If the Consumer Financial Protection Bureau disappeared tomorrow, would anyone notice?

What is expected to be a contentious Senate Banking Committee confirmation hearing Tuesday for Rich Cordray, who has been temporarily leading the bureau, offers an opportunity to examine the need for a federal agency designed to protect consumers in their financial dealings. If confirmed, Cordray gets a five-year term, but he’s certain to face a major fight from Republicans, who say the bureau is ill-conceived. We spoke to one of the agency's biggest supporters and perhaps its fiercest opponent to get some perspective. But first, a little background:

Born out of the financial crisis, the first new federal consumer protection agency since the Depression, the CFPB has had a rocky start. Republicans railed against the idea but couldn't stop Democrats from passing the financial reform legislation that created it, so instead they blocked appointment of Cordray in 2011, effectively putting the bureau into limbo. President Barack Obama then used a recess appointment to seat Cordray, setting off a battle that is still going on.

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The political dispute didn't stop the bureau from shooting out the gate, however. It its 15 months of existence, it has written a host of new rules for lenders, set up a huge public database of consumer complaints and generally irritated most of the financial industry.

Many in the banking industry are still hopeful they can dismantle the CFPB, unseat Cordray and potentially undo everything the bureau has accomplished with a single court victory.

A federal court ruling in January found that another recess appointment by Obama was improper, creating the possibility that it might agree with Republicans who argue Cordray’s recess appointment was illegitimate, too. Some opponents argue that would make everything the bureau has done since his appointment void.

Expect bickering

That legal battle is still in the future, but Tuesday's confirmation hearing serves as a proxy for the fight and another chance for political posturing by both sides. There will be plenty of "Your regulations are killing jobs" vs. "Do you want a repeat of the 2008 recession?" bickering.

The discussion has potential to be a little more elevated, however, as this time the CFPB has a track record to examine.  As far as federal agencies go, it's just  a baby. But as long as we're fighting about it, it’s worth asking what the CFPB has done to prove its worth. 

In one corner ...

Todd J. Zywicki, a law professor at George Mason University with expertise in bankruptcy and contracts, says the CFPB has become exactly the monster he predicted three years ago when Congress debated its creation.

"It's turned out to be an extremely political agency,” he said. “... It's turned out to be really aggressive and arrogant in the way it behaves.”

When one of Obama’s recess appointments was invalidated, the agency response was "typical,” he said.

"They said that ruling doesn't apply to us,” Zywicki said. “What that shows is an agency that is very arrogant and out of control.”

The CFPB has unusual power among federal agencies. Unlike the Federal Trade Commission, the Federal Communications Commission and other agencies which are run by members of a commission with mixed political affiliations, the CFPB has a single agency head. It also does not have to submit its annual budget for congressional review the way other regulators must.

"They've created an unaccountable super-regulator that can and has acted as a highly political agency," Zywicki said. "If the CFPB were to go away tomorrow, it would be a boon for consumers and the economy."

Zywicki's most specific concern about the agency before its creation was that it would hurt lenders, and therefore hurt  consumers who were trying to borrow money. That has happened, he said.

"Our concern from the beginning was that it would act in a manner that would restrict credit and hurt the economy," he said. "Look at its rules on qualifying for mortgages (which impose stricter requirements on borrowers). ... It's stifling innovation (by banks) and restricting consumer choices."

He also said that the agency's new rules are disproportionately impacting the nation's smaller banks, which have smaller legal staffs to deal with them.  

"Because of the massive regulatory burden it is imposing on the economy, (the agency) is promoting a consolidation of the banking industry" by burdening small banks, Zywicki said. He could not point to a bank that closed or was sold because of CFPB rules but said that smaller community banks across the country are consistently complaining about the rules.  "It's the overall effect of regulations," he said. "It's not just the CFPB, but it is piling on."

And in the other ...

