a Bank you give all your political contributions to the banking committee members and leadership and so The banking committee members are expected to primarily raise their campaign contributions From the industry that they regulate in fact There are even some committees where you only can get on one because they're so lucrative for fundraising And so it's very hard to get anything through Those committees so for example the Military Lending Act did not go through the normal committee structure because it wouldn't have made it through We could get a hearing through the major committee structures and went through as an amendment to the Defense Appropriations Act and so it went through armed services and I'll give a shout out which not always to senator Shelby Who signed off on it and did not require it to go through his committee? Because he knew he knew it wouldn't get through his committee and he wanted it to pass So the the big change is the non-bank supervision Is the huge sea change because so much of the bad activity was there and that is still continuing the public complaint database Likewise We talked with lenders and most of the major banks have official programs designed to prevent Complaints from customers from escalating to a complaint being filed with the Bureau And so that's part of what Lisa was describing and Nick that people find that filing these complaints With the Bureau is is remarkably effective and simply raising The threat of filing a complaint with the Bureau is very effective within the institutions themselves the Enforcement as I said the industry now wants to cabin enforcement by having the rules as specific as possible and then the AG enforcement, I mean one of the not widely recognized provisions of Dodd-Frank at the time the CFPB was it specifically authorized AGs to enforce the rules and the UDAP authority of the CFPB that was put in there Precisely for these times when we knew when we were passing Working on Dodd-Frank and CFPB We always said there will be a James Watt Head of the CFPB and and that's just life in Washington DC for those we all remember him as head of the interior Where he was pretty much wanted to Nullify the agency at the time and so it there were safeguards to be built in there to the extent they could and I want to you know the one Reform I think the idea of Blowing up the CFPB It is unlikely as Lisa said, but I do want to remind people that you two years ago There were open plans of using Special procedures budget reconciliation to in fact abolish the CFPB and distributed staffs back to the Previous agencies that had been ineffective It was the great work CFPB had done that made that politically unpopular as well as a lot of work by groups I think the only you know the two threats that are out there now. I think one that gets less popularity is going to a Commission rather than a single director Many of us are very strongly against the Commission because we have seen that the commissions are sort of the worst of both worlds that if you you the commissions did not do so well under the Obama administration and They would do just as poorly today Loaded up with appointments from the current administration And one of the ironies is the model for the CFPB structure was taken from the regulator of the federal housing finance system including Fannie and Freddie Mac and That bill was drafted in large part by Republicans Who specifically saw it a single director because they knew that's what they needed to have Effective accountability and oversight of Fannie Mae and Freddie Mac who they wanted reigned in and and so That was closely copied for the CFPB and I think the same reasoning Applies that if you want the effectiveness and accountability the other is some threat That they were trying to put it under appropriations which would hugely weaken it because then you get budget writers So for example in this whole housing crisis Lisa taught about and Nick talked about the you the mortgage brokers were selling these loans and got incentives They got paid twice as much to sell you one of these risky loans Is they got if they sold you a standard 30 year fixed rate prime loan? Well HUD started to regulate that practice And so the brokers went and got a budget writer put on HUD's budget saying they couldn't Regulate the brokers and so that's another reason why we're so concerned about ever getting to Appropriated funding so let me quickly go through a couple places where I mean you've seen real sea changes one is in mortgage Both origination and servicing It is just a totally different world mortgages are fundamentally safer Barwers are treated fundamentally better And most in industry agree that it is a better system. They're places where they want tweaks around the edges But in general they think the CFPB was certainly Very close to the mark in the regulations there another way it would be with credit cards Where Is I think y'all remember it was a pretty dysfunctional Wild Wild West market and A couple of the practices were things like the escalating late fees They were making a third of their total revenues off of fees rather than the interest they charged they would give you a teaser rate and Then raise the rate on your balances and most particularly for borrowers who are less wealthy It was hard for them to move those balances at times So they were just stuck with the higher payment and then the one that sort of brought it to a head were where these offers a Free financing zero interest financing for six months or a year and this is where there's some Alignment with industry that the industry worries about the rates to the bottom that they saw in the