Consumer Protection in an Age of Uncertainty


>>>WELCOME TO THE UNIVERSITY OF MICHIGAN’S FORD SCHOOL AND CFLP CONFERENCE ON CONSUMER PROTECTION IN AN AGE OF UNCERTAINTY. FOR THOSE OF YOU WHO HAVE NOT MET BEFORE, I’M MICHAEL BAR, I’M THE DEAN HERE AT THE FORD SCHOOL OF PUBLIC POLICY. WELCOME TO THOSE OF YOU WHO ARE LISTENING ONLINE AS WELL. WE LOOK FORWARD TO A GREAT CONVERSATION TODAY. WHAT I HOPE WE’RE GOING TO DO OVER THE NEXT TWO DAYS IS REALLY HAVE A LOOK BACK AT WHERE WE’VE BEEN IN CONSUMER PROTECTION OVER THE LAST DECADE. AND HOPEFULLY ALSO LOOK FORWARD OVER THE NEXT TEN YEARS WHERE WE’D LIKE TO BE IN A WORLD WHERE WE CAN BUILD A BETTER SET OF CONSUMER PROTECTIONS GOING FORWARD. IF YOU THINK BACK TEN YEARS AGO WHEN PRESIDENT OBAMA CAME INTO OFFICE, OUR FINANCIAL MARKETS WERE FROZEN. THE COUNTRY WAS LOSING JOBS. WE WERE FACING THE WORST ECONOMIC CRISIS SINCE THE GREAT DEPRESSION. AT THE END OF 2008, THE BEGINNING OF 2009, OUR NATION WAS LOSING 800,000 JOBS A MONTH. WHICH WAS JUST DEVASTATING TO BUSINESSES, TO WORKERS, TO FAMILIES, TO HOUSEHOLDS ALL OVER THE COUNTRY. MANY OF US WHO ARE HERE OVER THE NEXT TWO DAYS WERE IN GOVERNMENT TOGETHER IN TWINE AND 2010, AND WE WERE FOCUSED NOT ONLY ON TRYING TO REPAIR THE ECONOMY, BUT ALSO ON THE URGENT OBLIGATION TO FIX THE FAILURES IN THE FINANCIAL SYSTEM THAT HELPED TRIGGER THE CRISIS IN THE FIRST PLACE. THE FAILURES THAT LED TO THAT CRISIS HAD MANY CAUSES. REGULATORS. HOUSEHOLDS TOOK ON RISKS THEY DIDN’T UNDERSTAND. LEGAL LOOPHOLES AND REGULATORY GAPS ALLOWED LARGE PARTS OF THE FINANCIAL SECTOR AND MARKETS TO REALLY AVOID THE KIND OF OVERSITE AND TRANSPARENCY AND RESTRAINT THAT WAS NEEDED. THERE WASN’T ENOUGH CAPITAL IN THE FINANCIAL SYSTEM TO PROTECT AGAINST LOSSES. AND IN MANY WAYS, WE TRIED TO ADDRESS ALL THOSE CONCERNS TO THE BEST OF OUR ABILITY IN THE DODD-FRANK ACT. AND I THINK IT DID PROVIDE IN MANY WAYS A STRONG FOUNDATION TO BUILD A MORE STABLE AND RESILIENT FINANCIAL ESTIMATE. ONE THAT PROTECTS CONSUMERS AND INVESTORS. THAT IS ABLE TO ADAPT AND EVOLVE WITH CHANGES IN THE FINANCIAL MARKET. I THINK, HOWEVER, THAT THAT FOUNDATION IS AT EXTREME RISK TODAY. AS MANY OF THE REFORMS PUT IN PLACE IN THE WAKE OF THE LAST FINANCIAL CRISIS ARE BEING ERODED AND NEW RISKS ARE EMERGING THAT ARE GOING UNADDRESSED. SO WE’RE HERE TO REALLY TAKE STOCK OF WHAT HAS BEEN ACCOMPLISHED SO FAR. WHAT WORK IS STILL LEFT TO DO. WHAT PROGRESS IS BEING STYMIED. WHAT REPAIRS WILL BE NEEDED IN THE FUTURE. AND HOPEFULLY ALSO WHAT BOLD NEW IDEAS WE SHOULD PURSUE IN A NEW LANDSCAPE. FOR THE NEARLY 1 AND 7 AMERICANS WHO LIVE IN POVERTY OR THE MILLIONS OF AMERICANS WHO FEAR FALLING OUT OF THE MIDDLE CLASS, THESE FAMILIES WERE REALLY ILL PREPARED TO HANDLE THE SHOCK OF THE DEEP RECESSION. THEY HAD LITTLE OR NO SAVINGS TO FALL BACK ON AND STOOD ONE MAJOR MEDICAL EMERGENCY FROM A PERSONAL ECONOMIC CRISIS. THEY HAD NO FINANCIAL SLACK. WHEN THE FINANCIAL CRISIS HIT IN 2008, FAMILIES FOUND THEMSELVES OVER LEVERAGED AND UNDER RESOURCES. THE FEDERAL GOVERNMENT IN MANY WAYS HELPED CUSHION THAT IMPACT, BUT THE HOUSEHOLD STILL FACED HUGE SETBACKS. AND FOR MANY OF THESE FAMILIES, THEY HAVE NOT FULLY CRISIS TEN . WHAT THESE FAMILIES WERE AND ARE NOW SEEKING IS SOME MEASURE OF, I THINK, FINANCIAL STABILITY. GOING FORWARD, AMERICAN FAMILIES WILL UNDOUBTEDLY NEED TO TRY TO SAVE A LARGER SHARE OF INCOME AND BORROW MORE RESPONSIBLY. BUT HOUSEHOLD SHOULD NOT BE LEFT ON THEIR OWN TO NAVIGATE A FINANCIAL SYSTEM THAT HAS BECOME INCREASINGLY DETACHED FROM THEIR EVERY DAY NEEDS. ONE OF THE CRITICAL WAYS WE CAN HELP PROMOTE ECONOMIC SECURITY IS BY MAKING CONSUMER FINANCIAL MARKETS WORK BETTER FOR AMERICAN FAMILIES. LOW AND MODERATE INCOME INDIVIDUALS OFTEN LACK ACCESS TO BASIC FINANCIAL SERVICES THAT COULD HELP THEM COPE BETTER WITH A LACK OF FINANCIAL SLACK IN THEIR LIVES. FACING SERIOUS ECONOMIC AND STRUCTURAL CONSTRAINTS, THESE HOUSEHOLDS TURN TO A VARIETY OF FORMAL AND INFORMAL INSTITUTIONS TO MEET THEIR FINANCIAL SERVICES NEEDS. TO RECEIVE THEIR INCOME, TO PAY THEIR BILLS, TO BORROW AND TO SAVE. BUT THE WAY OUR FINANCIAL SYSTEM IS STRUCTURED OFTEN MAKES TRANSR