I wonder how many Americans have ever heard of the Consumer Financial Protection Bureau (CFPB). It emerged out of the 2010 Dodd-Frank legislation, which followed the Wall Street and mortgage meltdown of 2008. Rather than any logical response thereto, this law primarily represented the Democrats’ dedication to capitalizing on every crisis.
Interestingly, the CFPB’s name is a bit of a gaffe given how inadvertently close to the truth it sits. That is to say it exists in some measure to protect those who consume society. Though the introduction on its website isn’t quite so explicit, unless you know who “you” and “your” are.
We’re on your side
We are the Consumer Financial Protection Bureau, a U.S. government agency that makes sure banks, lenders, and other financial companies treat you fairly.
Well that’s heartening. I pay quite a lot in taxes and so am encouraged to learn that those monies have purchased due loyalty from the state. They’re on my side. They are talking about my side, aren’t they? By the end of this post you may be wondering–or not wondering at all.
One of the CFPB’s primary means of making sure “you” are treated fairly is by initiating legal/regulatory action against businesses who neglect to do so. Of course I’m little inclined to sympathy for a merchant class who typically can find none for their countrymen. Though in a contest with these consumers, I’ll take business.
An interesting aspect of many CFPB assaults is how often they culminate in settlements. I don’t have the statistics, but can recall few examples of resistant executives. Typically it requires only a certain pronouncement to see a CEO’s underbelly.
Why do you think that would that be? Many millions of dollars are stake. Why would businesses not enthusiastically contest the CFPB’s allegations? The reason is because this agency specializes in making the most feared accusation of all: racist.
Once this hideosity is set upon the negotiation table, most executives will bark like seals to make it disappear. Defending yourself against racist is practically tantamount to being racist. And so what’s the bill, Mr. Consumer Protection?
Here’s a few examples of invoices:
33 million from Hudson City Savings Bank for more impermissible African war-zone avoidance. Do CFPB officials also legally pursue themselves for not building their own offices in the ghetto?
All of these are nothing more than expedients for raw racial wealth transfer.
At some point you may begin to question how funneling (even more) money to a cosseted underclass is supposed to protect the country from future financial fiascos. Though your employment prospects will be brighter if you don’t do that. And in honesty some of the bureau’s initiatives might even be worthwhile in context of their fairness pledge. But we’ll focus on those that spectacularly are not.
Several of the examples listed above involve discrimination alleged on the basis of interest rate differentials between races. As an aside the CFPB didn’t even have racial data, and so obliged themselves to speculate using a statistical hocus pocus called Bayesian Improved Surname Geocoding.
And so armed with methodical guesses of who was white and who was “minority” the CFPB uncovered proof of discrimination in interest rate pricing between their two entirely conjured cohorts. Though this is by far the less egregious issue. Most ridiculous is that the agency doesn’t consider credit scores when analyzing the interest rate disparities between its made up whites and blacks. This is a monumental omission.
There’s no need to master the intricacies of credit underwriting when even a blind moose can intuitively shamble into the flaw with the CFPB’s approach.
1. Lending products are priced on credit scores, among other factors.
2. Credit scores are 65% payment history and debt load.
3. Blacks and hispanics have worse payment records, and correspondingly overall credit scores, than whites (and asians).
4. People with an established history of paying their debts require less risk-premium than those with a history of charge-offs. Credit scores quantify this risk.
5. Thus in order to validate charges of racial discrimination it must be shown that blacks were charged higher rates with an identical credit score. Otherwise you are simply offering the insipid observation that lenders charged higher rates to riskier borrowers.
The CFPB doesn’t even care.
CFPB Director Richard Cordray told a U.S. House panel Tuesday that the Consumer Financial Protection Bureau didn’t account for credit scores when measuring whether minorities were charged higher interest rates than other borrowers on dealership-arranged auto loans through Ally Financial.
And that is the precise moment a man with some residual integrity would tender his resignation. Fortunately, Mr. Cordray isn’t bound by such burdensome traits.
There are better approaches to determine creditworthiness than by evaluating credit scores, Cordray said, although he did not provide details of other methods.
When Rep. Sean Duffy, R- Wis., asked whether Cordray had a “view of creditworthiness” that he applied to the Ally case, he didn’t directly answer the question but said that creditworthiness is a “fair consideration when people are making a loan. I believe we try to find ways to take account for that.”
Uh huh…Go ahead and tell us how you account for that without credit scoring, Director. We’ll wait while you gather your thoughts.
I very much wish some ambitious congressman had held the hearing open while tapping his fingers until there was nothing left in the room but he, Cordray, and a ticking clock. Credit scoring is an established feature of the lending function. If the CFPB has devised a “better approach” it falls within their fiduciary responsibilities to advise the industry they regulate. It’s quite unhelpful to keep such a lucrative secret. Wait, maybe this is it…
The CFPB said the variation amounted to discrimination under a legal theory known as disparate impact, which says that a practice can be considered discriminatory if it has a disproportionately adverse effect on minorities, even if no discrimination was intended.
“There are various methodologies that could cause disparate impact to be overestimated and various methodologies that could cause it to be underestimated,” Cordray said. “Accurate is in the eye of the beholder, but we are trying to get it right, trying to understand what accurate means.”
One fact no liberal has ever explicitely absorbed is that everything in life has a disparate impact. That is because neither individuals nor groups are the same. Thus this doctrine means nothing more in practice than: all actions must harm whites. And while Director Cordray is trying to understand exactly what discrimination means in that context, he’ll just stammer stupidly in the interim.
If it continues to metastasize, this CFPB exercise in wealth transfer flimflam will start to resemble the legendary Pigford scam. But for now, all you need to understand is that blacks don’t pay and so blacks must get paid.
Ahh the life of a consumer.