Taking the opposing view is Ed Mierzwinski, consumer program director for the consumer advocacy agency Public Interest Research Group and a vocal supporter of the CFPB creation and of Cordray. He gives the agency an "A-minus" for its work so far and has no trouble rattling off a list of accomplishments in its short life. Among them, he said, the bureau has:

• Successfully brought enforcement cases against three large credit card issuers for allegedly unfairly "upselling" products such as credit card insurance, and returned $400 million to 6 million U.S. consumers after a settlement.
• Created new mortgage disclosure documents, promoted awareness among college students about school loan debt and launched a separate effort to protect soldiers and veterans from predatory lenders, all through its “Know Before You Owe” program.
• Become the first federal agency to supervise so-called “non-bank banks” and begun to focus on products such as payday loans, title loans and other non-traditional borrowing products, as well as private student lenders.
• Worked to increase transparency, including creation of a public disclosure website that lists consumer complaints and, unlike similar databases at other agencies, allows anyone to browse the complaints, including information on the companies targeted.  Agencies such as the Federal Trade Commission do not make complaints pubic.

"The CFPB data allows (observers) to rank the companies involved. No one wants to be No. 1 on that list," Mierzwinski said. Public shaming is an effective regulatory tool, he argued, one that hasn't been used by other agencies.

When asked about the theoretical possibility that the agency could disappear, Mierzwinski said consumers would lose the benefit of actions he expects in the next 15 months, specifically related to the CFPB's recently acquired new power to regulate credit bureaus and debt collectors.

"The FTC never had the tools to go after them,” he said. “... Now for the first time, a federal agency can go into the credit bureaus and debt collectors and say, 'Show me your books.'"

Mierzwinski said the FTC has never held the credit bureaus financially accountable for credit report errors and predicted CFPB enforcement would lead to more accurate credit reports.

In a more general way, he says enforcement actions and additional regulatory oversight help all consumers, even if they haven't received a refund check based on a bureau lawsuit.

"I'm convinced that many banks eliminated those kinds of practices," such as selling credit card insurance, after a CFPB lawsuit,” he said.  "So going forward, you will see fewer unfair offers from banks. ... If you have a mortgage, going forward your servicing rules will be fairer."

Mierzwinski’s chief argument for preserving the CFPB: All other banking regulators are charged with simultaneously protecting the safety and soundness of banks on one hand, while mandating fairness to consumers on the other. That's why, for example, excessive overdraft fees were allowed for years -- when regulators weighed the interests of making banks profitable against treating consumers fairly, they often chose the former. 

"They had a conflict of interest ... and often sided with bank safety over consumer protection," Mierzwinski said.

Zywicki, the CFPB critic, said he isn't fundamentally opposed to a consumer protection agency focused on financial products, but he says he believes evidence shows that Cordray's agency is acting recklessly.

"They made a political decision that the entire financial crisis was a consumer protection problem, ignoring evidence that there were other causes," he said. "I see no indication to date that they have a serious understanding of economics or unintended consequences. Sure, there are concerns about these products. People misuse mortgages. But their behavior to date raises questions about how seriously they take economic evidence."

He disagreed that payday and other non-traditional lenders had slipped through regulatory cracks before creation of the CFPB -- they were regulated at the state level, he noted. And even in this area, he said he was concerned about the new agency's actions against high-interest lenders. 

"The concern is the same, that they will blunder based on their belief in what's going on, rather than use sound economic science,” he said. “By over-regulating those products, they could drive them out of business and could end up hurting consumers. ... Before we had alternative lending products ... we had loan sharking. We could end up there again."

It works, or it doesn't

While Zywicki wouldn't mind a dismantling of the agency, his preference would be a radical restructuring, with Corday replaced by a slate of mixed-party commissioners with less power.

"The optimal solution is a more accountable, more reasonably constructed agency along the lines of the FTC," he said. "We've been doing independent regulatory agencies for a century, and we know what works."

But Mierzwinski said the housing bubble and the recession show that the system that was in place didn't work, and says he fears that a diluted CFPB wouldn’t be able to take firm action against the powerful financial services industry.

"We would lose … the one regulator that has protecting consumers as its only job," he said. "Payday lenders could run roughshod over American consumers again without the CFPB, and credit bureaus wouldn't be brought into line."

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ID theft on the rise again: 12.6 million victims in 2012, study shows

 

A new report by the Federal Trade Commission slams the nation's credit bureaus for upselling identity theft prevention services when victims call looking for help.