TRANSACTING, SAVING AND BORROWING MORE EXPENSIVE AND LESS USEFUL FOR THE FAMILIES, THE FAMILIES WHO NEED IT THE MOST. SO AT THIS CONFERENCE, WE’RE GOING TO BE TALKING A LOT ABOUT FINANCIAL ACCESS. WE’LL ALSO BE SENDING A LOT OF TIME TALKING ABOUT THE CFPB. THOSE OF YOU WHO ARE FAMILIAR WITH THAT LANDSCAPE KNOW THAT IN THE LEADUP TO THE CRISIS, OUR FINANCIAL SYSTEM WAS LARGELY INCAPABLE OF SUPPORTING A SUCCESSFUL REGULATORY STRUCTURE FOR CONSUMER PROTECTION. FRAGMENTATION OF RULE WRITING, SUPERVISION AND ENFORCEMENT MADE IT IMPOSSIBLE TO CREATE A COMPREHENSIVE AND WELL CALIBRATED CONSUMER PROTECTION SYSTEM. JURISDICTION AND AUTHORITY FOR CONSUMER PROTECTION WAS SPREAD OVER MANY FEDERAL REGULATORS. ALL OF WHOM HAD HIGHER PRIORITIES THAN PROTECTING CONSUMERS. BANKS COULD CHOOSE THE LEAST RESTRICTIVE SUPERVISOR AMONG MANY PROVIDERS. MANY DIFFERENT BANKING AGENCIES. AND A LARGE NUMBER OF NON-BANK PROVIDERS FROM HOME MORTGAGE ORIGINATORS TO PAY DAY LENDERS ESCAPED ANY MEANINGFUL SUPERVISION COMPLETELY. WITH THE CREATION OF THE CONSUMER FINANCIAL PROTECTION BUREAU, WE HAD A CHANCE AND STILL HAVE A CHANCE TO DO MORE THAN PLAY CATCH UP IN REGULATING CONSUMER FINANCIAL MARKETS. THE BUREAU PROVIDED A HISTORIC OPPORTUNITY TO BUILD A SUCCESSFUL REGULATORY STRUCTURE FOR CONSUMER PROTECTION. ONE THAT IS DESIGNED TO PROMOTE FINANCIAL INCLUSION, PRESERVE CONSUMER CHOICE, PROVIDE FOR MORE EFFICIENT AND INNOVATIVE MARKETS FOR CONSUMER FINANCIAL MARKETS. AND A CONSUMER FINANCIAL PROTECTION BUREAU PROVIDED FOR THE FIRST TIME A CONSUMER AGENCY WITH THE NECESSARY MISSION FOCUS, MARKET-WIDE COVERAGE AND CONSOLIDATED AUTHORITY. AS WE’LL HEAR FROM MANY OF OUR SPEAKERS UNDER ELIZABETH WARREN, UNDER RICH KRCORDRAY, UNDER MAN SPEAKERS TODAY, THEY GOT A LOT DONE. PREPAID LENDING, CREDIT CARDS, A ARBITRATION AND THE LIKE AND TOUGH ENFORCEMENT THAT BROUGHT IN FEES AND RESTITUTION. BUT TODAY MUCH OF THAT WORK IS AT RISK. REFORMS IN SOME RESPECTS HAVE BEEN WEAKENED. AND THERE’S A REAL CONCERN ABOUT THE DIRECTION OF THE AGENCY TODAY. WE’LL HAVE SEVERAL PANELS FOCUSED ON THE CFPB’S PAST AND FUTURE, AS WELL AS ON THE KEY CONSUMER FINANCE MARKETS AND HOW TO MAKE PROGRESS. WE’RE ALSO GOING TO BE TALKING ABOUT INVESTOR PROTECTION. THERE ARE A HOST OF ISSUES HERE FROM REFORMS IN THE MORTGAGE MARKETS TO CLEANING UP DERIVATIVE RULES, BUT WE THOUGHT WE WOULD FOCUS TODAY AND TOMORROW ON ONE PARTICULAR LONG STANDING PROBLEM. ADVICE PROVIDED TO INVESTORS BY THEIR BROKERS. WE’LL ALSO BE HEARING A LOT ABOUT STUDENT LOANS AND ISSUES WHICH ARE REALLY ISSUES NEAR AND DEAR TO MANY OF OUR STUDENTS AND MANY OTHERS IN THE AUDIENCE. WHAT PROTECTIONS HAVE WORKED? WHAT CRISIS LIE AHEAD? AND WHAT CAN WE DO TO REDUCE THE RISK OF THEM GOING FORWARD? THE FINANCIAL CRISIS LED TO FUNDAMENTAL REFORMS OF OUR FINANCIAL SYSTEM, BUT THE PROCESS OF REFORM IS NOT OVER. AMERICAN FAMILIES CAN ILL AFFORD A FINANCIAL SYSTEM THAT IMPOSES UNNECESSARY COSTS, CONFUSION AND COMPLICATIONS ON THEIR DAILY LIVES. OUR COUNTRY MUST TAKE THE STEPS NECESSARY TO ENSURE THAT THE FINANCIAL SYSTEM WORKS BETTER FOR EVERYONE. AND THIS CONFERENCE WILL HELP US MOVE THESE ISSUES FORWARD. I’M THRILLED TO WELCOME SO MANY DISTINGUISHED SPEAKERS FROM A WIDE VARIETY OF BACKGROUNDS, INCLUDING MANY OLD FRIENDS. WE HAVE AN OUTSTANDING GROUP OF SPEAKER AND PANELISTS JOINING US OVER THE NEXT FEW DAYS, MARKET MAKERS, POLICY MAKERS, RULE ENFORCERS, WHAT JOHN LEWIS WOULD CALL PEOPLE WHO MAKE GOOD TROUBLE. AND I’M ALSO ESPECIALLY DELIGHTED TO THANK OUR KEY NOTE SPEAKERS, FOUNDING CFPB DIRECTOR RICH CORDRAY WHO WE’LL HEAR FROM OVER LUNCH. OUR SPEAKERS WILL TAKE UP A WIDE VARIETY OF ISSUES OVER THE NEXT TWO DAYS. I’M REALLY HAPPY TO WELCOME YOU HERE. BUT BEFORE WE GET UNDER WAY, I WANT TO TALK A LITTLE BIT ABOUT SOME LOGISTICS FOR THE NEXT COUPLE OF DAYS. WE’RE GOING TO STAY IN THIS ROOM FOR THE KEY NOTE AND PANEL DISCUSSIONS WITH COFFEE AND SNACK BREAKS OUT IN THE GREAT HALL OUTSIDE THESE DOORS. AT THE END OF EACH KEY NOTE OUR PANEL CONVERSATION, WE’RE GOING TO OPEN THE FLOOR TO QUESTIONS. WE’RE VIDEO RECORDING TODAY’S CONFERENCE AND WE’LL BE LIVE STREAMING IT AS