A Fighting Chance

The foreclosure scandal quickly engulfed JPMorgan Chase, Bank of America, Citibank, and a few others—the list was a Who’s Who of the major banks (and a Who’s Who of the banks that got the biggest TARP handouts). And as with the crash, the problem was concentrated in the big banks, not the community banks and credit unions. It seemed that the little banks—the ones with small staffs and part-time legal advice—could manage to follow the law, but the big guys couldn’t be bothered. Meanwhile, the regulators who were supposed to be watching over the big banks had once again seemed not to notice or care about the abuses until the media started to stir the pot.

So many different laws had been broken and the scandal got so much press attention that a busload of government agencies began to look into suing the big banks. Before long, the media began to report that the OCC—the Office of the Comptroller of the Currency, the main agency in charge of regulating the banks—was ready with a settlement number: $5 billion. The OCC seemed to think that this was such a large figure that everyone should be a little breathless. (I couldn’t help but think of Dr. Evil in the Austin Powers movie, announcing that he would destroy the world unless he was paid $1 million.) Collectively, these big banks earned more than $1 billion every single day, so the settlement would amount to less than five days of revenue in payment for deliberately and repeatedly breaking the law for years. Whoop-dee-doo.

When the scandal first broke in fall 2010, the consumer agency was brand-new and didn’t yet have most of its authorities under the Dodd–Frank Act. But we were slated to have jurisdiction over mortgage servicing at big banks by the summer of 2011, and Secretary Geithner asked for my advice on the issue. I asked our team to dig in, and we examined the numbers and shared our analysis with Treasury and other regulators.

Not surprisingly, many lawmakers were pretty upset about the foreclosure scandal. One of the most vocal was Richard Shelby of Alabama, the senior Republican on the Senate Banking Committee. Now approaching eighty, the senator was tall, with a deep voice and the confidence that twenty-five years in the US Senate seems to give some men. This was the same Senator Shelby who the summer before had thundered against any suggestion that I might head up the new consumer agency.

Shortly after the scandal exploded, Senator Shelby expressed outrage that government regulators appeared to have been “asleep at the switch” and demanded an “independent investigation.” But as the months went by, the investigation he called for never really happened.

Now, in March 2011, he was madder than ever about the scandal. But he wasn’t angry about the lack of an investigation or the ugly things done by the big banks (and make no mistake, they were ugly). Nope—he was incensed about the rumors that the banks might be asked to cough up some serious cash.

Instead of the OCC’s reported $5 billion settlement, some of the other agencies favored a number closer to $30 billion. Senator Shelby called this a “shakedown.” He laid the blame with “the new Bureau for Consumer Protection, the FDIC, the Fed, certain Attorneys General, and the Administration, led by Elizabeth Warren.”

So there it was: Senator Shelby and his fellow Republicans were furious, not with the mortgage servicers that broke the law and stole people’s homes, but with government regulators who were pushing for more accountability—and specifically with me.

In the end, Senator Shelby could do little more than fume: he still faced a Democratic majority in the Senate, which meant that he didn’t have the power to call hearings or launch investigations. So it was left to the House, which was now controlled by the Republicans, to do the banks’ dirty work.





Hearings Before Congress

By the time Senator Shelby launched his broadside, our little agency had attracted a lot of attention. We’d won the support of some powerful friends and made some powerful enemies. On March 16, I was called to appear before the House Financial Services Committee to testify about the agency. I knew I’d be asked about the foreclosure scandal, and I was sure I’d have to defend the CFPB and its mission.

This wouldn’t be my first appearance before Congress: I had testified more than half a dozen times before various committees during my days on COP. But this one felt entirely different. While at COP, I went into each hearing feeling that since my job was to serve as the eyes and the ears for Congress, the committee members genuinely wanted to find out what I knew. But this hearing wouldn’t be “Help us understand.” This would be an assault on the new agency. And this time, the response to my testimony would fall along partisan lines. The Democrats were lining up to support the agency (and me), and the Republicans were out for blood.