There is a history in the U.S. of having to legislate human decency. We keep the Golden Rule (do unto others as you would have them do unto you) confined to church, with rare applicability to how we do business.
If we have no choice but to write laws to address our failure to treat everyone fairly, the challenge falls on policymakers to imagine every possible scenario where unfairness can occur, how to define it, how to identify it and what penalties will come from it. Given the unreasonable nature of that task, it's natural for those with an interest in the status quo to claim that any attempt to do so would exceed existing authority and be labeled as arbitrary and capricious.
A few years before I chose to head Woodstock Institute, a consumer financial protection research and advocacy nonprofit in Chicago, I was part of a team helping to create the Reputation Risk Committee for MUFG in the Americas. In the many attempts to define the scope of what the committee would review, a few of us jokingly created the "cocktail party test."
You're at a cocktail party with friends when you're asked, "What's new at work?" You reply with an enthusiastic recap of how your bank created a flexible and affordable short-term consumer loan for when people are short on cash. The beauty is that it's only available to people who are rarely short on cash. You can't access it, for example, if you have a checking account that's tailored for low-income individuals. In other words, the people who need it most can't use it.
Would your friends' reaction be a hearty "well done" and pat on the back, or would someone likely call you a few choice words as they leave? Their reaction would determine whether the issue would be presented to the newly created Reputation Risk Committee.
We also have a love-hate relationship with the government. Everyone wants the government out of their lives until their child gets sick from a bad can of tuna, at which point there are resounding cries of, "Where was the government?"
Marry the ambiguity of defining "unfairness" with our dysfunctional relationship with government, and you now understand why policy is rarely proactive. We usually wait until a problem arises and there's a crisis before Congress gets involved, because that's what it takes to get 60 votes.
Existing laws banning discrimination, also known as "treating everyone fairly," in the banking industry cover only a portion of the essential financial products and services Americans need to thrive. Many citizens don't know that small businesses do not receive the same protections that the Truth in Lending Act provides to consumers for their mortgages and credit cards; there is no formal oversight for discrimination when opening accounts at a branch; or that the record of opening and closing branches is covered only by a law focused on the income, not the race of the community.
These are important gaps in coverage that the Consumer Financial Protection Bureau has aimed to close. However, given the current volatility in Washington and the pending litigation regarding the CFPB and its rules, closing these gaps should be done carefully.
In this case, not going through the process of notice and comment that is required by the Administrative Procedure Act is likely to slow, not quicken, the pace by which the CFPB can make significant changes.
But do we really need to continue our habit of forcing Congress to write laws explaining the difference between right and wrong, and to state that an agency with "consumer financial protection" in its name has the right to engage in consumer financial protection? This is a tactic used by government affairs teams at trade associations and large institutions in the hope that the process will drown any attempt at change.
Would supervisory actions like what's being proposed by the CFPB, or passage of laws like the Fair Access to Financial Services Act, expand financial services to the underserved? When we worked with a coalition of nonprofits, lenders and policymakers to pass the Predatory Loan Prevention Act in Illinois, which capped consumer loans at a 36% APR as defined by the Military Lending Act, the payday and title lending industry claimed it would hurt access to credit for those not served by the banking system. While they're not wrong about the failures of banks to meet the financial service needs of the underserved, they're wrong that consumers are harmed by not being preyed upon by high-cost lenders.
Why would we believe the zombie-apocalypse scenario currently being peddled by the banking industry?
Yes — The creation of these rules should be a collaborative process that involves requesting and considering comment from a variety of stakeholders.
No — Codifying and enforcing the elimination of irrational barriers toward "life, liberty and the pursuit of happiness" will not harm the underserved or end the banking industry as we know it.
