A Fighting Chance

I remember a guy (I’ll call him Jason to protect his privacy) who lived on the edge of a small southern town with his wife and stepson. As Jason told the story, he had lost his job, but after a few months of searching he had found a new one, working at a warehouse about forty miles from home. Meanwhile, he had racked up some debt. He owed on his credit card, and he had borrowed money from his brother-in-law (which he found mortifying, and he planned to pay him back as soon as possible). But now that he had a new job, Jason figured he was on his way to getting back on his feet.

His pickup was a gas-guzzler and it had broken down a few times, so he decided to trade it in for something a little smaller and more reliable for his long commute. One Saturday, he drove to one of the big car dealers that advertised heavily on the radio. He kicked a few tires, thought long and hard about which car would suit his needs, and finally settled on a two-year-old Ford Taurus. He haggled on the price, arranged for the trade-in, and drove home in his new car, feeling pretty good about his decision. He hadn’t exactly wanted to make the change, but he felt responsible, like he was getting his life back on track.

Several days later, the phone rang. It was the car dealer: there was a problem. When Jason had come to the car lot, the dealer had offered him a 4 percent interest rate, but the man on the phone explained that this was just a preliminary offer. The actual rate was higher—more than five times higher, according to Jason—than the preliminary rate, so the monthly car payment would be $105 higher than the dealer originally estimated.

Jason panicked. The new job didn’t pay as much as his old one, taxes were chewing up more of his paycheck than he had planned, and he needed to watch every nickel. He didn’t have an extra $105 each month. He told them to call it off. He would return the Taurus and take back his pickup.

No dice. They had already sold his pickup. Jason could either take the car dealer’s terms or he could return the Taurus and walk. Literally.

And it was all perfectly legal. Somewhere in the fine print, the rate on his car loan was marked “preliminary.” No one was obligated to spell out what that meant, and what it meant was: “Preliminary means that after you buy the car we can increase your monthly rate by $105, just because we want to.”

I knew there were millions more people like Jason. He got in trouble with his car loan, but it happened with all kinds of financial products. Big banks across the country had been sneaking in ways to charge sky-high fees for bounced checks. Payday lenders would charge upward of 400 percent effective interest—rates that would make Tony Soprano blush.

And then there were the credit card companies. Their shifting payment dates. Their sudden interest rate hikes. And their torrent of fees—late fees, over-the-limit fees, just-because-it’s-Tuesday fees. The language was convoluted, and the cross-references and defined terms made it unreadable. Let me put it this way: I’d taught contract law for more than twenty years, and I couldn’t understand some of those contracts. How many people who were busy trying to get dinner on the table and check the kids’ homework had a chance to wind through this kind of legalistic wiring diagram? Not many.

So why not put a cop on the beat? Why not create an agency to put a stop to all these shenanigans? We could put some commonsense rules in place and force the industry to use plain English to explain what the products really do. No cheating anywhere—not credit cards, not mortgages, not payday loans or student loans.

The idea was to keep Jason and millions of people like him from getting ripped off.

Don’t Shoot!



My article proposing this new agency was published in 2007, in a journal called Democracy. At the time, a consumer financial protection bureau seemed like a pipe dream. George W. Bush was still president, and the Republican leadership was still talking about de-regulation, not stronger regulation.

But by the beginning of 2009, the world looked very different. America had a new president and a newly crashed economy. Suddenly a little more financial regulation didn’t sound like such a bad idea.

By early 2009, I was spending nearly all my time teaching or on COP work. But in February of that year, Damon Silvers—my co-panelist at COP and associate general counsel of the AFL-CIO—invited me to a meeting about another topic: financial reform. Everyone knew that Congress would soon start working on a law that would overhaul banking regulation. A number of us also figured that the big banks would quickly begin to marshal their forces, revving up their lobbyists and getting their publicists ready. They had won big-time with the $700 billion nostrings-attached TARP bonanza, and now they were gearing up to fight any reforms that could cut into their future profits.