Congress should require federal agencies dealing with mortgages to put into place a minimum down-payment rule. Existing regulators and law enforcement agencies could do better at policing deception and fraud—and show that they’re willing to shut down repeat offenders, even big ones. And lawmakers should start phasing out Fannie and Freddie, so that government dominance no longer distorts the housing market.Instead, the focus of CFPB enthusiasts, notably including Elizabeth Warren, is the kind of jam that 10% of consumers can get into when they demonstrate why the bottom 10% of consumers shouldn't be trusted within 100 feet of a financial instrument without a court-appointed guardian (leaving the rest of us alone, thanks very much). New York economic-justice advocate Sarah Ludwig uses a middle-aged government worker as an object lesson. Finding herself short of cash one month, she resorted to a payday lender, which lent her money a sky-high rates in exchange for a post-dated check on the strength of a pay stub proving she was employed. Each month she could either pay the loan back or extend it. Eventually, if she failed to do either, the payday lender would present the check at her bank. Now, this was a deliberately kited check; there were no funds to pay it. So she started incurring bounced-check charges and ended up with bad credit. Is the solution for this once-burned consumer to work through the bad credit and repair her reputation? Or is it greater federal government involvement in consumer protection and education? It's hard to imagine that lack of education led this middle-aged government worker to close her eyes to the consequences of kiting a check.
Another poster child:
Andrew Giordano’s bank mistakenly gave him a replacement debit card that offered overdraft protection, and he failed to realize it. He proceeded to overdraw the account multiple times, enough to result in $814 in fees. “Funds obviously were not there,” his wife says plaintively. “Why would [the bank] continue to accept the charges?” Warren neglects to respond with the obvious question: Why did Giordano have no idea how much money was in his account?I had a little more sympathy for the woman who "became a victim when she racked up long-term debt on a variable-rate credit card and then professed shock when her card issuer exercised its right to raise the rate." But Congress already passed a bill in 2009, with bipartisan support, requiring credit-card issuers to warn customers of an impending rate increase and to continue to apply the old rate to existing balances. What's left for the CFPB to do? Well, for one thing, a rule
that requires home buyers to pay a minimum-percentage down payment would be a simple, effective option. People who have been able to save, say, 10 percent of a house’s value demonstrate financial discipline. Further, a family that has equity in a house can refinance easily to get out of a bad mortgage; such a family also has the flexibility to move, if a breadwinner has the opportunity to take a better job in another city or state. And creating a minimum down-payment rule would be fast and easy—a major benefit, since continued uncertainty about financial rules is contributing to banks’ reluctance to lend and thus to today’s sluggish economy.
Yet the CFPB almost surely won’t take such an obvious step, and again, the fault lies with Congress. The Dodd-Frank bill didn’t specify a down-payment rule because such a rule would push house prices down further—anathema to Congress. Moreover, a down-payment requirement would run afoul not only of America’s debt-carrying middle class but of the affordable-housing and minority-group advocates who want poorer Americans to enjoy the same dream of indebtedness that the middle class enjoys. As Orson Aguilar, executive director of the nonprofit Greenlining Institute, puts it, any mortgage rules that would require homeowners to have a good job, good credit, and a hefty down payment are “problematic.”The author concludes: "the CFPB is likely to encourage poorer people to take on debt that they cannot afford."
The bureau can do so because Congress gave it the responsibility to enforce some “fair-lending” laws. As Congress put it, the CFPB must study “access to fair and affordable credit for traditionally underserved communities” and ensure “nondiscriminatory access to credit for both individuals and communities.” The probable result will be to strong-arm the financial industry to lend money cheaply to the poor—and when something is cheap, people buy more of it, even if they shouldn’t.
The CFPB is already moving aggressively on this front. . . . In April, the CFPB’s deputy director, Raj Date, told consumer advocates at a Greenlining conference that the bureau would work assiduously to make sure that “lenders are not creating conditions that make loans more expensive, or access more difficult, for certain populations."