WELL. WELCOME TO THOSE OF YOU WHO ARE WATCHING ONLINE. LET ME JUST SAY FOR THOSE OF YOU WHO ARE HERE BUT HAVEN’T REGISTERED, IF YOU WOULDN’T MIND IN THE COFFEE BREAK GOING OUT AND REGISTERING SO THAT WE CAN KEEP IN TOUCH WITH YOU AND YOU CAN GET ACCESS TO THE MATERIALS THAT COME OUT OF THE NEXT COUPLE OF DAYS OF DISCUSSION. OUR KEY NOTE SPEAKER RICH CORDRAY IS GOING TO SPEAK AT LUNCH, AS I MENTIONED. WHEN LUNCH TIME COMES, WE’RE GOING TO ASK YOU TO MOVE OUT TO THE GREAT HALL PRETTY QUICKLY. BRING YOUR LUNCH BACK IN PRETTY QUICKLY AND SIT HERE AND EAT IN THE AUDITORIUM SO WE CAN HAVE THE FULL AMOUNT OF TIME WITH RICH. THOSE OF YOU WHO ARE SITTING IN THE BACK ROWS, YOU’LL SEE LITTLE TABLETOPS YOU CAN PULL UP. SO YOU DON’T NEED TO EAT ON YOUR LAP. THOSE OF YOU IN THE FRONT, YOU CAN CERTAINLY MOVE TO THE FRONT IF YOU’RE SITTING IN THE BACK, AS I ALWAYS TELL MY STUDENTS. BUT PLEASE GET ORGANIZED QUICKLY OVER LUNCH. RESTROOMS ARE OUT THE DOOR TO THE RIGHT AND AROUND THE CORNER NEAR THE ELEVATORS. THOSE SHOULD BE EASY TO FIND. LASTLY, I HAVE QUITE A NUMBER OF THANK YOUS TO GIVE BECAUSE AN EVENT LIKE THIS TAKES QUITE A NUMBER OF PEOPLE TO PULL OFF. LET ME START BY THANKING ALL OF THE SPEAKERS. ALL OF YOU WHO ARE SHARING YOUR TIME AND EXPERTISE WITH US TODAY. THE CENTER ON FINANCE LAW AND POLICY IS WORKING WITH THE FORD SCHOOL OF PUBLIC POLICY ON THIS EVENT. SO I’M THANKFUL TO MYSELF FOR CO-SPONSORING THE EVENT. [ LAUGHING ] >> I WANT TO THANK A NUMBER OF OUR STUDENT GROUPS WHO ARE WORKING WITH US. AFFORDABLE MICHIGAN, THE BANKRUPTCY LAW SOCIETY. THE BUSINESS LAW ASSOCIATION, THE CONSUMER ADVOCACY AND FINANCIAL REGULATION AND MICHIGAN FINNTECH. YOU’LL SEE MANY STUDENTS OVER THE NEXT COUPLE OF DAYS. LET ME THANK IN PARTICULAR THE CENTER ON FINANCIAL AND POLICY STAFF KRISTI BEAR WHO YOU’VE BEEN CORRESPONDING WITH AND TRACY VANDEUCEN WHO YOU’VE BEEN CONNECTING WITH AS WELL. THEY DO EXTRAORDINARY WORK TO MAYOR THIS EVENT HAPPEN. I ALSO WANT TO THANK FORD SCHOOL STAFF WHO ARE WORKING WITH US IN ADDITION TO THEIR DAY JOBS HELPING OUT WITH THIS CONFERENCE. TOM COOK, BILL KELLY, ERIK, BONNIE ROBERTS. I ALSO WANT TO THANK THE FORD SCHOOL COMMUNICATIONS TEAM LORA LEE, CHRIS MEYERS, BECKY MULLEN AND NICK FOST. WE ALSO WOULD LIKE TO THANK FINANCIAL SUPPORTERS OF THE CFLP IN THIS CONFERENCE. UNIVERSITY OF MICHIGAN ALUMNI PAUL LEE, JOHN LOOMIS AND BILL MARCOO. LET ME THANK ALL OF THE RESEARCH ASSISTANTS WHO WORKED ON THIS CONFERENCE. FINALLY, THANKS TO ALL OF YOU FOR BEING HERE TODAY. I’M LOOKING FORWARD TO THE CONVERSATIONS TO COME. AND WITH THAT, I’VE WAITED LONG IF YOU ENOUGH FOR LISA TO ARRIVE AND WE CAN START THE FIRST PANEL. I CAN STRETCH OUT. ONE OF THE GREAT THINGS YOU LEARN AS A FACULTY MEMBER IS YOU CAN SHORTEN OR STRETCH OUT YOUR REMARKS FOR ANY LENGTH NEEDED FOR THE OCCASION. SO I’M REALLY DELIGHTED TO WELCOME OUR FIRST PANEL THIS MORNING. AND I’M GOING TO TURN THINGS OVER TO ERIK TO GET US STARTED. .>>SORRY.>>ALL RIGHT. THANKS, MICHAEL. I’M ONE OF THE PEOPLE THAT WE SPENT A COUPLE HOURS EVERY FIVE MINUTES DURING THE DODD-FRANK PROCESS, AND IT’S GREAT TO BE HERE IN ANN ARBOR. THE ARCHITECTS OF DODD-FRANK CAN ADDRESS THE GLARING WEAKNESSES IN FINANCIAL INSTITUTIONS TO PROTECT CONSUMERS EXPOSED BY THE FINANCIAL CRISIS IN WHICH ALMOST SUNK THE WORLD ECONOMY. THE ROUTE OF THE CRISIS WAS A CONSUMER PROTECTION FAILURE OF MASSIVE PROPORTIONS, WHERE MILLIONS OF BORROWERS RECEIVED MORTGAGES THAT WERE DESIGNED IN WAYS TO MAKE FAILURE MORE LIKELY TO NOT AND THEY’RE ENTIRELY UNABLE TO REPAY. AS A RESULT, MILLIONS OF FAMILIES UNNECESSARILY LOST THEIR HOUSES CAUSING LOSS OF WEALTH TO FAMILIES AND COMMUNITIES. THESE FORECLOSURES HAD RIPPLE EFFECTS THROUGH THE FINANCIAL SYSTEM BECAUSE OF LITTLE KNOWN LEVERAGE BETS FINANCIAL INSTITUTIONS PLACED ON THEM. THESE FINANCIAL INSTITUTION FAILURES CAUSED LARGE UNEMPLOYMENT, MORE DE FAULTS, MORE MISERY WE’RE YET TO RECOVER FROM. HOW WERE ALL OF THESE BAD MORTGAGE LOANS POSSIBLE? SEVERAL REASONS. FIRST, THERE WAS NO MARKET INTELLIGENCE OR EARLY WARNING SYSTEM TO RECOGNIZE THE PROBLEM UNTIL IT WAS TOO LATE. SECOND, THERE WAS NO ONE ENTITY RESPONSIBLE FOR