What a Joke: Kraninger Taps a Corporate Shill to Lead New Consumer Financial ‘Taskforce’

Todd Zywicki Has Long History Trashing the CFPB’s Mission, Defending Predatory Lenders, and Consulting For Some of the Biggest Financial Institutions

Washington D.C. – Today CFPB Director Kathy Kraninger announced corporate consultant extraordinaire Todd Zywicki as the Chairman of her newly formed ‘Taskforce on Federal Consumer Financial Law’ despite his record deriding the Bureau as a “tragic failure” and other extreme views like banks should be able to penalize borrowers for paying their mortgages early.

It’s clear Kraninger was not serious when she promised this effort was designed to “more effectively carry out our mission of protecting consumers”. Consumer advocates were right to be skeptical based on her consistent record siding with the financial industry over working Americans. The decision to give power to a guy who’s represented Bank of America and Citibank and who has defended predatory lenders was on brand for the Director, who has already packed over half her Consumer Advisory Board with financial industry insiders and who recently told an audience of bankers “you are really helping drive the agenda.”

“This is no pro-consumer task force, it’s an assault team against consumer protections led by a trusted Wall Street hatchet man,” said Derek Martin, director of Allied Progress. “This is shaping up to be nothing more than a vehicle to advance the financial industry’s agenda while masquerading as an objective body. Until this effort is at least balanced out with real consumer champions, it will just be another bad partisan joke like the Kobach commission. But it won’t be a laughing matter for consumers.”

WHAT YOU NEED TO KNOW:

Todd Zywicki: Too Extreme To Put His Hands On Our Consumer Protection Laws

Todd Zywicki Has Called The CFPB A “Tragic’ Failure,” And Implied That The CFPB Should Not Take Enforcement Actions – Even Though The Bureau Has Returned Billions Of Dollars To Wronged Consumers.

Todd Zywicki Has Called The CFPB A “‘Tragic’ Failure.”

Todd Zywicki Has Called The CFPB A “‘Tragic’ Failure.” “The administration has spoken to Todd Zywicki, executive director of the Law & Economics Center at George Mason University, about succeeding Cordray. Zywicki, who has called the [CFPB] a ‘tragic’ failure, has not been offered a job.” [Lorraine Woellert, “Trump’s allies building case to oust consumer protection head,” Politico, 02/06/17]

Todd Zywicki Implied That The CFPB Should Not Take Enforcement Actions, Despite Having Returned Billions Of Dollars To Millions Of Wronged Consumers, And Should Instead Serve As A “Resource” For “Accurate Information On Financial Products.”

In March 2014, Todd Zywicki, Alongside Adam C. Smith, Wrote That “The CFPB Is Best Placed As A Resource For Guiding Consumers To Accurate Information On Financial Products.” “And as Klick and Mitchell (2006) argue, paternalist intervention is likely to be most error-prone in environments with heterogeneous goods like consumer credit (p. 1657).The CFPB is best placed as a resource for guiding consumers to accurate information on financial products. As it deviates from this function, it ironically loses control over the choice context consumers face, forcing consumers to pursue even riskier options.” [Adam C. Smith and Todd Zywicki, “Behavior, Paternalism, and Policy: Evaluating Consumer Financial Protection,Mercatus Center, March 2014]

Since 2011, The CFPB Has “Returned Nearly $12 Billion To 29 Million People Wronged By Financial Institutions.” “Since 2011, the CFPB has received more than 1.2 million consumer complaints about their dealings with financial firms. It has returned nearly $12 billion to 29 million people wronged by financial institutions, including credit card companies and banks. Most of the complaints received by the agency relate to debt collection (27 percent) and mortgages (23 percent).” [Sarah O’Brien, “The Consumer Financial Protection Bureau has been under siege for years. Here’s why.,CNBC, 11/27/17]

Todd Zywicki Has Claimed That “Payday Loan Pricing Is Simple And Easily Understood” Even Though CFPB Director Kathy Kraninger Could Not Calculate A Typical Payday Loan APR When Asked By A Member Of Congress.

Todd Zywicki Wrote That “‘Payday Loan Pricing Is Simple And Easily Understood.’”