The report found that consumers face frustrating voice mail systems that often make it hard to reach a live operator, are confused about their rights and face unnecessary hurdles fixing credit report errors caused by identity thieves. It also pointedly raises the possibility that the new Consumer Financial Protection Bureau could initiate enforcement actions against the bureaus -- Equifax, Experian and TransUnion.

The report comes as that new agency is about to take on regulation of he credit bureaus, a major shift in the way they are policed. The bureau’s new powers will kick in this summer.

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The FTC’s findings are the result of a years-long survey of 3,000 ID theft victims who had contacted the agency, and a subset of those victims. The study was mandated in 2007 by the Bush administration’s Identity Theft Task Force.

The survey takers were not scientifically sampled, so the results should not be extrapolated nationally. But they do offer insight into the struggle ID theft victims face when trying to recover from the damage inflicted by their imposters.

Pestered with pitches
The news wasn't all bad for the bureaus -- 68 percent of respondents said they were somewhat or very satisfied after their interactions with credit bureaus.  But there were plenty of complaints.  Chief among them: Victims are pestered with pitches when they are simply calling for help.

"They kept trying to sell me a fraud alert package and I often had to ask to speak to a manager to get them to put a freeze on my credit reports," said one victim quoted in the report.  Another complained:  "It was very difficult to avoid marketing." Several said that, as a result of the pitches, they ended up buying services they felt should have been free.

"Several consumers in the focus groups complained that they felt pushed into paying for additional services while placing their fraud alert,” the report said. One complained that when attempting to obtain a credit report, the respondent was tricked into signing up at a fee-based credit report website.

'They should be helping you'
But at least those folks got through the phone mail tree and reached a live person.  Many victims complained to the FTC that they "spent too much time navigating automated menus and being placed on hold."  One of three victims who called looking for help said it was either somewhat difficult or very difficult to get a human being on the phone.

"That's because operators are spending too much time selling things people don't need," said Ed Mierzwinski, head of the Public Interest Research Group, a public interest advocacy organization. "The bureaus are supposed to keep your information accurate. When you call to complain, you are a victim of their failure, and they should be helping you, not pitching you to buy their product that won't help you anyway.”

In 2000, the FTC fined the three bureaus a total of $2.5 million for failing to answer consumer phone calls in a reasonable amount of time, something they are obligated to do under federal law. The FTC didn't say whether it was considering a similar action in light of the complaints in the report, but it did issue a warning to the bureaus.

"Given these incidents, the Consumer Financial Protection Bureau, which has examination and rulemaking authority in this area, may want to address these practices," the agency said in its conclusion. "In addition, to the extent any marketing of identity theft protection products involves unfair or deceptive practices, the commission retains authority to bring enforcement actions to protect against such conduct."

Credit bureau TransUnion said that it takes consumer rights seriously.

"TransUnion was the first credit reporting company to establish a Fraud Victims Assistance Department," said spokesman Clifton O'Neal in a statement to msnbc.com "We established (it) in 1992.  Consumers calling (the number) are always presented with the option to speak to a fraud specialists to assist them and answer any questions.  In addition, consumers can easily place and remove fraud alerts and credit freezes online at TransUnion.com."

Equifax and Experian didn't immediately respond to requests for comment.

Confusion
There were plenty of other signs of dissatisfaction in the FTC report, including confusion over consumer rights. Many consumers didn’t know they could request that ID theft-related items be blocked from credit reports, for example. Others didn’t know the difference between free annual credit reports provided to anyone at http://AnnualCreditReport.com, and the free credit report that ID theft victims can obtain when they call a bureau to report the crime.  Such confusion also leads to unnecessary purchases, the report suggested.

Only 51 percent said they had received the free credit report they'd asked for from all three credit bureaus after reporting the crime. Some victims said they had to wait "weeks or months," and about 10 percent said none of the three sent a report.

"(One) participant did not receive the credit report until after the 90-day fraud alert had expired," the report said.

The biggest complaint involved trouble getting errors fixed: 29 percent said mistakes that landed on their credit reports were not corrected. 

"(It) was easier for the thief to change my info on my credit report than it has been for me to change it back. It's still not right," said one victim.