ATTRACTING OR ADDRESSING PROBLEMS IN THE FINANCIAL ARENA. IN FACT, SEVERAL AGENCIES, AS MICHAEL MENTIONED, SEVERAL AGENCIES HAD CONSUMER PROTECTION RESPONSIBILITIES FOR BANKS AND THE FTC HAD LIMITED ENFORCEMENT FOR NON-BANKS. THE FEDERAL RESERVE HAD WRITING AUTHORITY UNDER A NUMBER OF STATUTES, BUT CONSUMER PROTECTION WAS NOT THEIR TYPE PRIORITY AND COULDN’T REALLY HAVE BEEN EXPECTED TO BE. THEY HAD TO DEAL WITH SAFETY AND SOUNDNESS OF BAINKS AND BANK HOLDING AND PROMOTE FULL EMPLOYMENT, PAYMENT SYSTEMS, ALL THIS STUFF CAME BEFORE CONSUMER PROTECTION. THIRD, PREEMPTION OF STATE MORTGAGE LENDING FROM NORTH CAROLINA WHERE I’M FROM BY FEDERAL BANKING REGULATORS LIMITED THE ABILITY TO FILL THE BREACH WAS ANOTHER PROBLEM. FOURTH, THERE WAS NO RULES PROTECTING BORROWERS IN MORTGAGE LENDING. THE CLASSIC ABUSIVE MORTGAGE DURING THE BOOM TIME WAS THE 228-SUB PRIME LOAN. OVER HALF OF THE LOANS THAT MINORITY FAMILIES RECEIVED DURING THE BOOM WERE THESE SUB-PRIME, VERY BAD MORTGAGES. THEY’RE OFTEN ORIGINATED BY MORTGAGE BROKERS UNDER A COMPENSATION STRUCTURE THAT EXEMPTED TO PUT BORROWERS IN THESE MORTGAGES EVEN IF THEY QUALIFIED FOR A CONVENTIONAL MIDDLE CLASS MORTGAGE. THEY WERE OFTEN ORIGINATED ON BEHALF OF LARGE, UNREGULATED LARGE BANKS, LIKE COUNTRY WIDE, NEW CENTURY, AND SOLD TO PRIVATE SECURITY INVESTORS THROUGH WALL STREET. THEY OFTEN DID NOT DOCUMENT INCOME OR ASSETS, PROMOTING FRAUD IN WHAT BROKERS REPORTED. THE LOANS OFTEN DID NOT AMORTIZE. THEY HAD TEASER PAYMENTS OR IN THE CASE OF 228, TEASER RATES, BOTH LEADING TO HUGE UNSUSTAINABLE SHOCK THAT FAMILIES SIMPLY COULD NOT ABSORB. TO TOP IT OFF, THERE WAS OFTEN A VERY LARGE PREPAYMENT PENALTY WHICH TOOK THE FAMILY’S EQUITY AS A QUID PRO QUO OF BEING ABLE TO GET OUT OF A BAD LOAN AND INTO A GOOD ONE. THE AMAZING THING WAS THAT ALL THESE MORTGAGE FEATURES, OTHER THAN THE OUT RIGHT FRAUD THAT THE SYSTEM PROMOTED AND IGNORED, WERE LEGAL AT THE TIME. IT IS KIND OF AMAZING TO CONTEMPLATE. AND, FINALLY, A FIFTH PROBLEM WAS THAT THERE’S NO FEDERAL ENTITY TO SUPERVISE NON-BANK LENDERS, AS WELL AS ENTITIES LIKE THE CREDIT BUREAUS. THAT’S QUITE A LIST OF FAILURES THAT HELP LEAD TO THE FINANCIAL CRISIS. AND, OF COURSE, MORTGAGES WEREN’T THE ONLY TYPE OF PRODUCT WHERE THESE PROBLEMS EXISTED. IT WAS JUST THE LARGEST ONE. A FEW ADDITIONAL EXAMPLES, MICHAEL MENTIONED MANY OF THEM, PAY DAY LOANS, STUDENT LOANS, OVERDRAFT CHARGES BY BANKS, TRICKS AND TRAPS WITH CREDIT CARDS AND PREPAID CARDS. THE DODD-FRANK SOLUTION, I THINK, STILL WAS A WISE ONE. CREATE ONE FEDERAL AGENCY WITH THE MANDATE TO PROTECT CONSUMERS OF FINANCIAL PRODUCTS AND ARM IT WITH A TOOL KIT SUFFICIENT TO THE TASK, CAPABLE OF ADDRESSING THE FAILURES I JUST DISCUSSED. FIRST, ESTABLISH ONE AGENCY WITH INDEPENDENCE FROM POLITICAL PRESSURES BY CONGRESS OR THE ADMINISTRATION. THIS INDEPENDENCE IS THE CASE WITH ALL OTHER FEDERAL SAFETY AND SOUNDNESS REGULATORS AND IS PROBABLY EVEN MORE IMPORTANT FOR AN AGENCY TO PROTECT CONSUMERS. SECOND, THE AGENCY WOULD SERVE A MARKET MONITORING FUNCTION AND BE INFORMED BY A COMPLAINT DATA BASE WHERE CONSUMERS ACROSS THE COUNTRY COULD RETAIN REDRESS. SO PROBLEMS IN MORTGAGE LENDING WOULDN’T HAVE COME AS SUCH A SURPRISE. THIRD, RECOGNIZING THAT CFMB MAY NOT HAVE ALL OF THE ANSWERS OR THERE MAY BE TIMES WHEN CFMB IS NOT SUFFICIENTLY RIGOROUS IN PROTECTING CONSUMERS. THE AGENCY’S RULES WOULD SERVE AS A FLOOR AND NOT A CEILING. AS A RESULT, STATES COULD ENFORCE THEIR OWN LAWS THAT ARE MORE PROTECTIVE OF CONSUMERERS. ALSO STATE ATTORNEY GENERALS COULD ENFORCE THE RULES IF CFMB DECIDED NOT TO. FOURTH, PROVIDE THE AGENCY WITH THE RULE WRITING AUTHORITY SHARED WITH DIFFERENT FEDERAL AGENCIES. THESE RULES WOULD ESTABLISH A LEVEL PLAYING FIELD FOR BANKS AND NON-BANKS. THEY WOULD ALSO PREVENT RESPONSIBLE LENDERS AND PROVIDERS FROM HAVING TO RELAX THEIR STANDARDS TO KEEP WITH OTHERS WHO DON’T HAVE THOSE VIEWS. FIFTH, THE AGENCY WOULD SUPERVISE LARGE BANKS AND LARGE NON-BANKS AND ALL MORTGAGE LENDERS. SIXTH, IT WOULD ALSO HAVE ENFORCEMENT AUTHORITY IN CASE SUPERVISION IS NOT ENOUGH AND IT’S REGULATED ENTITIES DON’T FOLLOW ITS RULES. THAT WAS THE VISION THAT THE DODD-FRANK ARCHITECTS HAD TO ADDRESS THE PROBLEMS THAT LED TO THE CRISIS. I THINK WHAT — I THINK WHAT OUR PANEL IS GOING TO DO IS TALK ABOUT THOSE DIFFERENT TOOLS AND HOW THEY’VE BEEN APPLIED, HOW THEY MIGHT BE APPLIED IN THE FUTURE. SO AFTER THAT LEAD IN, I THINK I’LL INTRODUCE THE — EACH PANEL EST ONCE THEY’RE ABOUT TO — PANELIST ONCE THEY’RE ABOUT TO TALK. I THINK PEGGY IS GOING TO GO FIRST. THE ASSISTANT DIRECTOR OF SUPERVISION POLICY AT THE FINANCIAL BUREAU.