In July 2009, Todd Zywicki Wrote That “Payday-Loan Pricing Is Simple And Easily Understood.” “Those who used payday loans most often were also most likely to know the reported APR on their loan. Whatever concerns have been expressed about payday loans, lack of transparency is not one: Payday-loan pricing is simple and easily understood.” [Todd Zywicki, “The Case Against New Restrictions on Payday Lending,” Mercatus Center, July 2009] 

“Calculating The Lifetime Cost Of A Payday Loan Is Not A Straightforward Process”—It’s So Difficult That CFPB Director Kathy Kraninger “Refused” To Answer When Asked To Calculate The Real Annual Percentage Of A Payday Loan In A Congressional Hearing. “Calculating the lifetime cost of a payday loan is not a straightforward process. Determining the true annual percentage of a payday loan is so difficult that CFPB director Kathy Kraninger, when asked to perform the calculation during her 2019 testimony with the House Financial Services Committee, refused, dismissing the request as a ‘math exercise.’” [Kelly Anne Smith, “The True Cost Of Payday Loans—And Some Borrowing Alternatives,” Forbes, 10/27/19]

Todd Zywicki Believes That The Foreclosure Crisis Was Not “A Consumer Protection Problem” And That Many Borrowers Who Were Foreclosed On “Were Not Victims.” 

Todd Zywicki Believes That Most Of The Borrowers Whose Homes Were Foreclosed On During The Financial Crisis “‘Were Not Victims’” As Borrowers Who Walked Away From Their Mortgages Were “‘Just Rationally Responding To Incentives.’”

In November 2013, Todd Zywicki Stated At The Hillsdale College 2013 Free Market Forum That Borrowers Whose Homes Were Foreclosed On During The Financial Crisis Were Not “‘Hapless Consumers That Got Screwed By The Banks’” But Were “‘Just Rationally Responding To Incentives’” By Walking Away From Their Mortgages. “I just wanted to comment on one last thing, with respect to consumers. The narrative that came out of Dodd-Frank is that there were all these hapless consumers that got screwed by the banks…The borrower as victim sort of narrative. But next to that is this whole other view that Gene was describing which is that if I make you an, if I’m a bank and I make you an interest only mortgage with nothing down and your house goes down in value by $50,000, and you walk away from that loan, that’s probably the best investment you are ever gonna make in your life. Right? You’re just rationally responding to incentives.” [“The Economic and Political Significance of the Dodd-Frank Act,” Hillsdale College via YouTube, 11/26/13 (1:25:05)]

Todd Zywicki Believes That The Foreclosure Crisis Did Not Present “‘A Consumer Protection Problem’” And That Many Of Those Foreclosed On “Were Not Victims.”

At This Same Hillsdale Free Market Forum, Todd Zywicki Went On To State That The Foreclosure Crisis Was Not “‘A Consumer Protection Problem’” And That Many Of Those Foreclosed On “Were Not Victims.” “Foreclosures have been caused by people whose homes were under water. Now sure there were people who got defrauded and that sort of thing, but a lot of foreclosures were caused by people’s homes were underwater. Now if you rationally respond to incentives, whatever that is it’s not a consumer protection problem, and its not you being a victim…We’ve created a whole edifice based on the idea that people are victims, when in fact many of these people were not victims. And we are creating a whole set of problems, the moral hazard problems, and all kind of problems by buying in to that mentality in our regulation.” [“The Economic and Political Significance of the Dodd-Frank Act,” Hillsdale College via YouTube, 11/26/13 (1:25:38)]

Todd Zywicki Co-Authored A Paper Supporting The “Efficien[cy]” Of Prepayment Penalties For Mortgages; The CFPB Ultimately Banned Most Prepayment Penalties After The Financial Crisis.

Todd Zywicki Co-Authored A Paper That Argued That Prepayment Penalties For Mortgages Were “Efficient” And Were Designed To “Compensate Lenders For The Risk Of Having To Reinvest Funds” At A Lower Interest Rate If A Borrower Paid Their Mortgage Early.

In An Academic Paper, Todd Zywicki And A Co-Author Wrote That An Article Advocating For Banning Pre-Payment Penalties Was “Faulty Economic Logic And Fails To Recognize The Overwhelming Economic Evidence Supporting The Efficiency Of Prepayment Penalties.” “Prepayment penalties are a common term in many subprime mortgages, although they remain uncommon in most prime mortgages in the United States. Prepayment penalties are also included in most commercial loans and are present in virtually all European mortgages. Yet the White Paper contemplates banning prepayment penalties in mortgages. This reasoning is based on faulty economic logic and fails to recognize the overwhelming economic evidence supporting the efficiency of prepayment penalties.” [Joshua D. Wright and Todd J. Zywicki, “Three Problematic Truths About the Consumer Financial Protection Agency Act of 2009,” George Mason University School of Law, Lombard Street, Vol. 1, No. 12, 09/14/09]

