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  November 17, 2017

Trump's CFPB Pick Will Likely Spell Bad News for Consumers

The good news is that President Trump has been slow to nominate heads for regulatory agencies, says white-collar criminologist Bill Black. The bad news is that Trump will pick someone eventually to replace Richard Cordray
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William K. Black, author of THE BEST WAY TO ROB A BANK IS TO OWN ONE, teaches economics and law at the University of Missouri Kansas City (UMKC). He was the Executive Director of the Institute for Fraud Prevention from 2005-2007. Black was a central figure in exposing Congressional corruption during the Savings and Loan Crisis.


SHARMINI PERIES: It's The Real News Network. I'm Sharmini Peries coming to you from Baltimore. The Director of the Consumer Financial Protection Bureau, Richard Cordray, announced his resignation on Wednesday. Cordray was and has been the Head of CFPB since 2012. His term was not scheduled to expire until mid '18, however there is speculation that he is resigning so that he can run for Governor of Ohio. Consumer advocates have generally given Cordray high marks for protecting consumers against fraud and abuse.

Republicans, though, have long been harsh critics of CFPB and of the director, and have repeatedly urged President Trump to fire Cordray. Now, Trump will have the opportunity to appoint someone more to his liking, or the liking of Republicans. Joining me now to discuss the implications of Cordray's departure from CFPB is Bill Black. Bill is a white collar criminologist, Associate Professor of Economics and Law at the University of Missouri, Kansas City. He's the author of "The Best Way to Rob a Bank is to Own One." Thanks for joining us again, Bill.

BILL BLACK: Thank you.

SHARMINI PERIES: So Bill, how successful has CFPB been under the leadership of Cordray and of course, your thoughts on his tenure, and his departure?

BILL BLACK: He's been pretty effective. If you did 1 to 10 where 10 was the highest, he would be at 8 and the next most effective regulator in the current administration would be about a negative 2.

SHARMINI PERIES: Well, that's pretty good according to Bill Black. So, Republicans have repeatedly urged Trump to fire Cordray but Trump never really acted on it. Why do you think this is? And, also, your thoughts on who he might be considering to appoint here?

BILL BLACK: The primary reason is because Elizabeth Warren is a very good lawyer, and she is the person most responsible for the creation of this bureau and for institutionally how it was set up. So, it was set up so that the President really didn't have the ability to fire the director. Cordray had about nine more months left on his term in office, so the Republicans were trying to gin up some kind of reason for cause to fire him but as you've seen with their attempts to smear people, they're really not very good at substance. So, they didn't have anything on Cordray.

Elizabeth Warren also set up the CFPB so that it was protected against what Congress has done to the Securities and Exchange Commission, and the Commodities Futures Trading Commission, which is to squash their budget in an effort to make them incredibly ineffective. You can't do that with the CFPB because its budget is through The Fed, and by the way, that is a significant goal of the Republicans and the Trump administration, to change the budgetary part of the statute so that they can strangle the CFPB in the future, even when Trump's out of office.

The general idea of creating this office was the consumer had no one whose primary job was looking out after the consumer. I can tell you having been a banking regulator for years, that we always had our top priority on what we call safety and soundness. Are there issues that are going to cause the bank to fail? Compliance issues, which is protection of consumers was always a subsidiary area priority for the banking regulatory agencies.

So, one of the very intelligent things that Senator Warren did was to create an agency that would have this protection of consumers in the financial sphere be their sole task. They have been, as I've said, far better than any other regulatory agency in the financial sphere, period, but particularly on consumers. The viewers may note that we've talked in the past about them. The Trump administration and the Republican Congress just killed one of the most important CFPB initiatives which was going to restore our constitutional right to sue banks, which is essentially eliminated by today's form contracts that say you're only allowed to bring an arbitration and you're not allowed to have any kind of class action, so as a practical matter, you have absolutely no effective remedy in the civil court system.

Just yesterday in the Wall Street Journal, there was new evidence on the Securities and Exchange Commission under the new Trump appointed commissioners, enforcement actions are down dramatically, and that's from a low base, under the Obama administration. It was certainly not terribly vigorous itself but Trump is making all of that far worse. The good news is that Trump has been so pathetic in nominating heads for the regulatory agencies, the banking regulatory agencies, that acting directors are still in place at most of them.

But he'll get his act in gear eventually and then the speed of destruction of vital regulations will go up quite considerably.