>>THANK YOU, ERIK. GOOD MORNING, EVERYONE. THANK YOU, MICHAEL, FOR INVITING ME HERE. AND THANK YOU FOR ASKING ME TO COME TO TREASURY BACK IN 2009. IT’S BEEN EVER SINCE THEN IT’S BEEN INTERESTING, CHALLENGING TO BE INVOLVED AS THE CFBP STORY CONTINUES TO UNFOLD. AS ERIK SAID, I’M HEAD OF SUPERVISION POLICY, WHICH AT CFPB WHICH HAS THE RESPONSIBILITY OF SETTING STRATEGY FOR BOTH THE BANK AND NON-BANK SUPERVISION PROGRAM, AS WELL AS ENSURING THAT AS WE SUPERVISE THE CALLS WE MAKE ON LEGAL VIOLATIONS AND HOW WE APPLY OUR EXPECTATIONS ARE CONSISTENT ACROSS THE BANK AND NON-BANK MARKETS. I WANT TO SAY A LITTLE BIT ABOUT MY BACKGROUND. BEFORE MICHAEL ASKED ME TO COME OVER TO TREASURY AND BEFORE I GOT STARTED WITH CFMB, BECAUSE THAT INFORMS MY REMARKS AND MY PERSPECTIVE THAT YOU’LL HEAR TODAY. AND BEFORE THAT, I WAS AT THE FEDERAL TRADE COMMISSION. SO I SPENT MOST OF MY CAREER IN THE PUBLIC SECTOR. AND I WAS AT THE FEDERAL TRADE COMMISSION IN THE DIVISION OF FINANCIAL PRACTICES, WHICH AS ERIK MENTIONED ONLY HAS JURISDICTION OVER NON-BANKS AND PRIMARILY ENFORCEMENT AUTHORITY AS A TOOL. SO WITH THAT BACKGROUND IN MIND, I WANT TO TALK ABOUT THREE DIFFERENT THINGS. ONE IS FROM MY VIEWPOINT GIVEN THAT BACKGROUND, HOW I THINK THE OVERSIGHT OF COMPLIANCE WITH FEDERAL CONSUMER FINANCIAL LAW HAS IMPROVED WITH THE CREATION OF THE BUREAU AND WHAT DIFFERENCE THE SUPERVISION PROGRAM OF THE BUREAU HAS MADE. AND IN PARTICULAR, I WANT TO MENTION THE SUPERVISION OF THE CREDIT BUREAUS OF THE LARGEST CONSUMER REPORTING AGENCIES, AS WELL AS THE FURNITURES TO THOSE SYSTEMS AND TALK ABOUT WHY I THINK THAT WAS A SIGNIFICANT ADDITION TO THE FEDERAL OVERSIGHT LANDSCAPE FOR CONSUMERS. AND THEN, THIRD, I WAS GOING TO TALK ABOUT ALSO I SAW SOMETHING IN THE MATERIALS ABOUT TECHNOLOGY. WE’RE SUPPOSED TO BE TALKING ABOUT TECHNOLOGY. SO I WANT TO TALK ABOUT SOME OF THE BENEFITS AND PIT FALLS THAT THE BUREAU HAS FOUND AS INSTITUTIONS RELY AND PERHAPS INCREASINGLY RELY ON TECHNOLOGY TO FACILITATE COMPLIANCE. SO THAT’S PART AND PARCEL OF JUST THE WAY THINGS ARE DONE THESE DAYS AS YOU ALL KNOW. SO AS WAS MENTIONED BY MICHAEL AND ERIK BEFORE THE CRISIS, THERE WAS NO AGENCY WITH SUPERVISORY AND ENFORCEMENT AUTHORITY OVER BOTH THE BANKS AND NON-BANKS TO OVERSEE COMPLIANCE WITH FEDERAL CONSUMER LAW. THE FTC HAD ENFORCEMENT AUTHORITY ONLY. AND, THEREFORE, THAT MEANT THERE WAS LIMITED ABILITY TO REALLY PREVENT VIOLATIONS FROM OCCURRING. WHEN THERE WAS SMOKE COMING OUT, HOPEFULLY NOT AT THE HOTEL WHERE WE’RE STAYING IN, SMOKE COMING OUT. YOU KNOW, THE LAW ENFORCERS SEE THAT SMOKE GOES IN. TRIES TO STOP THE FIRE AND GET ANY REMEDIES BACK TO CONSUMERS THAT WERE INJURED. AS OPPOSED TO GOING IN AND MAKING SURE THAT THOSE ALARMS ARE WORKING.>>THEY ARE WORKING. THEY’RE WORKING.>>SO THAT THE FIRE CAN BE STOPPED AT THE EARLIEST POINT OR PREVENTED. BETTER YET PREVENTED IN THE FIRST PLACE. SO NOW EIGHT YEARS LATER, IT’S A COMPLETELY DIFFERENT CONSUMER PROTECTION REGULATORY LANDSCAPE. THE BUREAU NOT ONLY HAS ENFORCEMENT AUTHORITY, BUT SUPERVISORY AUTHORITY AS WELL. AND THAT EXTENDS ACROSS THE LARGEST BANKS AND MANY OF THE NON-BANKS THAT ARE BASICALLY SOME OF THEM IN THE EXACT SAME MARKETS DOING VERY SIMILAR THINGS. SO WE CAN SEE ACROSS THAT LANDSCAPE AS WE DO THAT SUPERVISORY WORK. SO WE BUILT OUR SUPERVISOR PROGRAM. I GUESS WE SHOULD MENTION I’M USING THAT WORD AS IF EVERYBODY KNOWS WHAT THAT MEANS. THAT’S WHERE BASICALLY EXAMINERS CAN GO INTO THE INSTITUTION. IT CAN BE ON-SITE OR OFF SITE. SO WE HAVE THE AUTHORITY TO ASK FOR INFORMATION FROM THE BANK OR THE NON-BANK ABOUT HOW THEY’RE COM COMPLYING WITH THE LAW. WE HAVE THE ABILITY TO ASK FOR