For years Wall Street, big banks and the financial sector were able to sidestep financial regulations to create inexplicable financial products so complicated that quantum physicists could not explain; meanwhile, they partied like it was 1999.
Fueled by a mortgage crisis where lenders realized it was more profitable to sell mortgage debt than properly underwrite it, the balloon finally burst resulting in a $700 billion bailout by taxpayers ushering in what has come to be known as the Great Recession.
Despite President Barack Obama’s bold move to bypass an obstinate Senate's by appointing Richard Cordray as Director of the Consumer Financial Protection Bureau (CFPB), the fight against regulating Wall Street is an all-out war that may not be determined until after the November election.
As a key plank of the Dodd-Frank Financial Wall Street Reform and Consumer Protection Act, the CFPB has faced the ire of lobbyists and Republicans who were able to derail Elizabeth Warren, the President's initial choice for the director position; they then held the Cordray nomination hostage since last summer, demanding the agency's authority be weakened by replacing the director with a commission and its funneling its appropriations through Congress.
Unfortunate for consumers, the CFPB has served as a focal point of wide-ranging battle to regulate Wall Street and the financial sector. Obama’s recent appointment of Cordray, despite potential legal challenges, registers as a signal to consumer advocates that the gloves are finally off.
“Cordray's appointment is welcomed news not only for consumers, but for business and the economy,” said Ken Edwards from the Center for Responsible Lending (CRL), a consumer-lending watchdog.
Cordray’s appointment allows the CFPB to begin to regulate non-banks responsible for predatory lending and unscrupulous credit, debt collection and reporting practices. His appointment is a major victory for communities of color since they are disproportionately targeted for predatory financial products (such as "payday" and tax-refund loans) regardless of credit scores. Without the leadership of a director, the CFPB could only monitor banks.
In a report titled Lost Ground: Disparities in Mortgage Lending and Foreclosures, CRL reported that even “among borrowers with a FICO score of over 660 (indicating good credit), African Americans and Latinos received a high interest rate loan more than three times as often as white borrowers.”
Former Asst. Secretary of the Treasury Michael Barr says that Cordray’s appointment a crucial part of the overall intent of Dodd-Frank to reign in the financial sector.
"We fought hard for a strong Consumer Financial Protection Bureau in the Dodd-Frank Act,” said Barr, now a Senior Fellow at the Bookings Institution and one of the key architects of the legislation.
He warns the public to remain vigilant regarding the hundreds of rules still being determined by federal regulators concerning how the financial industry will be regulated.
"A key problem here (with financial reform), has been the Congress: a number of Republicans have been trying to hamstring reform by starving the agencies of necessary funding, blocking nominees, and trying to repeal parts of the Act. That's why it is so critical that the public continue to focus on implementation of reform."
The Financial Stability Oversight Council (FSOC), a group led by 10 federal agency heads including the Treasury, FDIC, Federal Reserve, SEC, and others, has been given a major role in the eliminating regulatory gaps that led to the financial crisis, as well as determining the rules that the financial sector must play by.
Six of FSOC members instiutions, along with HUD, are charged with determining the fate of one very important rule--the Qualified Residential Mortgage (QRM), which last proposed a 20% down payment on certain loans, which many advocates argue would make homeownership impossible for millions of moderate-income and qualified families.
Cy Richardson, spokesperson for the National Urban League (NUL) says we better pay close attention.
“Closing these gaps in supervision – as well as overseeing new rules such as the controversial Qualified Residential Mortgage (QRM) – makes the FSOC an extremely important and influential regulatory body,” said Richardson.
As the battle plays out for Wall Street’s right to party at the public’s expense, Richardson make it clear “we’ll be watching.”
Malik Russell is an author, journalist and independent policy expert