Protecting the Consumers

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:

24 million from American Honda Finance

80 million from Ally Financial.

18 million from Fifth Third.

9 million from Provident Funding Associates

22 million from Toyota Motor Credit

229 million from GE Capital partially for “discrimination” via not printing promotional materials in Spanish. How much for no flyers in Xhosa?

11 million from Bancorp South for not shitting away its investment erecting branches in black neighborhoods.

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.

15 thoughts on “Protecting the Consumers

  1. Pingback: Protecting the Consumers | Reaction Times

  2. One of the prime movers in the Fairness in Lending Act was a close relative, at the time a senior NY Fed officer. Following the passage of the law, he was sent on a barnstorming tour of “community organization” beneficiaries. One night my phone rang and it was he, a bit in his cups. He launched into a tirade, the scales having been ripped from his eyes. “These blank-blank racist epithet don’t want loans, they want GIFTS! They don’t get that loans have to be repaid!” This well-educated and well-meaning but previously well-insulated-from-the-street patrician had been shown the ugly face of reality, but the vision soon dimmed and once free of the distasteful task of having to deal directly with the unworthy beneficiaries of unworthy legislation relapsed into what these days is called virtue-signalling. Sigh.

  3. Never commented here before, but I have been reading your blog since it showed up on TBP(thanks, yojimbo) and I really enjoy your writing style.

    The “solution” of this is probably some kind of “adjustment” that is made to people’s credit scores based on their ethnicity, like many schools are now doing to SAT scores. Whites and Asians will lose points, say -100 points or so, with blacks and others being given 150 points or so. That way a white guy such as myself, with my 790 or so, would come in around 690, and a black person sitting in the mid 500’s would have theirs “adjusted” up to about the same score. Sounds patently absurd as I type it, but it wouldn’t surprise me. Its not like the banks will care, either. They make the loans, but they are implicitly backstopped by the fedgov(i.e. YOU, the taxpayer), and/or bundled up into securities and sold to morons so whether or not they can actually repay the loan or not isn’t really relevant to the institution doing the lending. But hey, its not like anything terrible happened last time we tried something like this, right?

  4. First, “The Left Hand of God” and the accompanying video gives me hope, then this article leads me back to thinking we are doomed. Stop playing with my emotions, Porter.

  5. As a follow-on to this piece, a commenter could write a catalogue of analogies to what is being done here. It would be just as ridiculous to cite discrimination against asians on the Olympic track team without considering their 100m dash times. You actually have to demonstrate ample foot speed to make the Olympic track team, just as you have to demonstrate a facility for loan repayment to get the choicest rates.

    His c.v. suggests that Richard Cordray is a highly intelligent man, and so we can assume this subtle logic hasn’t entirely escaped him. Thus his earnest defense of the CFPB methodology can be attributed to personal corruption and political expediency far more than statistical innumeracy.

    The only difference between this and previous racial scams like Pigford is in their design, not their intent. None of which have anything to do with “discrimination” (which used to be an admired human faculty). Rather it is simply blacks demanding gibs, and white liberals looking for photo-ops to show they have provided them.

    Every separate tribe becomes a political constituency. And the West is never short of volunteers to service them.

    • Maybe they’ll replace the FICO score with the GIBS score – the higher your GIBS score, the more likely you are to receive a loan.
      I.E. A full-time BLM protestor has a GIBS score of 800, a gender studies major who can provide proof of at least 5 body piercings has a GIBS score of 750.

      • Exactly. Though we’ll call that GIBS score a “holistic review.”

        By the way, glad your trip went well. I’ve got the peninsula on my to-do list.

    • Perhaps a poor example: the Nips just won silver in the 4x100m relay. Their anchor leg was perhaps the world’s only Jap-maican hybrid… Asuka Antonio Cambridge, lol.

  6. Thanks Porter! Spain and Portugal are fun. The enrichment isn’t as bad as other euro nations but it’s slowly creeping in. Might as well see it before it reverts to Al-Andalus. My future travel plans involve the East – Hungary, Poland, Czech Republic.

  7. I used to work with one of these banks and was impressed with the way they weathered the mortgage crunch. They used the Fannie Mae underwriting guidelines so that their loan portfolio could be quantified in a MBS (probably for sake of fractional reserve requirements, but really there is no reason not to). However, they amped up the qualifications for their mortgages, especially with regard to minimum equity. This bank could afford to be a bit under “market price” with their interest rates because their loans had a lower risk of default (and they rarely sold them off).

    Anyway, there was already some set of “Community Reinvestment” quotas in place. The board of directors did a curious thing: they simply regarded those loans as a sunk cost. The bank didn’t open its portfolio to subprime or FHA loans, they just wrote some loans below cost for blacks. They kept the loan sizes small and found a creative spot on the cash flow statement for whatever interest came in each month. The loans were near-worthless on the secondary market because there was no uniform underwriting standard. The blacks were literally being given gifts (and almost surely still are receiving them). I don’t very many of them have ever realized it.

    I did not realize that they still recently got tagged for many millions. In what kind of clown world is it racist to open banks where people have money? And the timelines are amazing too. These fines are handed down five years after the fact. How many annual salaries and thousands of billable hours were paid out by this government body to levy these fines? I don’t have to be an actuarial accountant to figure that it’s not a very profitable witch hunt.

    • I think there’s a powerful impetus in these quarters to find and fight raysis. It lets every officious shitlib make his own personal march over the Edmund Pettus bridge.

      Also, there is valuable political currency in public displays of gibs. Having an agency that merely secures compensation for consumers rather than specifically black consumers just isn’t going to fly.

  8. If folks really wanted to protect consumers we’do end the usury system, break the backs of the banks, big business and politicians.

    I am all about free and fair markets but those three things ensure there is no such thing.

  9. Pingback: The Very Best of Last Week in Reaction (2016/08/28) – The Reactivity Place

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