INFORMATION TO HELP THE EXAMINERS ASSESS COMPLIANCE WITH THE LAW. AND WE CAN LOOK FOR RISK TO CONSUMER. SO IT’S ALL VERY ONGOING, REAL TIME INFORMATION GATHERING AND ASSESSMENT AS OPPOSED TO A LONGER STRETCHED OUT INVEST TORI PROFICIENCY. SO IT’S BASICALLY THE PRIMARY TOOL IS SETTING EXAM TEAMS TO BE ON-SITE TO ENGAGE WITH THE COMPANY OFFICIALS. ASK THEM ABOUT WHAT THEY’RE DOING, WHAT THEIR COMPLIANCE SYSTEM ARE AND TO EVALUATE WHETHER THEY’RE COMPLYING WITH THE LAW. SO WE’VE BUILT THIS PROGRAM — AND THE FOUNDATION IS TO ENSURE THAT ENTITIES HAVE COMPLIANCE MANAGEMENT SYSTEMS IN PLACE AND THAT THEY ARE ENGAGING AT ONGOING SELF MONITORING AND CORRECTION AND INCLUDING WHERE THEY EVALUATE THE ROOT CAUSE OF ANY PROBLEMS AND THEY PUT INTO PLACE ANY THAT’S NEEDED TO TRY TO ADDRESS THOSE ROOT CAUSE. SO THAT’S THE BASIC GOAL IS TO AIM AT PREVENTION OF LAW VIOLATIONS IN THE FIRST PLACE. IT’S MORE COMPREHENSIVE THAN SOLELY LOOKING AFTER THE FACT WHETHER THEY VIOLATED THE LAW. IT’S TRYING TO MAKE SURE THEY HAVE SYSTEMS IN PLACE TO ENSURE THAT DOESN’T HAPPEN IN THE FIRST PLACE. THAT’S THE PRIMARY GOAL. AND BECAUSE WE PRIORITIZE OUR SUPERVISORY WORK BASED ON RISK, IT ALSO PROVIDES AN INCENTIVE TO MEET THOSE EXPECTATIONS IN THAT IF WE GO IN AND SEE A BANK OR NON-BANK WITH A VERY ROBUST COMPLIANCE MANAGE SYSTEM, THEN WE ARE ASSURED THAT THEY ARE DOING THE SELF MONITORING, SELF CORRECTION, AND WE, THE CFPB, DON’T HAVE TO SPEND AS MANY OF OUR RESOURCES GOING BACK AS EARLY AND OFTEN TO LOOK AT WHAT THEY’RE DOING. CONV CONVERSELY, IF WE’RE TROUBLED BY WHAT WE SEE, THEIR RISK MATRIX AND SCHEDULED FOR EXAMINATION REVIEWS MORE FREAKILY. WHAT WE FOUND IS MANY — FREQUENTLY. WHAT WE FOUND IS MANY BANKS HAVE IMPROVED WITH THIS KIND OF OVERSIGHT BECAUSE OUR OVERSIGHT AS COMPARED TO THE PAST FIRST AND FOREMOST IS SOLELY FOCUSED ON CONSUMER COMPLIANCE. THAT’S THE ONLY FOCUS. NOT AS THE OTHER REGULATORS HAD A COMBINED FOCUS THAT WAS CONCERNED WITH SAFETY AND SOUNDNESS AND OTHER COMPLIANCE ISSUES. SO WE HAVE SEEN IMPROVEMENT, ESPECIALLY BUT NOT ONLY IN THE NON-BANK MARKETPLACE WHERE THEY NOW HAVE COMPLIANCE MANAGE SYSTEMS IN PLACE THAT THEY NEVER HAD BEFORE. ONE EXAMPLE OF THAT IS THE BIGGEST CONSUMER REPORTING AGENCIES. THE CONSUMER REPORTING MARKET, AS MANY OF YOU KNOW, PLAYS A CRITICAL ROLE IN OUR ECONOMY, IN CONSUMER’S LIVES. IT HAS SUCH AN ENORMOUS REACH AND IMPACT. OVER 200 MILLION AMERICANS HAVE CREDIT FILES WITH THE BIGGEST CREDIT BUREAUS AND TRADE LINES ARE FURNISHED BY OVER 10,000 PROVIDERS. IT’S PROBABLY A GIVEN HOW IMPORTANT THESE CREDIT REPORTS CAN BE IN SO MANY ASPECTS OF CONSUMER ER’S LIVES. IT’S ALSO IMPORTANT TO THE BUSINESSES THAT USE IT THAT IT BE ACCURATE. BUT IT’S INTERESTING TO ME DESPITE THE CRITICAL IMPORTANCE OF THE INFRASTRUCTURE, UNTIL THE CFPB, THERE WAS NO FEDERAL OR STATE AGENCY THAT HAD OVERSITE AUTHORITY TO GO IN AND MONITOR COMPLIANCE. HAD SUPERVISORY AUTHORITY. NOT THE STATE, THE FEDERAL AUTHORITIES. IT WAS THIS AFTER THE FACT LAW ENFORCEMENT AUTHORITY. AND SO THE CFPB ONE OF THE FIRST THINGS WE DID WHEN WE NEEDED TO ESTABLISH A RULE TO BE ABLE TO SUPERVISE SOME OF THE NON-BANKS, OUR FIRST PRIORITY WAS ESTABLISHING A RULE THAT WOULD LET THE CFBP OVERLOOK THE RULE. SO NOW WE HAVE A SUPERVISION PROGRAM WITH RESPECT TO THE LARGEST CONSUMER REPORTING AGENCIES. AND, INDEED, WE HAVE FOUND AND WE DID A SPECIAL REPORT ON THIS. A SUPERVISORY HIGHLIGHTS REPORT IN MARCH 2017 AND I PROBABLY WON’T GO INTO THE DETAILS HERE. BUT INDEED WE HAVE FOUND THAT THAT KIND OF OVERSIGHT AND THAT KIND OF ONGOING LOOK BY A REGULATOR TO SEE WHAT THEY WERE DOING TO PROACTIVELY TRY TO COMPLY WITH THE LAW HAS RESULTED IN THEM INCREASING THEIR QUALITY MANAGEMENT IN VARIOUS RESPECTS. AND SO THAT KIND OF OVERSIGHT, THAT KIND OF ASKING THE QUESTIONS AND EXPECTATION AND EVALUATION OF COMPLIANCE MANAGEMENT HAS MADE A DIFFERENCE. IT’S NOT THE COMPLETE OR TOTAL ANSWER, BUT WE THINK THAT HAS MADE A DIFFERENCE AND BEEN A GOOD START. IN ADDITION, IT’S NOT JUST THE CONSUMER REPORTING AGENCIES. THE BUREAU HAS BEEN ABLE TO LOOK HOLISTICALLY AT THE WHOLE SYSTEM. SO MANY OF THE INPUTS ARE AT ISSUE FOR THE