Behind the numbers

Elizabeth Warren isn’t exactly known for being a shrinking violet. She’s been one of the most vocal opponents of the Trump administration and its cohorts in Congress. We know Warren has gotten under Trump’s thin skin by the number of times he tweets about her using one of his particularly offensive pet names. But it seems back in March, the senator from Massachusetts also ruffled the feathers of her fellow Democrats when it came time to vote on what Warren calls the “Bank Lobbyist Bill”. This “dress down” of some of her colleagues got little attention at the time. No surprise. We were still reeling from the Parkland shooting and probably distracted by some White House shenanigans, and let’s face it, to most people banking is about as exciting as a soap dish.

Not to worry. This story has made its way back into the spotlight. But let’s back up a bit. Why did Warren read the Riot Act to some of her Senate colleagues on the blue side of the aisle? It may have something to do with the fact that almost half of the 26 cosponsors of the bill formally (and might I add hilariously) known as S.2155 - Economic Growth, Regulatory Relief, and Consumer Protection Act, were Democrats, including Heidi Heitkamp (D-ND), Claire McCaskill (D-MO), Doug Jones (D-AL), Joe Manchin (D-WV), Tim Kaine (D-VA), and Mark Warner (D-VA). Why was Warren so outraged by this sudden burst of bipartisanship? Could it be because S.2155, if signed into law, would be the biggest rollback of banking regulations since the financial crisis of the last decade and would eliminate many of the protections put in place by Dodd-Frank?

​Warren was right to scold her colleagues and to prompt them to remember that there are real people and families behind the numbers. Let’s remind ourselves of what happened during “The Great Recession” in 2008. According to Warren, because of risky banking practices, almost 9 million people lost their jobs. Workers lost $2.6 trillion from retirement accounts. That amounts to 25% of their savings for someone who worked 20 years. Foreclosures spiked 81%, and 3.1 million notices went out to homeowners across the country telling them they would lose their homes. (Excerpted from Senator Warren’s address on the Senate floor-March 6, 2018) Now Congress and the White House are poised to let this happen all over again.

A Brief Overview of Dodd-Frank

Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law by President Obama in 2010 in response to the financial crisis of 2007-2008. The legislation which was introduced by Representative Barney Frank (D-MA) and Senator Chris Dodd (D-CT), contained the most significant changes to financial regulations since the Great Depression. The changes affected all federal financial regulatory agencies and almost every part of the nation's financial services industry. Dodd-Frank established the Consumer Financial Protection Bureau (CFPB), which from the time it was formed to April 2017 "returned almost $12 billion to 29 million consumers and imposed about $600 million in civil penalties,” according to former CFPB director Richard Cordray. (Cordray left the position in 2017 and is now running for governor in OH. Mick Mulvaney, yes that Mick Mulvaney, is the current acting director.) Dodd-Frank didn’t just regulate banks and hedge fund managers. Provisions in Title XV of the act require the Securities Exchange Commission to report on mine safety “by gathering information on violations of health or safety standards, citations and orders issued to mine operators, number of flagrant violations, value of fines, number of mining-related fatalities, etc., to determine whether there is a pattern of violations”. Also included in Title XV is a mandate for the SEC to monitor what are known as “conflict materials”, such as tin, tungsten, and gold in places like the Democratic Republican of Congo where armed groups are benefiting from the sale of such commodities. Title V of Dodd-Frank addresses the insurance industry. One of its provisions includes “monitoring the extent to which traditionally under-served communities and consumers, minorities, and low-and moderate-income persons have access to affordable insurance (except health insurance).”

What will the Bank Lobbyist Bill do to some of the protections guaranteed by Dodd-Frank? First of all, it deregulates 25 of the 38 largest banks in the country. What does this mean? Current law requires any bank with assets greater than $50 billion to adhere to certain standards. This new bill will raise that threshold 5 times to $250 billion. Basically, banks will again be allowed to engage in the risky behaviors that led to the financial crisis in 2008.

Another concern that Senator Warren highlighted in her remarks in Congress had to do with mortgages on manufactured homes. Warren pointed out that about 18 million Americans live in manufactured homes. Many of these people are low income, elderly, disabled, and live in rural areas. Under Dodd-Frank, mortgage lender cannot sell a higher cost loan in order to get a bigger kickback. “Rules for mobile home lenders will be weaker rules-and that means it will be much easier to cheat buyers,” said Warren. Fraud is especially rampant in lending practices for manufactured homes, and this fraud is exacerbated by the fact that the lifespan of a manufactured home is usually less than that of traditional type homes. People who buy manufactured homes are often at a disadvantage by not being able to take out equity when reselling the home. According to Warren, fraud is rampant in lending practices for manufactured homes. Any questionable lending practices are made worse because the lifespan of a manufactured home is typically less than that of a traditional home. Purchasers of manufactured homes are often not able to take out equity by reselling the home.

But most disturbing of all, S.2155 would allow racial discrimination in mortgage lending practices. Long before Dodd-Frank, Congress enacted the Home Mortgage Disclosure Act (HMDA) in 1975. HMDA requires institutions to disclose to the public and the Consumer Financial Protection Bureau (CFPB) who they’re lending to, at what rates, and under which terms. This data is used to make sure families aren’t prevented from getting loans because of who they are. Warren points out that this bill makes 85% of institutions exempt from reporting HMDA data, meaning there will be no way to monitor whether people are being discriminated against because of race or gender. Warren also noted, “In 2015 and 2016, nearly two-thirds of mortgage lenders denied loans to people of color at higher rates than for white people. ‘In 2016, Native American applicants were 2.3 times as likely to be denied a conventional home mortgage as white applicants. For black applicants, it was 2.2 times as likely. For Latino applicants, it was 1.9 times as likely. For Asian applicants, it was 1.6 times as likely.’ We would know none of this if it weren’t for HMDA.

S.2155 passed the Senate despite Elizabeth Warren’s admonitions and is scheduled for a vote in the House on Tuesday. Some last minute amendments that are being suggested may cause some bumps in the road, but with the current make-up of the House, it could already be a done deal.

It’s been noted that a recurring theme in the U.S. is increased regulation after a financial crisis to deregulation during economic upturns. What is it they say? The definition of insanity is doing the same thing over and over and expecting a different result. You’d think we’d learn our lesson.

​posted by Amy Levengood