Tortuous process
Even consumers who were eventually able to beat back mistakes said the process was torturous. One in four said three to five phone calls were required to fix errors, and about the same number said they were "very dissatisfied" with the process -- the highest dissatisfaction rating in the survey.

 "(If) your identity is stolen it becomes a full-time job to get it fixed. Everybody, credit cards, banks, CRA want to pass the buck," said one victim quoted in the report.

Mierzswinski, who's testified about credit bureau misbehavior before Congress repeatedly during the past 20 years, said he's seen all these complaints before. But he's optimistic that the new consumer agency's power to regulate and sanction the bureaus offers a real chance to address some of the recurring consumer issues.

"All of us have been disappointed that the bureaus have really skated for a long time and gotten away with a lot of sloppy practices," he said. "The Federal Trade Commission never had the big guns, but the CFPB does. ... We think it will be an exciting time."

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LifeLock spent millions spreading its CEO's Social Security Number all across America. Now the firm will spend $12 million settling claims that it engaged in deceptive advertising and failed to protect customers' personal information.

The Federal Trade Commission and 35 state attorneys general announced on Tuesday that Lifelock is changing its business model to address allegations of unfair and deceptive business practices.

"They developed a market to capitalize on consumers' fear,"  FTC Chairman Jon Leibowitz said at a news conference.  "They were exaggerating the service they offered to consumers. This was a fairly egregious case of deceptive advertising."

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Consumers who signed up with the service as early as 2005 -- about 1 million customers in all -- will be eligible for refunds. The fine is steep for the firm, said Leibowitz.

"We're taking all the money they had on hand," he said.

The firm remains in business, and has agreed to change its advertising practices. Leibowitz said its services do provide some protection against identity theft, but not the level it repeatedly promised consumers in its well-known advertising campaigns.

LifeLock made a name for itself by plastering CEO Todd Davis' Social Security Number across billboards and other advertising. Many of the ads suggested that LifeLock could provide absolute protection against ID theft.

In one ad, the firm said it could make consumers' personal information "useless to a criminal."

"Consumers received far less protection than they were promised," Leibowitz said.  For example, Lifelock was useless against identity theft involving existing credit cards or bank accounts, he said.

The firm also collected extensive personal information from consumers when they registered, and promised to keep that data safe. The FTC says LifeLock failed to do so. In its complaint, the FTC says the firm:

• Did not encrypt data, but stored and transmitted it in clear text.
• Failed to require employees to use hard-to-guess passwords.
• Did not install patches and critical updates.
• Did not plan for common vulnerabilities to their network, including SQL injection attacks.
• Did not install antivirus software on employee computers.
• Allowed faxes with personal information to be available in open office area.

Illinois Attorney General Lisa Madigan said LifeLock engaged in "scare tactics" while advertising to state residents.  She said the firm sent letters to individual consumers implying they were at heightened risk for ID theft -- one of which was mailed to her at home.

"Don't be scared into spending your hard-earned money," she said, addressing consumers.

Lifelock has numerous imitators in the marketplace.  Madigan said her office will continue to monitor their advertising.

"Know that if you are misleading consumers, we will go after you," she said.

LifeLock CEO Todd Davis said his firm has addressed all concerns raised by the FTC and has long since abandoned many of the techniques the agency said were misleading.

"This has has no impact on current practices or products," he said. "We haven't used the (Social Security number) ad in quite some time."  He also said personal data stored by LifeLock is now carefully guarded, and that the FTC complaint refers to vulnerabilites that have been addressed.

He said he welcomed new federal regulation in the competitive field of ID theft protection, comparing the industry to the early years of automobiles.

"When cars came out there weren't speed limits," he said.  "We were told we were speeding. We understand and accept responsibility. We don't want in any way for someone to be misled."

LifeLock consumers will soon receive letters explaining how they can apply for refunds.

Madigan added that most of the services provided by paid ID theft prevention firms are available to consumers for free.  They can place fraud alerts on their credit files at the credit bureaus, and get copies of their credit reports at AnnualCreditReport.com.

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Like the song says, he should have seen it coming at him like an atom bomb.