CREDIT REPORTING ISSUE. THE BANKS AND NON-BANKS THAT FURNISH THE DATA TO THE CREDIT BUR ROWS. WE CAN LOOK AT THE LARGEST BANKS AND THEIR FURNISHING PRACTICES AND WHETHER THEY WERE COMPLYING, AS WELL AS THE KEY NON-BANKS. THAT WOULD BE MORTGAGE COMPANIES, CREDIT CARD ISSUE ERS, DEBT COLLECTERS. SO WE WERE ABLE TO LOOK AT DIFFERENT ASPECTS OF IT TO MAKE SURE WE’RE COVERING IT ALL. AND, INDEED, WE FOUND WITH MANY OF THE DEPOSITORY INSTITUTIONS, THEY HAD NOT REALLY PRIOR TIDES LOOKING AT COMPLIANCE WITH THEIR FURNISHING ACTIVITIES. THEY HADN’T REALLY BEEN OVERSEEN FOR THAT. THAT WAS A LITTLE COMPLIANCE BACK WATER AND WE PUT A SPOTLIGHT ON IT. WE FOUND VIOLATIONS. WE CITED THOSE VIOLATIONS. AND HAVE DIRECTED THEM TO IMPROVE THEIR COMPLIANCE. SO THAT’S JUST ONE EXAMPLE OF THE KINDS OF OBSERVATIONS WE’VE HAD AND THE DIFFERENCE THIS ONGOING OVERSIGHT MAKES IN MY VIEW AND IN MY EXPERIENCE. SO JUST A LITTLE BIT ABOUT THE TECHNOLOGY PICTURE TURNING TO THAT. SO AS I MENTIONED, MANY FINANCIAL INSTITUTIONS, MANY ENTITIES OF ALL TYPES INCREASINGLY USE TECHNOLOGY TO FACILITATE THEIR PROCESSES AND PROCEDURES AND IN THIS CASE COMPLIANCE. AND SO WE FOUND THAT SOME OF THAT IS REALLY FACILITATED BY SERVICE PROVIDERS. THAT SETUP COMPLIANCE SYSTEMS FOR ALL KINDS OF DIFFERENT ENTITIES. AND ONE KEY PROVISION THAT I THINK IS LITTLE KNOWN AND LITTLE UNDERSTOOD IN DODD-FRANK THAT WAS IN THERE IS THAT THE BUREAU HAS THE ABILITY TO GO LOOK AND DIRECTLY AT THE SERVICE WRITERS. AND THAT HAS BEEN, I THINK, VERY IMPORTANT IN THIS TECHNOLOGY AREA WHERE WE CAN GO KIND OF TO THE HEART OF WHO IS PROVIDING TECHNOLOGY TO MAYBE A NUMBER OF ENTITIES. AND IF THERE’S A ROOT CAUSE ISSUE, WE CAN DETECT IT AND ASSESS IT. AND, AGAIN, DIRECT THEM TO FIX IT. WE CAN ALSO JUST HAVE THE SAME EXPECTATIONS OVER THEM THAT I TALKED ABOUT WITH THE OTHER ENTITIES TO TRY TO ENSURE THAT THEY PROACTIVELY PAY ATTENTION TO ALL OF THE TECHNICAL DETAILS THAT MAY COME INTO PLAY. LET’S SAY REGULATION CHANGES. THERE NEEDS TO BE CHANGE MANAGEMENT PROPERLY EXECUTED AND TESTED. AND SO THAT’S BEEN AN IMPORTANT PART OF WHAT WE’VE DONE IN LOOKING AT THOSE TECHNOLOGY ISSUES. SO I THINK I’LL STOP THERE. ERIK.>>THANK YOU. NEXT WE’LL HEAR FROM NICK SMITH. HE’S THE SENIOR DEPUTY ATTORNEY GENERAL AND ASSISTANT DIRECTOR OF THE BUREAU OF CONSUMER PROTECTION OF THE PENNSYLVANIA OFFICE OF THE ATTORNEY GENERAL.>>THANKS, ERIK.>>THAT’S A MOUTHFUL, NICK. [ LAUGHING ] >> IT’S TOO LONG. AND THANK YOU, MICHAEL, FOR HAVING US HERE TODAY. THANK YOU FOR LETTING ME COME WORK FOR YOU AT TREASURY IN 2009. [ LAUGHING ] >> AND, PEGGY AND ERIK, THANK YOU FOR GIVING ME MY FIRST JOB. [ LAUGHING ] >> SO I STARTED AT TREASURY AND WORKED THERE WITH THESE GOOD FOLKS. AND THEN I WENT TO THE CFPB AND I WAS AN ENFORCEMENT ATTORNEY THERE. I WANTED TO MOVE BACK TO PITTSBURGH AND DID PRIVATE PRACTICE. FOR THE PAST YEAR AND A HALF, I’VE BEEN WITH ATTORNEY GENERAL RUNNING THE CONSUMER PROTECTION FINANCIAL UNIT. SOME REFER TO US AS A MINI CFPB. THAT WOULD BE LESS OF A MOUTHFUL THAN MY OFFICIAL TITLE. BUT I REALLY ENJOY THE WORK AT THE STATE LEVEL. AND TODAY I’M GOING TO TALK ABOUT TWO THINGS. ONE IS SORT OF WHAT STATE AGENCIES ARE DOING TO FILL THE GAP WITH THE FEDERAL AGENCIES PERHAPS DOING LESS IN TERMS OF CONSUMER PROTECTION. AND THEN, SECOND, I WANT TO TALK ABOUT WHAT WE DID WHEN I WAS AT THE BUREAU THAT INVOLVED TECHNOLOGY AND CHANGING TECHNOLOGY. SO I GUESS I’LL START WITH THE FIRST THING, WHICH IS THE U.S. BANK CASE AT THE CFPB. THIS TIES IN NICELY WITH WHAT PEGGY JUST TOLD YOU ABOUT EXAMS. BECAUSE BACK IN THE EARLY DAYS OF THE CFPB IN RICH’S TENURE, WE ACTUALLY ASSIGNED ATTORNEYS TO GO OUT ON EXAMS AND PROVIDE EXAM SUPPORT. AND THE OFFICIAL PURPOSE OF THAT WAS TO GIVE ENFORCEMENT ATTORNEYS EXPERIENCE LEARNING ABOUT THE EXAM PROCESS. AND I THINK IT WAS A REALLY, REALLY GREAT THING. THE ENTITIES HATED IT. AND THE INDUSTRY REBELLED AND RICH PROBABLY DIDN’T HEAR ABOUT ANYTHING MORE THAN THAT FOR ABOUT SIX MONTHS. AND SO FINALLY THE BUREAU DECIDED NOT TO SET ENFORCEMENT ATTORNEYS OUT ON EXAMS ANYMORE. BUT I HAD THE GOOD FORTUNE OF BEING ASSIGNED TO AN EXAM OF U.S. BANK, WHICH