A Fighting Chance

someone official who would do right by the service member: On September 30, 2006, Congress passed H.R. 5122, the Military Lending Act, which was designed to protect military families from predatory lending. The act prohibits lenders from charging servicemembers and their families an annual interest rate greater than 36 percent. In addition, it requires lenders to make certain disclosures to clarify key loan terms, prohibits abusive penalties and practices, and bans onerous contractual provisions. While these protections have made noticeable differences, lenders have found many ways to circumvent the law. For example, “Lenders have exploited loopholes in the definitions of covered credit, such as styling a payday or car title loan as open-end credit or setting a loan term slightly longer than the definitions cover, to make high-cost loans to servicemembers.” Furthermore, “Some credit products described as problems for servicemembers in the DoD Report to Congress were not included in DoD’s initial consumer credit definitions, including military installment loans and rent-to-own or other retail installment sales financing. As a result, servicemembers are still exposed to extremely high rates and risky forms of security, inconsistent supervision at the state level, and can still have pay drained by military allotments when borrowing or financing purchases with these creditors.” Jean Ann Fox, “The Military Lending Act Five Years Later,” Consumer Federation of America, May 29, 2012, 10.

targeted for some of the worst mortgages in the housing crash: The Equal Credit Opportunity Act prohibits discrimination in lending on the basis of race, color, religion, national origin, sex, marital status, age, or receipt of public assistance. Creditors may, however, discriminate on the basis of such factors as income, debts, and other indicators of creditworthiness. For more information on this act, consult the Federal Trade Commission’s summary: http://www.consumer.ftc.gov/articles/0347-your-equal-credit-opportunity-rights. The Fair Housing Act prohibits discrimination in housing practices, such as setting different terms on a loan or refusing to provide information about loans, on the basis of race, color, national origin, religion, sex, familial status, or handicap. For more information on this act, see the Department of Housing of Urban Development’s summary: http://portal.hud.gov/hudportal/HUD?src=/program_offices/fair_housing_equal_opp/FHLaws/yourrights. Several agencies, including the Consumer Financial Protection Bureau and Department of Justice, have a hand in enforcing these and other important antidiscrimination laws. These laws were created within a context of well-documented lending discrimination against women, minorities, and other groups. John R. Walter, “The Fair Lending Laws and Their Enforcement,” Federal Reserve Bank of Richmond Economic Quarterly (Fall 1995): 62–67. For more on CFPB Fair Lending, see http://www.consumerfinance.gov/fair-lending/.

Investigation of lending discrimination or the violation of other lending rules typically involves painstaking collection of information from lenders, from debtors, and from other sources. Steve Antonakes, Peggy Twohig, and Patrice Ficklin put together teams of extraordinary people at CFPB to investigate lending activities and act as the frontline cops on the beat. Most of their work will be out of the public view, but their impact will be felt throughout the economy.

pay an additional $25 million fine: See http://www.consumerfinance.gov/newsroom/cfpb-capital-one-probe/.

big banks, too) sold honest, simple mortgages: During my time at CFPB, I had a chance to visit with community bankers from all fifty states to learn about their business models and get their input on mortgage rules and other policies—thanks in large part to the help of Camden Fine of the Independent Community Bankers of America (ICBA), who generously helped introduce me to his members nationwide and teach me about issues important to smaller institutions. I came to understand that community bankers were particularly interested in the Know Before You Owe project because the previous system of disclosures placed a disproportionate regulatory burden on them. In addition, most community bankers believed they were already following the basic principles of Know Before You Owe, and many viewed transparency and simplicity as core components of their trusted, long-term relationships with the families they serve. See my “Remarks to the Independent Community Bankers of America,” March 22, 2011, at http://www.consumerfinance.gov/newsroom/remarks-to-the-independent-community-bankers-of-america/. From early on in the process, community bankers had many positive comments on the CFPB’s mortgage disclosure effort. Ron Haynie of the ICBA made the following remark with respect to the agency’s process: “I think what was probably the most refreshing was just the fact that you had a room of bankers there … folks who use [these disclosures] every single day and have to explain it to customers every single day. And the folks at the CFPB were asking questions—does this work? They want the feedback, and bankers are not a shy bunch.” See Kate Davidson, “New CFPB Mortgage Disclosures Win Praise for Content and Process,” American Banker, May 18, 2011. Dillon Shea of the National Association of Federal Credit Unions said the credit unions “appreciate[d] the CFPB’s collaborative approach” and hailed the CFPB’s first prototype forms as “a positive first step in simplifying an increasingly complex mortgage disclosure regime.” See http://www.nafcu.org/Tertiary.aspx?id=22644. The ICBA noted the prototypes were “a vast improvement.” See http://www.icba.org/files/ICBASites/PDFs/cl071311.pdf. As one community banker put it, “Clearly [Elizabeth Warren] understands our model” of doing business. Andy Kroll, “Has Elizabeth Warren Won Over the Banks?,” Mother Jones, May 6, 2011.