The singer of those FreeCreditReport.com jingles might sound a bit less peppy now that the Federal Trade Commission is making the company behind the ads -- credit bureau Experian -- face the music. Heavy-handed disclosures aimed at ending years-long confusion over free credit reports will begin to appear in the ads next month. The changes are among new consumer protections enacted by Congress in the 2009 Credit Card Accountability Responsibility and Disclosure Act.

In one disclosure viewed by msnbc.com, the top of the FreeCreditReport.com Web site was covered with a large grey block with type that read:  "You have the right to a free credit report from AnnualCreditReport.com ... the only authorized source under federal law,"  with an obvious link to the site.  Consumers who still want to sign up with FreeCreditReport.com would have to scroll down and enroll in the paid service offered by Experian.

"That's what we were aiming for," said Maneesha Mithal, an FTC attorney. "Congress wanted the disclosure to be really prominent."

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Many Web sites, including FreeCreditReport.com, claim to offer free credit reports, but do so only as a come-on for costly credit monitoring subscriptions services.

Market leader Experian, which owns the coveted FreeCreditReport.com Web address, began advertising heavily in 2003 after Congress mandated that U.S. consumers were entitled to a free copy of their credit reports every year. The FTC has been in a legal battle with the site ever since. Experian has been forced to issue refunds and pay more than $1 million in fines, but that didn't quiet the crooning of Eric Violette, the star of the FreeCreditReport.com ads.

In what might be a first in consumer protection history, the protracted FTC-Experian legal fight actually included a foray by the government agency into comedy. Last year, the FTC created a spoof ad, poking fun of the FreeCreditReport jingles while trying to warn consumers that they might end up paying for something they could get for free.

Throughout the legal wrangling, the FTC has fielded numerous complaints from consumers who thought they were getting their congressionally authorized free credit report, only to find they had been signed up for a $14.95 monthly subscriptions they didn't want. Msnbc.com has been inundated with complaints too, and has written several stories about the issue, including a 2007 piece titled "Don't fall for FreeCreditReport.com."

It's hard to imagine the new warnings not putting a dent in the confusion – and that could be bad for Experian's bottom line.

Experian does not break out its FreeCreditReport.com sales, but in advertising for the site the firm claims to have served 20 million consumers. ComScore MediaMetrix says the site is the No. 1 ranked "financial advice" Web site, with 6 million visitors each month.  Experian invested heavily in the market back in 2002, when it acquired FreeCreditReport.com for $130 million.

In anticipation that the gravy train might end, Experian has been spending about $70 million annually on FreeCreditReport.com ads, according to the New York Times.

The new disclosure law applies to any firm that claims to offer a free credit report, Mithal said. Anticipating the next round of regulatory cat-and-mouse, the rule requires the prominent disclosure to appear on every page where the words "free credit report" appear, she said.

Experian and its competitors must begin adding disclosures to their sites immediately, but the precise warning prescribed by the FTC doesn't have to appear until April 1. That's why some visitors to the FreeCreditReport.com are currently seeing much more humble disclosures, with only a single line of text -- in a small font and not hyperlinked -- atop the page. The firm said it was testing different disclosures.

 

Television ads also will have new warnings: visual and audio disclosures directing viewers to AnnualCreditReport.com.

The Web site warnings were designed by the FTC's Web design staff, Mithal said, after receiving input from industry members and consumer groups. It's unusual for a government agency to tell a company precisely what to put on its Web site, but Mithal said the FTC has at times forced firms to include new disclosures through court orders or other rule-making procedures. This new disclosure has a bit more legal heft, however, arising from a direct order by Congress.

It's taken a long time -- five years -- for the FTC to settle on a way to clear up the confusion over free credit reports. What took so long?

"We've been monitoring the marketplace for a long time," Mithal said. "We have had a lawsuit against (Experian), we've done (court) orders. But at some point Congress said this isn't working. So it's been a process."

Experian, in a statement, said it was playing by the rules and has always done so.

"Experian has been, and will continue to be, in compliance with the FTC's rules regarding the marketing of free credit reports," the firm said in a statement to msnbc.com.  "We remain committed to clearly and conspicuously disclosing to consumers that the free report we offer is not the free annual credit file disclosure provided by federal law, and plan to comply with the FTC's rules by April 1."

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