They're Heeeeeere!

Remember the terrified little girl in "Poltergeist"? Little  Carol Ann Freeling warned her family whenever she sensed the spirits that haunted their otherwise average, normal middle-class home with her calm, almost whispered, "They're heeeeere!" At first the poltergeists did not seem threatening--they were just playful! But as they became more active, the malevolent spirits terrorized, abused and dominated the entire family, until little Carol's warning became an unnerving exercise in sheer spine-tingling horror!

The White House blog today reminds us that this is a big week for all Americans as the Consumer Financial Protection Bureau assumes its new role as official financial cop of the U.S. But although supporters and proponents of the CFPB are touting its arrival as a wonderful step forward for civic minded citizens everywhere, as I prepared to write this week's post, all I could think of was Carol Ann Freeling and Poltergeist.

On Sunday the White House announced that Elizabeth Warren definitely will not be the head of the new agency.  The Administration had to finally bow to pressure from Republicans who had promised not to confirm Warren.  But the White House did allow Warren to write the blog introducing the CFPB and the president's new nominee to head the agency, former Ohio attorney general Richard Corday. Although Republicans have promised to block the nomination of anyone until structural changes are made to the CFPB, Cordray's confirmation is likely.  In the meantime, the agency is charging forward without a leader--which has led some observers to nickname it "the headless horseman."  Without a director, the CFPB cannot write any new regulations, but they can enforce the regulations that are already on the books and they can take up the task of consolidating and merging much oversight of the financial services industry.  They have already released to the press their intentions of immediately beginning their audits of all major banks.

The bureau is charged with preventing "unfair, deceptive and abusive" business practices, but these terms are very vague. Particularly the term "abusive" is pretty much left open to the discretion of the regulators, who may decide arbitrarily whether they deem a particular practice to be "abusive." 

In her blog yesterday, Warren gushed about the great task ahead of the CFPB--making sure that another financial meltdown never again happens by identifying problem financial instruments before they have a chance to crash the markets.  She says that we got into this mess "one lousy mortgage" at a time, and CFPB will be there in the future to identify and quash harmful and debilitating loan policies before they spread into the market place.

To do that, CFPB has a huge web of investigators who will audit the major banks, all independent non-bank mortgage lenders, mortgage brokers and credit unions, payday lenders, and practically all financial service providers except insurance agents.  Some smaller community banks will escape the prying eyes of the CFPB because smaller institutions are not regulated by the agency.  But in the end, we are all the eyes and ears of the CFPB.  In a USA today interview given in December of 2010, Warren tells us that CFPB will encourage consumers to use their digital cameras and phones to scan "dubious or suspected financial offerings or products" and email them to the CFPB so that they can open investigations.  By using consumers as the first line of information, the CFPB can supposedly catch problems more quickly, keep track of recurring issues and determine whether certain groups are being "targeted." Remember that the CFPB has the power to call in the IRS on any business they examine whom they determine may not be complying with tax law, so a CFPB audit is a serious issue indeed.

We are also all the watched and spied upon.  One of the five objectives of the CFPB is to "make sure that markets for consumer financial products and services operate transparently and efficiently to facilitate access and innovation, " according to Cordray in a speech that he gave to a conference of state attorney generals in March of 2011.   To meet this mission, the CFPB houses a "Research, Markets, and Regulations Division."  This division's purpose is to "track market practices, developments, successes and failures."  The agency will track the various types of financial markets and instruments and how consumers interact with them.  Plain English translation:  The CFPB will be able to track where Americans keep their money, how they spend it, where they spend it, how much debt they carry, etc. They will know more about us than most of us know about ourselves.  At present, one concern of the CFPB is to have more regulation over prepaid debit and credit cards.  They want to know where every dollar is going and how it is spent.

The CFPB has unprecedented powers not only to watch us but also to interrogate us.  As part of the CFPB's objective to prevent "unfair and abusive practices," the agency has the authority to open a civil investigation. "Whenever the Bureau has reason to believe that any person may be in possession, custody, or control of any documentary material or tangible things, or may have any information, relevant to a violation, the Bureau may, before the institution of any proceedings under the Federal consumer financial law, issue in writing, and cause to be served upon such a person, a civil investigation demand requiring such person to produce such documentary material for inspection..., submit such tangible things, file written reports or answers to questions, give oral testimony...or furnish any combination of such material answers or testimony. (H.R 4173 Dodd Frank Act, Subtitle E section 1052)  Plain English translation:  Any person can be subpeoened to produce records and/or testify under oath to a CFPB investigator as part of a civil investigation where no criminal charges have been filed.  A person testifying under oath is allowed to have an attorney present, but they may not invoke the Fifth Amendment or refuse to answer any question.  At the conclusion of the testimony, they will be asked to sign a written transcript of the testimony, but if the witness refuses to sign, the investigator will sign the report notating that the witness did not choose to sign it.  The investigator may or may not furnish the witness with a written copy of his testimony, at the investigator's discretion. (Bear in mind, folks, this is a civil investigation with no criminal charges.)

Notice that the language of the bill does not say "any person working for a financial institution" or "any person who is being compensated through a financial transaction;" it says "any person".  That could be any of us--it could be you.  CFPB powers give agency investigators the right to pursue people under investigation to foreign countries if necessary.  In other words, you can run, but you can't hide.

In her USA Today interview, Warren says that "the new agency did not come into being because special interests demanded it or lobbyists spent hundreds of millions of dollars to make it happen...But ordinary Americans pushed hard for this agency. They said loud and clear that they wanted an agency in Washington to level the playing field with big banks."  Who were these ordinary Americans?  Well, unions for one--the SEIU was lobbying heavily to have Warren confirmed even after any genuine hope of that happening had long since died.  And, of course, consumer advocates wanted the CFPB armed with maximum fire power to hunt down anyone who might be trying to profit from capitalism. But I don't think most Americans wanted an agency that can sift through their finances with a fine tooth comb and force them to give sworn testimony about their personal financial transactions.

Over lunch a friend of mine who is an attorney told me recently that if most people knew what the Dodd Frank bill says, "there would be rioting in the streets." He was actually referring to the government's ability to take over and dissolve private companies at its own discretion.  I think if most people knew that the CFPB is about to make the CIA and Homeland Security look like the entertainment segment at a child's birthday party, they might be rioting in the streets.  The problem is that they don't know.  A great many have never even heard of the CFPB.  But they will.

And so it begins.  The day after tomorrow the CFPB is open for business.  And as soon as their new director is confirmed, they can be armed with their "full powers."  To me, that is scarier than any plot line Hollywood ever dreamed up.

For books by Alexandra Swann, visit her website at http://www.frontier2000.net