mortgage Where if you did not have teaser rates You could not compete because they look cheaper to borrowers We actually had credit card companies come to us before Dodd Frank and ask us to work on credit card legislation Because they could not compete fairly with each other and just were cannibalizing each other's business to to meet the Marketing employees they had to all make these wild offers But to make the numbers work. They had to load in fine print so that nobody would actually qualify to achieve all those benefits and They they didn't like that for the problem so to wind up here with some The issues going forward. I think overdraft student lending Wade Henderson is going to talk about Student lending is a threat on the magnitude of the subprime mortgage crisis for communities of color Arbitration the the CFPB did its part and put out a rule We need to continue to fight against mandatory arbitration and then two areas Lisa Has talked about these Proposals to change if you will how the bureau operates and what some of the foundational rules are like what is the scope? The payday rule is in large the efforts by CFPB to rewind and repeal the payday rule Is in large part an attempt to rewrite the standard and greatly weaken the standard What's an unfair deceptive abuse of trade practice and how do you prove it and we think a totally unjustified illegal way? Another area that cuts across and maybe one of our speakers Lisa Rice will be here tomorrow is Disparate impact that HUD is coming out with a rule that tries to not Repel it but to make it totally ineffective which would be a huge setback across the whole board for civil rights Enforcement so sometimes in conclusion sometimes consumer Protection is compared and Nick can relate to this is hacking back the jungle that there is a whole cottage industry Coming up with new twists and turns of how do you take advantage of consumers? These administrative changes I agree totally with Lisa about how fundamental they have in and I think have sticky They are I mean in will one cautionary tale about not letting our guard down in the 1970s for those of us who were doing consumer protection work back then There were two two events one was Ralph Nader proposed a consumer protection agency it passed one house in In 75 the decision was to not compromise because they were going to pass it after Carter got elected after Carter got elected Industry raised the huge campaign and killed the bill and it died At same time the FTC Wasn't as limited in rulemaking authority When it was originally set up as it is today in fact it had vast rulemaking authority in the 70s and undertook a range of rulemaking across funeral services illegally Bundled and deceptively presented used car sales they were addressing all of those and The led by the Chamber of Commerce they took essentially took away the rulemaking Authority they limited technically to quote judicial rulemaking, which is not the ordinary rulemaking and it's not been used since and So these authorities can be taken away We need to be vigilant because The benefit for the CFPB for consumers and overall economy has been extraordinary and we need to make sure it continues Thanks Mike. Should we open it up to questions to the audience? Thank you so much. I'm Lisa serve on I wanted to ask a question That probably doesn't have a really easy answer I'm just at the end of comparative study of financial inclusion policy in the US and the UK and One of the things there's a lot of similarities in the environment and in terms of even the kinds of agencies and policies that Have been created to deal with these issues One of the things that really surprised me the most though was the extent to which The firms that are regulated by the FCA the financial conduct authority there Approve of the mission and have really bought into it. So I open my laptop because so 68% of those firms rate the overall effectiveness of the FCA as at between a seven and a ten ten being the highest and For those claiming a low effectiveness rating one to three 24% said that the FCA should be doing more to prevent wrongdoing That's why they rated it low and so it's clearly a really different environment than it is here Even though there's so much similarity in the context and again, I don't think there's an easy answer But I wonder if you could just speculate on that and why there isn't more buy-in I mean there's there are obvious answers But there are obvious answers there too that have not turned out to be The truth in terms of why there's that support anybody know anything about the FCA so I would jump in some because payday lending there you have a lot of International You payday lending is not so much my positive is big international financial companies and a number of those and installment lenders operate both the UK and The US markets, I mean, I think some of it is you look at the UK and Europe more broadly is there's an expectation of A Greater government oversight and regulation and I mean you look across the board They don't tolerate the interchange fee Monopoly that we have here their privacy standards are much greater And so I think a lot of it is just a baseline There's an expectation among both consumers and industry that there will be rules of the road And you're not out there to defend on your own or do whatever you want I could add I it's not directly in response to your question, but I think there's support from the banking industry For the CFPB looking across bank and non-bank markets that are doing similar things with the same level of oversight through supervision so Previous to CFPB there was often this term used that they're not