SHARMINI PERIES: Right. Now, presumably Trump will now appoint a deregulator to this financial regulation bureau. Is there any consequences to the kind of person that he may be appointing here?

BILL BLACK: The Wall Street Journal speculating that it might be Jeb Hensarling who is the Chair of the House Financial Services. It was announced that he's stepping down. Hensarling is deep, deep, deep, deeper than the lint in the pockets of the banking industry. So, he would, of course, be a spectacularly bad appointment from the standpoint of what the agency is supposed to do, but even worse, the Wall Street Journal speculates it may be a George Mason professor from the Markkula Center. This is a center funded the Koch brothers and such, that is among the most extreme, not deregulators but anti-regulators, in the world.

So, these are people that love the three Ds, Deregulation, yes, but even more, de-supervision. In other words, not enforcing the laws and regulations, even if they remain on the book, and of course, de facto decriminalization. Which again, we've gone a long way in that direction over the last 20 years, including under the Obama administration, and all of this is going to make it get worse, and rapidly once they nominate and get approved a new appointee.

SHARMINI PERIES: I do want to end this segment Bill with a little bit of the history of how it was established but before we go there, in related news, the Senate Banking Committee just approved a deal between Democrats and Republicans to roll back financial regulations under the Dodd–Frank Act, and according to supporters, this rollback would mainly benefit community banks.

However, the website The Intercept points out there are many regulatory changes that will affect major banks, including those that are currently designed as systemically important financial institutions. What impact will these regulatory changes have, assuming they will pass with bipartisan support?

BILL BLACK: Well, again, our viewers, regular viewers will know that we've talked about this in prior programs and predicted it, which doesn't prove any kind of skill on our part. It was obvious that they were going to do this. The pretext is to help small banks. The reality is that most of these things are done, exclusively the political push, is for the very large banks, the very large contributors. It gives political cover not so much to the Republicans who are of course, are happy to be seen working for the banks, but the Democrats, who are very happy to take the bank cash but want to be seen as helping small banks.

So, this is a very small fig leaf for the reality. As to the banks that are supposedly too big to fail, again, we've talked about this. We need to begin with honesty. These are not systemically important banks. These are systemically dangerous banks. That is the standard. If you fail, will you cause a global financial crisis? The answer is yes, but now we're pretending that institutions that are so large that they will cause a crisis when they fail are actually not so large, and therefore not dangerous, and therefore not subject to additional regulation and capital requirements and that simply makes the world more dangerous. They're more likely to fail and when they do fail, they're more likely to cause knock on effects that cause large scale financial crises, and produce, and I know it'll surprise everyone, yet another bailout.

SHARMINI PERIES: Right. Then, going back to the CFPB, you mention Elizabeth Warren who was instrumental in making sure that this bureau exists to protect the consumers, but give us a little bit of history as to how this came about and its establishment, and of course, its mandate.

BILL BLACK: Well, it really did come about because Elizabeth Warren. You have to understand Elizabeth Warren was a Harvard Law professor, expert in the protection of consumers, with particular expertise, but not limited to the financial sector. So, she has been warning for years, well before the crisis, about the abuses of consumers and how dangerous they were, and the need for an organization like this.

So, when the crisis came and she was able to get into the governmental process, of course, one serious possibility was that she would be named the first head of the CFPB and Republicans and conservatives within the Obama administration, or pro-banking new Democrats, not necessarily conservative on all issues, allied to block her from becoming the head.

So, what she did as I mentioned, was carefully craft this bill to keep the normal choke points away from politicians, to ensure that there would actually be independents in this, and it'd be as a practical amount, as a legal protection, in terms of the funding so that they could do their job.

Many times in the creation of the CFPB and the drafting process and the politics about whether it would be elected, Timothy Geithner, the Treasury Secretary under President Obama, tried to undercut the legislation, tried to make sure that Elizabeth Warren not get in control, and of course, the nightmare for the banks is by keeping her from being the CFPB head, indirectly it led her to be a US senator, where frankly she can be far more effective on a broader range of issues. She, of course, will be a strong person bringing to light these kinds of abuses when we get the nominee, who is sure to be someone really dedicated to harming the consumer.

SHARMINI PERIES: All right, Bill. I thank you so much for joining us today, and as always, very enlightening. Thank you so much.

BILL BLACK: Thank you.

SHARMINI PERIES: And thank you for joining us here on The Real News Network.


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