Zywicki And His Co-Author Wrote That “Borrowers Pay This Premium To Compensate Lenders For The Risk Of Having To Reinvest Funds At Lower Market Interest Rates When Interest Rates Fall.” The traditional American right to prepay and refinance a mortgage is relatively unique in the world. Available empirical evidence indicates that American consumers pay a substantial premium for this unlimited prepayment right. Borrowers pay a premium for the unlimited right to prepay of approximately 20 to 50 basis points (.2 to .5 percentage points) with subprime borrowers generally paying a higher premium for the right to prepay than prime borrowers because of the increased risk of subprime borrower prepayment. Borrowers pay this premium to compensate lenders for the risk of having to reinvest funds at lower market interest rates when interest rates fall. Where prepayment penalties are banned lenders also take other precautions to guard against the risk of prepayment, such as charging increased points or upfront fees at the time of the loan, which raise the initial cost of the loan.” [Joshua D. Wright and Todd J. Zywicki, “Three Problematic Truths About the Consumer Financial Protection Agency Act of 2009,” George Mason University School of Law, Lombard Street, Vol. 1, No. 12, 09/14/09]

The CFPB Ultimately Banned “Most Prepayment Penalties” On Mortgage Loans.

A CFPB Rule Ultimately Banned “Most Prepayment Penalties” Except Those On Generally Lower Priced Mortgages With Fixed Or Step Rates. “…the rule bans most prepayment penalties, except on certain non-higher-priced Qualified Mortgages with either fixed or step rates. Prepayment penalties are allowed on these non-higherpriced loans only if the penalties satisfy certain restrictions and are permitted under law and if the creditor has offered the consumer an alternative loan without such penalties.” [Manual, “Ability-to-Repay and Qualified Mortgage Rule – SMALL ENTITY COMPLIANCE GUIDE,” Consumer Financial Protection Bureau, 01/08/14]

Cashing In From Corporate America

Todd Zywicki Was A Director At A Consulting Firm That Worked For Visa, Bank of America and Citigroup.

Todd Zywicki Served As A “Director” At Global Economic Group, A Consulting Firm With Clients That Included Visa, Bank of America and Citigroup.

In 2013, It Was Reported That Todd Zywicki Was “Director Of The Global Economics Group, A Consulting Business That Boasts In A Brochure That Its Experts Have Been Hired By Industry To Influence The CFPB And Other Regulatory Agencies.” “What isn’t contained in Zywicki’s university profile, CV, byline or congressional testimony is the law professor’s other job: he is a director of the Global Economics Group, a consulting business that boasts in a brochure that its experts have been hired by industry to influence the CFPB and other regulatory agencies. [Lee Fang, “The Scholars Who Shill for Wall Street,The Nation, 10/23/13]

Global Economics Group’s Clients Included Visa, Bank of America and Citigroup. Nor does Zywicki advertise Global’s client list, which includes some of the biggest names in the financial industry, among them Visa, Bank of America and Citigroup.” [Lee Fang, “The Scholars Who Shill for Wall Street,The Nation, 10/23/13]

Todd Zywicki Led A Law Center That Was Funded By A Variety Of Financial Services Companies Including Discover Financial Services and Visa.

While He Led Law and Economics Center at George Mason University, The Organization Took Money From Charles Koch Foundation, Discover Financial Services, the Electronic Payments Coalition, State Farm Mutual Automobile Insurance Company, the U.S. Chamber of Commerce, and Visa.

In 2015, Todd Zywicki was named Director of the Law and Economics Center at George Mason University. [“Dean Henry N. Butler Announces Professor Todd J. Zywicki as Executive Director of the Law & Economics Center,” George Mason University, accessed 01/09/18]

As of June 16, 2017, Todd Zywicki was still Executive Director of the Law and Economics Center at George Mason University. [Leadership & Staff, George Mason University Law and Economics Center, archived 06/16/17 accessed via archive.org]

The George Mason University Law and Economics Center received donations from the Charles Koch Foundation, Discover Financial Services, the Electronic Payments Coalition, State Farm Mutual Automobile Insurance Company, the U.S. Chamber of Commerce, and Visa in the period from 2016 to 2017. [Donors, George Mason University Law and Economics Center, accessed 01/09/18]

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