regulated the non banks are not regulated and that always bothered me Because of course they're subject to the same laws and regulations I think what what people meant by that is they're not overseeing in the same way in the way I described where there's someone really Kind of overseeing their compliance and trying to ensure that they have compliance management systems in place to try to proactively comply not just waiting to get caught and so I think there is support for that Consistent look and it's particularly important in the mortgage markets with the growth of the non-bank sector in mortgage origination and That has been the case for a while in mortgage servicing, but that's getting even stronger. I think That was great It's really Sort of worries him to go down history road like you all have just taken us The question I have is a couple of them one Lisa You suggested that the CFPB and the efforts behind consumer protection should have actually gone further Then they did in the obama administration under the director It would be great to hear you talk about that Mike the other night I sat down for entertainment to watch on HBO the untold story of the 2008 financial crisis. I Didn't see you in it Michael I Can and I was watching with somebody who's not in our field and he's like didn't the government know what was happening like You know what how was this not known and I remember a conference That Ben Bernanke was pointedly asked about in 2007 Look what's happening in these low-income communities and the answer wasn't quite fulfilling at that point Now that we're 10 years post what would you say about like what was known? What was ignored notwithstanding all the points you just made about captive? but like What what happened? Right, I actually would want to start with that with that second question to Can you hear is it on now? Yeah? Because I think I think lots of us have have things to say about what was known I do think it's a it's a it's a very important Story and there's a couple pieces of it that feel even more vivid to me in retrospect Then they did they do at the time. I think as Mike was saying we we There was plain as day evidence of the for of the Foreclosures that were Expanding in those communities primarily communities of color and low-income communities that have been targeted with predatory loans even before those foreclosures started there was plain as day evidence of the structurally abusive features of the mortgages that were being sold both on the ability to pay side and on the equity extracting high fees and prepayment penalties side and on the the kind of structural incentives to Screwed up costs created by the way that by the yield spread premium System and the way that people were paid so people knew it from their lived experience They knew it because they should have known it because the evidence was not that hard to find They knew it because they should have known it because people were bringing it to the regulators and the response from the regulators and in my experience was very often To sort of refuse to look at the evidence that they had and to say That's just what you're bringing us is just anecdote Bring us data Which was a particularly terrible answer when they in fact could have gotten the data had they chosen to And how did do what one we talked about this last night a second? You know through much much much advocacy had did a report a pretty modest careful report But it they were never able to make it into anything and So There was a it was an extraordinarily willful failure to know because there was so much money being made On the other side it was it was enormously profitable and people did not want it to stop and so they didn't Yeah, it's hard I mean it's hard not to go back to like You know it's hard for people to believe things that they are paid not to not to believe and that people with fancy degrees and fancy suits Told them not to believe and when the person the people who were hurt first were not their neighbors and It really was financial alchemy though. I mean you cannot believe the amount of money again so I Mean a quote we often use our testimony we have from a lender in the business He said I get paid twice as much for doing a no-doc loan as I do for doing a documented love. I always say it's less work But and the reason is because Boris didn't realize this The no-doc loans the option arm loans These two twinklers all carry higher interest rates than a regular 30 Year fixed rate mortgage borrowers often didn't understand that but we often found borrowers would get full documentation for their loans and didn't even know they got a no-doc loan and The lenders had rules do not include any of the documentation papers in the file Because they also didn't want to show them this match and then even at the regulator level the reports in 2007 the regulators bragged that they had set a record For the lowest number of bank failures the longest string of low bank failures because all this money was pouring in and the losses had it yet But the extraordinary amounts of money so the broker gets paid more and the lender gets paid more the Puritizer gets paid more and the investor is getting a yield that is greater than what the credit rating Says they should And they all wanted volume fans want more more more of it and so we had I remember The the problem this is where they did not have enough loans. There was so much demand So big established firms Bear Stearns came to us and talked to them Stay away from this what they set up their own subprime mortgage Company that they needed the raw material were these loans Even that wasn't enough so they set up what