Ed Mierzwinski is the federal Consumer Program Director and Senior Fellow for U.S. Public Interest Research Group, which lobbied heavily for the creation of the Consumer Financial Protection Bureau. Mierzwinski has appeared on television and radio shows including the Today Show, Good Morning America, CBS This Morning, and others.
CFPB Journal staff writer Justin Dullum recently interviewed him about the CFPB.
Small financial institutions make the argument that they are already over-regulated and pretty good at taking care of their customers as a core mission. As the Bureau now starts to mature, why do you think the CFPB will actually benefit small banks?
One reason the CFPB will benefit small banks is that it has authority over non-bank competitors. These are some really fast operators — payday lenders and auto title pawn companies, which are even worse than payday lending. You give them your car keys for a small loan. You sign away your title for $300. In some states they get to keep your car no matter what if you don’t pay. These high-cost small loan companies are probably taking business away from banks. There’s no doubt that community banks will benefit when the CFPB is providing strict oversight for these operations.
Otherwise, small banks are not under the CFPB’s full authority and only get examined by their existing regulators. The big banks do not get out from under these rules, which will help level the playing field.
The failures of the financial system and the economy itself have caused consumers to think about where they put their money. I’ve seen many smaller banks take advantage of this opportunity for growth. Many have adopted a “move your money to us” marketing strategy that has been effective. In the meantime, the CFPB is focused on small bank’s large competitors.
The other area small banks have to benefit from the CFPB is that small businesses need loans. The big banks treat small businesses the same way they treat consumers: with disdain. They really don’t offer much beyond plain products at high prices. Small businesses go crazy trying to work with large banks and many use personal credit cards as their line of credit. There is a business opportunity there.
The bottom line, the CFPB is being established to be a much more reasonable regulator than all of the people making stuff up about it say. They claim it will be an unaccountable regulatory ogre, and that’s simply not true. Director Richard Cordray continually meets with small bank groups and [Senator Elizabeth Warren, D-MA] met with state bank associations during the creation of the Bureau, and I believe the Bureau is committed to making life better for fair dealing businesses. It will level the playing field and go after non-bank lenders.
The CFPB distinguishes between large banks and small banks. Do you think it should have different rules or guidelines dividing small banks and credit unions?
I do support credit unions. I don’t think they should pay taxes. I don’t think they have a leg up because of that. I think they have a leg up because they are in business to benefit their members. That being said, credit unions and small banks should be treated equally in terms of regulation of their consumer products. I haven’t seen any compelling argument that the two should be treated any differently on this front.
I find it offensive that the credit unions are constantly coming to congress and begging for special treatment by claiming they are completely different. They are different in a number of ways, and they can market those differences. But they don’t deserve exceptions from capital requirements or other regulatory requirements. They do some tremendous things for the economy but we generally oppose giving them any special regulatory treatment. That being said, again, I don’t think they should pay taxes either.
As a consumer advocate, are you pleased so far with how the CFPB proposes to rein in the big banks?
We’re not just apologists and cheerleaders for the CFPB, we are constructive critics. And we’re not 100 percent happy with every rule that has come out. The mortgage servicing rule is a work in progress and much more needs to be done. The CFPB reopened an issue that we thought had been answered, which is the issue of yield spread premiums and how to account for points and fees. We thought Dodd-Frank had a fine solution to prevent use of kickbacks through yield spread premiums. So we’re disappointed this discussion is being renewed.
The CFPB has many tools to go after the big banks, not with improving regulatory standards but also with enforcement. One of the first things they did is fine three major credit card companies for basically lying to their customers. They went after Capital One and Discover for piling on these terrible add-on products: Who will pay your credit card bill if you die, or if you lose your job? They probably won’t, but they did charge some customers $7 to $15 a month for the privilege of thinking they’ll help you.
Maybe some small banks have offered products like this as well but I think you’ll see more actions like this from the CFPB at the big bank level. When you go after a name brand bank, a household name that advertises in the Super Bowl, it makes a big difference. It sends a message to other businesses with fewer resources that if they are selling the same products as Discover, they could be a target as well.
And we are happy that much of this will be very good for the consumer. Big banks didn’t get to be enormous by being really nice guys; they did it by making an enormous amount of money.
How about CFPB and student loans?
I think they have done tremendously well by students so far. I expect to see enforcement actions against for-profit schools, which are a real mess. Student loans in general have been a mess for a while. So far, what the CFPB has done is mostly transparency work. Its recent announcement on dispersion of student loans through debit cards is something near and dear to our work. A major report on campus debit cards came out last spring and I think the CFPB’s work in that area will be quite good. Reining in for-profit schools that convinced students to take out unfair student loans for an institution that is mainly a counterfeit institution or oversells the benefits of its degrees will have a major impact on not only normal students but non-traditional students like veterans. The CFPB’s work to protect veterans is something that will also be very important.