Last month fair lending advocates cheered when the Office of the Comptroller of the Currency and Federal Deposit Insurance Corporation proposed new guidance that would require banks under their supervision that offer bank payday or deposit advance products to comply with traditional safe and sound lending practices such as lending only after conducting proper underwriting and considering the borrower's ability to repay the loan.
The proposed rules are the culmination of hard work of advocates across the country at the local, state, and federal level. They could prevent millions of consumers from entering a debt trap, saving them thousands of dollars each year. But they also demonstrate a larger point: federal regulators can do great things when given effective leadership.
We haven’t seen strong rules like these from prudential banking regulators in a long time. It’s not a coincidence that it comes at a time when these agencies have strong leaders at the helm. Woodstock staff met with three different regulatory agencies while in Washington in March, and I can say that the level of understanding and engagement is higher than we have seen in many years.
We’ve enjoyed an effective Consumer Financial Protection Bureau—with Elizabeth Warren, Raj Date, and Rich Cordray at the helm—for not even two years now. Millions of dollars have been returned to victims of unfair lending practices, and many prevented from becoming victims. Without a confirmed director, however, the CFPB has limited authority to rein in some of the worst actors in the financial industry—such as payday lenders, auto title lenders, and others.
We’ve also seen the damage ineffective leadership can do at a federal agency. Current Federal Housing Finance Agency (FHFA) acting director Ed DeMarco has refused to include principal reduction as a strategy for mitigating foreclosures on mortgages serviced by Fannie Mae and Freddie Mac, depriving thousands of the relief they desperately need to save their homes and avoid financial ruin.
Fortunately the President has nominated North Carolina congressman Mel Watt to replace DeMarco as director of the FHFA. Watt is an extremely qualified candidate whose nomination was welcome news for fair housing advocates.
It is imperative that the U.S. Senate—including Illinois Sen. Mark Kirk—confirm Richard Cordray to continue leading the CFPB and Mel Watt to lead the FHFA. Continuing strong leadership at the CFPB, and introducing it to the FHFA, will go a long way toward fairness and recovery.