All Your Consumer Protections Are Dying

Like a group of friends at a remote cottage in a campy serial killer film, your consumer protections are being stealthily killed one at a time, as you run around trying to put out other fires.

Well, make that two at a time. Yesterday, a federal judge ruled that Title X of the Dodd-Frank Act, which created the Consumer Financial Protection Bureau, is unconstitutional “in its entirety.” And the Trump administration’s Department of Labor failed to appeal a court ruling that voided the Fiduciary Rule, thus killing it.

But that’s not all the Trump administration has been successful in rolling back.

Consumer Financial Protection Bureau

The CFPB was created by Dodd Frank in the aftermath of the financial crisis to hold institutions accountable for their bad behavior.

The CFPB has gone after predatory student loan and payday lenders, banks like Wells Fargo who have swindled customers and, in the case of the lawsuit referenced above, was suing a company it alleged “deceived 9/11 first responders with cancer and other illnesses as well as NFL football players with brain injuries out of millions of dollars.”

In fact, for pretty much any financial infraction now, the advice when you’ve been scammed or believe something illegal has happened—say, your student loan servicer says you haven’t made X number of payments when you know you have, or Wells Fargo opens an extra checking account in your name without your knowledge—is to file a complaint with the CFPB, which can then investigate the claims. And for that reason it’s been a target of the “pro-business” lobby since its inception.

It is likely that the ruling will be appealed, but it’s bad news for people who want more methods in place to hold lenders, banks and other financial institutions in check.

Department of Education

Education Secretary Betsy DeVos is working overtime to make sure minority students and those who fall victim to predatory for-profit schools and student loan lenders have as little federal (and state) recourse as possible.

As I covered previously, so far during her short tenure, DeVos has put rules that would protect students from predatory for-profit schools on hold and rescinded a 60-day grace period for students who fell into default to get their payments in order and avoid a 16 percent fee. Education is also telling states to drop their efforts into regulating student loan servicers, and DeVos has rolled back rules meant to help disabled students as well as guidance on sexual assault cases on college campuses.

Banking Deregulations

Last month, federal officials proposed rolling back the Volcker Rule, another aspect of the Dodd-Frank Act that aims to “prevent Wall Street from making risky bets with customers’ money for the bank’s own profit,” as I reported at the time. Kimberly Palmer, NerdWallet’s Banking Expert, told me that consumers aren’t likely to feel the effects of this action until there’s “a problem, like a financial crisis or bank failure.” Which is exactly when you want to find out.
President Trump has also rescinded a rule protecting African American and Latino consumers from discrimination from auto lenders, and signed a law that exempts small- and medium-sized (read: most) banks from Dodd-Frank altogether.

Fiduciary Rule

I’ve written about the Fiduciary Rule before, and it’s one of those things that feels so obvious it’s head-scratching

What it would have done: Implemented by the Obama administration, it would have required all retirement advisors to act in their clients’ best interests instead of their own—in other words, to meet the fiduciary standard. That’s something Certified Financial Planners and other types of advisors already have to do, but there’s a whole industry of broker dealers and other types of financial advisors who don’t.

And that means if you go to one of them for investment advice, they could sell you a product (say, a certain fund) that gives them a kickback while you’re left with potentially lower returns and higher fees than another, similar product would have produced. Obama’s White House’s Council on Economic Advisers found that non-fiduciaries cost us, the average 401(k)/IRA retirement investors, $17 billion per year.

This comes in the midst of America’s retirement crisis, making it even more egregious that the government is doing nothing to ensure the average American’s already insufficient retirement savings aren’t reduced further by brokers looking to make a quick buck at our expense. To avoid that fate, you want to make sure anyone you get financial advice on specific investments and plans is a fiduciary. Here’s information on how to find one.

Now, Barron’s reports that the SEC is creating its own “best-interest rule,” which also requires brokers to put their clients’ interests before their own. The SEC is hearing public comments until August 7.

Taken one by one, the rollback of our basic consumer protections is alarming. All together, it could be devastating for our collective financial future.