we they set up What's the financial equivalent of fantasy football for subprime mortgages where you could bet? and buy securities Synthetic securities based on How these mortgages performed even though they weren't directly tied to the mortgages because there weren't enough mortgages to go around Because everybody wanted in on this banana feeding And on your the other thing is every when you talk to when you talk to different institutions about when when we confronted You know everybody pretended that they weren't responsible and they were just they were just one part of a system that somebody else Controlled so the you know the lenders who were using the Wall Street money would say this is how the money comes to us We have no choice. This is how we do it and the wall the Wall Street money would say we're not making the loans We can't tell them what to do But there is some truth in that I mean so we were a mortgage lender and we saw 80% of our volume go away because we are telling people here is a good fully documented safe 30-year fix rate Mortgage and the broker was saying don't give me your documentation I'm going to give you this teaser rate mortgage that doesn't escrow for your taxes Etc. It looks cheaper and If it is very hard in the industry when there's a race to the bottom to say now I'm just going to give up all that market share and stay with my standards And so there has been some conversion within the industry that they recognize It's actually a better business model for them to have reasonable basic rules of the road I do think there has been a change and as I say the big banks are not asking to roll back the credit card rules the basics of the mortgage origination servicing And on your your more question. It wasn't so much meant. I mean, you know, there was the There were more rules yet to be written at the Bureau And a bunch of important stuff that didn't get gotten to in there a bunch of places where we thought rules should have been You know particular rules should have been stronger than they were I was talking less about that though and more about sort of being ambitious about About the big picture and I think of student lending as Mike said is one place where we are facing a huge crisis That's certainly not just about matters within the CFPB's jurisdiction But is a huge crisis that needs to be treated is that or you know, I think of like the credit reporting system For example where there's a set of problems that Peggy talked about and that's about accuracy and actually Making sure that errors are corrected And that the information isn't and then about you know being thoughtful about what additions or subtractions to what Information is is used has what kind of impact on whom all of which are really important questions and affect lots Of people but then I think also there's a set of questions about the way the credit report deeper set of questions about the way the credit Scoring system functions like what are the problems with the system that? Even if the technical details are right if you have less wealth you're more likely to be late on your bills And if you have less Familiar wealth you have few other places to turn and what are the consequences of kind of turning an existing difference of Wealth into a system that keeps charging you more Or keeps denying you access to better products So that feels like the kind of next order question that we should be asking about After bankruptcy the first thing that General Motors bought was a subprime lender And the second thing is if anybody heard what? Rashida had to say at the hearings on Subprime loans in her district. I was wondering if anybody has any comments Absolutely, and one of the challenges with this is It's hard to to get people to do Apple staples comparison of the default rates With cars and mortgages people sort of use the mortgage default rate. Well, that's a benchmark people know what that is Autos they flip through you go from a late payment to losing your car in 60 days or less in most states and so they'll advertise Oh, we're only 4% delinquent at any point in time But you play it's sort of like the payday loans you play that out through six times through the year The that's how many people will cycle through that for those default rates and the subprime auto is Is a disaster? I mean Santander a bunch of companies have had problems there the CFP be that was going after a lot of them As well as the other regulators and that's one thing I do think is the point that the CFP be Has changed the whole environment and if you look at the other regulators I think the other regulators are doing a better job Because of what the CFP be has done you know for it the Federal Reserve has Gone after Wells pretty hard I mean an asset cap for a year and a half all these other things That that was not How it was done pre Dodd-Frank? So I do think it's changed the expectations for regulators Maybe one one specific point time tying the auto and the expectations for for other regulators You know it The CFP be specifically did not get authority to regulate auto dealers in Dodd-Frank because the auto dealers fought so hard And got themselves exempted, but as of the sort of consolation prize they the FTC has Regular not it's you it's terrible impossible process, but regular rulemaking authority in that area they haven't done anything with it and You know the kind of like bonus he yield spread premium payments that were such a problem in the mortgage market still exists in the auto finance market and drive racial discrimination and And you know we should all be demanding that the FTC act on its authority To deal with abusive auto loans