Shocking news: Somebody turned a watchdog loose in the shabby barnyard of consumer financial services.
Yet the sky hasn't fallen.
Yet still it has bite. Last week Capital One Bank agreed to pay $210 million to settle an enforcement action by the agency, which found that the bank's telemarketing vendors used deceptive tactics to sell add-on services to credit card customers. Wronged customers will get back $150 million of what the bank will pay, and the agency says the problems it found weren't unique to Capital One. So stay tuned.
The agency also plans to revamp the mortgage lending process to make it fairer and more transparent to consumers. Part of what led to the financial crisis, after all, was a lot of lending to mortgage borrowers who didn't understand what they were getting into.
Improving all this through better disclosure and penalties for deception is hardly radical. America's financial services industry hasn't exactly been a tower of probity in recent years. The biggest banks, with their lavishly paid chieftains, had to be rescued from their own recklessness by Uncle Sam, and now some are suspected of rigging a benchmark interest rate in their favor. Payday lenders charged consumers outlandishly high interest. The name Bernie Madoff became synonymous with financial chicanery. Recession, unemployment, foreclosure -- this is an industry that has caused a lot of pain.
For obvious reasons, America's banks, payday lenders, mortgage brokers and other financial services providers like their regulators to be fragmented and underfunded -- as financial regulators in this country mostly have been. But the new Consumer Financial Protection Bureau was to centralize a lot of duties and staff that had been spread around other agencies. So the financial industry fought it tooth and nail.
But a financial watchdog is precisely what American consumers need, and the agency's existence represents a rare triumph of the public interest over the power of big money. The bureau came into being two years ago as part of the Dodd-Frank financial reforms adopted by Congress in the wake of the financial crisis. And it was soon under attack by congressional Republicans. Last year 44 of them in the Senate vowed not to vote on any nominee to head the bureau unless it was given a board of directors instead of a single chief. That would have made it easier to tie up the agency in politics.
Since the law barred the bureau from doing much without a director, the White House resorted to a bit of parliamentary maneuvering -- a "recess appointment" -- to get Richard Cordray into the job. House Republicans also tried to slash the fledgling agency's budget.
Of course, the bureau is no panacea. Among other things, we badly need more education in this arena; many high schools and colleges require students to learn a foreign language, yet each year they graduate throngs of financial illiterates who are easy prey for what were once quaintly called sharp practices. (Now we have a different name for this way of doing business: standard operating procedure.)
Financial firms don't seem to realize it, but the honest ones stand to benefit from a watchdog like the new consumer bureau, because a vigilant canine can scare away the crooks and give others a sense of security.
Restoring faith through honest dealings and transparency might even help prevent another financial crisis. If only the Chicken Littles of the financial industry had warned us about that.
Daniel Akst is a member of the Newsday editorial board.