CPFB head misguided in reliance on consumer education

Imagine that your city’s water treatment facility announced tomorrow that it would scale back its work. Instead, the authorities would offer online classes and put up posters around town to teach city residents about contaminants and filtration. With slogans about “empowering consumers,” they would urge residents to make their own choices about the water safety level that’s right for them, based on individual health needs and taste preferences.

People would surely protest. It is both foolish and cruel to put the onus on ordinary citizens to handle an issue that requires professional training to fully understand and that can devastate people’s lives if handled poorly. It seems cynically designed to relieve city administrators — and the businesses that impact the city’s water supply — of their responsibilities. Yet this is exactly what’s happening today in the consumer financial marketplace at the federal level.

President Donald Trump’s head of the Consumer Financial Protection Bureau (CFPB), Kathy Kraninger, has laid out her vision for her five-year directorship. So far, Kraninger seems to think about consumer financial protection the same way our apocryphal city authorities think about water treatment. Rather than protecting us from the financial industry’s dangerous practices, she plans to educate us all about how to protect ourselves.

Kraninger announced: “Our first tool is education … [E]mpowering consumers to help themselves, protect their own interests, and choose the financial products and services that best fit their needs is vital to preventing consumer harm and building financial well-being.” Kraninger’s plan emphasizes pamphlets and websites about saving money and balancing checkbooks at the expense of the trained investigators, financial experts, and attorneys previously tasked at the CFPB with identifying illegal practices and prosecuting the banks that engage in them.

Having studied financial literacy education extensively, I would suggest that the head of the only federal regulator devoted to consumer protection in the financial services space is driving the agency in the wrong direction.

She is sending the message that it is your job to steer around the deceptive, unfair, and abusive practices of the financial services industry — if you can.

Surveys have shown that voters want a federal agency that’s a tough enforcer of rules in financial services. And yet Kraninger is touting a partnership with H&R Block to research how to nudge households to save in small increments as a way of “moving the needle” on households’ financial problems. This is the same H&R Block that was caught earlier this year coding its website to hide from search engines the free tax preparation service it had promised the federal government it would provide to low-income consumers and instructing its employees to sell consumers who qualify for its free service the same service but for a fee. The Los Angeles City Attorney’s Office has sued the company for breaking the law; Kraninger’s CFPB has not.

This continues the pattern of non-enforcement that Kraninger established her first week on the job; she took up the case of a scammer charged with targeting military service members and settled it for a single dollar. In fact, only one of her first six case settlements resulted in restitution to victims. These actions display little interest in the mandate Congress gave the CFPB when it formed the agency — to implement and enforce federal law for the purpose of ensuring that markets for consumer financial products and services are fair, transparent, and competitive.

Most recently, the CFPB under Kraninger’s direction disseminated an e-alert to educate consumers about high-tech online frauds targeting mortgage borrowers. This came in the wake of the agency opening a “fintech sandbox” to exempt firms from existing federal and state consumer protection regulation when these companies sell new financial products. We can expect this education-not-regulation pattern to have the same disastrous effects on American consumers’ financial health that our imagined city’s water education plan would have on its residents’ physical health.

Moreover, like our hypothetical city administrators, Kraninger’s plan is inherently cynical. She is foisting the work of professionals whom Congress charged with protecting ordinary people onto individual consumers, with an eye toward blaming those consumers when they naturally cannot keep up. Replacing regulation and enforcement with websites and e-alerts relieves lenders of their responsibilities — in effect protecting industry rather than consumers.

The headline from one law firm serving the financial industry says it all: “Expanded CFPB Sandbox Promises Greater Protections for Fintech and Other Financial Services Companies.”

Financial products today are complex and ever-changing. Moreover, the financial services industry has technology at its disposal that facilitates subtle forms of deception and abuse, particularly online. This is why Congress created the CFPB to be an agency with the resources, expertise, and rulemaking and enforcement powers necessary to protect consumers in the 21^st century. The agency’s leader needs a strategy that reflects this mission, not the fantasy that financial education will protect us.

Lauren Willis is a professor of law and William M. Rains Fellow at LMU Loyola Law School. She is the author of multiple scholarly papers on financial education, including: Against Financial Literacy Education, The Financial Education Fallacy and Finance-Informed Citizens, Citizen-Informed Finance.