IS A SPECIAL REVIEW TO LOOK AT THIS PROGRAM CALLED THE U.S. MILD PROGRAM. AND IT ENDED UP BECOMING AN ENFORCEMENT ACTION, WHICH IS WHY I CAN TALK ABOUT IT WITH YOU TODAY. OTHERWISE EXAMS ARE TOTALLY CONFIDENTIAL. BUT IT WAS A PROGRAM THAT WAS DESIGNED FOR ENLISTED SERVICE MEMBERS. IT WAS CALLED MILES. AND TO THE BANK’S CREDIT, I DON’T WANT TO GIVE THEM TOO BAD OF A NAME, IT WAS ACTUALLY A PROGRAM SET UP BY ANOTHER BANK WHICH THEY HAD ACQUIRED. AND IT WAS ONE OF THOSE EXAMPLES OF A SITUATION WHERE THESE BIG BANKS WERE GOBBLING UP LOTS OF BIG BANKS AND NOT NECESSARILY PAYING ATTENTION TO WHAT WAS GOING ON. SO THIS PROGRAM WAS A SUB-PRIME AUTO LOAN. VERY HIGH INTEREST RATES. 17, 18% APR. THEY HAD ABOUT 50,000 CUSTOMERS OVER THE COURSE OF ABOUT A DECADE. AND WE LOOKED AT IT BECAUSE WE GOT A COMPLAINT. AND THERE’S A VIDEO PROBABLY ON THE CFPB’S WEBSITE FROM A FATHER OF A SOLDIER. AND HIS FATHER WROTE INTO THE CFPB AND SAID, YOU KNOW, MY SON IS SPENDING BASICALLY ALL OF HIS AFTER TAX INCOME ON THIS CAR LOAN. HE HAD A $500 PAYMENT, I THINK, MONTHLY AND IT WAS LIKE, YOU KNOW, BRAND NEW PICKUP TRUCK, OF COURSE. AND THEN HE WAS SPENDING 2 OR $ $300 ON INSURANCE. THE REST ON GAS. THE WHOLE TAKE ON PAY WAS 1100 CLARS. HE DIDN’T REALLY HAVE MUCH MONEY TO SPEND OTHER THAN THE TRUCK. SO WE’VE LOOKED INTO THE PROGRAM AND THE ISSUE THAT WE FOUND ACTUALLY HAD TO DO WITH AN ALLOTMENT PROGRAM. AND ALLOTMENTS ARE A MEANS OF PAYMENT THAT THE MILITARY SET UP 100 YEARS AGO, MAYBE LONGER, BASICALLY BEFORE THE TIME OF ONLINE BANKING, CONSUMERS NEEDED TO BE ABLE TO — WHEN THEY WERE DEPLOYED AT WAR, THEY NEEDED TO BE ABLE TO MAKE SURE THEIR BILLS GOT PAID. AND SO SERVICE MEMBERS COULD DIRECT THE DOD OFFICE TO PAY THEIR MORTGAGE. YOU KNOW, THEIR FINANCING FOR THEIR HORSE AND BUGGY. [ LAUGHING ] >> YOU KNOW, THEIR MOTHER — LIKE WHOEVER THEY WANTED TO SEND PAYMENTS TO. AND THIS SYSTEM EXISTED FOR A LONG TIME AND WORKED FINE. BUT FLASH FORWARD TO THE 2000s WHERE EVERYONE IS REQUIRED TO HAVE A BANK ACCOUNT. THIS ALLOTMENT SYSTEM WAS OBSOLETE AND REALLY NOT NECESSARY ANYMORE. BUT THERE WAS A WHOLE INDUSTRY AROUND MILITARY BASES THAT HAD CROPPED UP THAT FIGURED OUT THAT IF THEY REQUIRED SERVICE MEMBERS TO PAY VIA ALLOTMENT, THEY WOULD BASICALLY ELIMINATE ANY RISK THAT THEY WOULD NOT GET PAID. BECAUSE THEY WOULD GET PAID STRAIGHT OUT OF THE PAYCHECK. AND EVEN THOUGH A SERVICE MEMBER COULD TURN OFF THE ALLOTMENT, THERE’S A REAL EMPHASIS FOR JUNIOR ENLISTED ON PAYING YOUR BILLS AND NOT FALLING BEHIND. AND YOU CAN LOSE YOUR SECURITY CLEARANCE IF YOU GET A BAG THING ON YOUR CREDIT REPORT. SO THERE ARE STILL TODAY A LOT OF SHADY LENDERS AND CREDITORS OUTSIDE MILITARY BASES. BUT BEFORE OUR CASE, THEY ALL REQUIRED PAYMENT BY ALLOTMENT. AND IT MADE IT MUCH EASIER FOR THEM TO PREY ON SERVICE MEMBERS. U.S. BANKS MILES PROGRAM DID THE SAME THING. YOU WERE EXPECTED AND REQUIRED TO PAY WITH AN ALLOTMENT. AND THE PROBLEM THAT WE FOUND THAT U.S. BANK WAS DOING WAS THEY HAD A THIRD PARTY SERVICE PROVIDER THAT WAS PROCESSING AND SETTING UP THE ALLOTMENTS AND CHARGING SERVICE MEMBERS $3.50 MONTHLY FEE FOR THAT SERVICE. THEY WERE NOT DISCLOSING THAT FEE AS PART OF THE TRUTH AND LENDING ACT DISCLOSURE. WITHOUT GETTING INTO TOO MUCH TECHNICAL DETAIL, BASICALLY THIS WAS AN EXTRA $200 OVER THE COURSE OF THE AUTO LOAN THAT SERVICE MEMBERS WERE NOT BEING TOLD ABOUT UP FRONT AS PART OF THE COST OF THE LOAN. AND THAT WAS A VIOLATION OF TELA. SO THAT WAS ONE OF THE FINDINGS. WE ALSO HAD SOME DECEPTIVE MARKETING OF ADD-ON PRODUCTS. THEY HAD EXTENDED WARRANTY BASICALLY THEY WERE SELLING AND ALSO GAP INSURANCE. AND THEIR CALL CENTER IN KENTUCKY WAS CALLING PEOPLE AND TELLING THEM IT’S JUST PENNIES A DAY TO HAVE THIS EXTRA PRODUCT AND YOU MIGHT AS WELL BUY IT. IN FACT, IT WAS LESS THAN PENNIES A DAY. $0.40 A DAY WHICH IS SIGNIFICANTLY MORE THAN PENNIES. SO WE FOUND THAT WAS A DECEPTIVE PRACTICE. AND WE ENDED UPTAKING TWO CONSENT ORDERS. ONE WITH THE U.S. BANK. I THINK THEY PAID ABOUT $3.5 MILLION BACK TO SERVICE MEMBERS. AND THEN ANOTHER ONE WITH DEALERS FINANCIAL SERVICES, WHICH IS THE NON-BANK MARKETING PARTNER THAT HAD THE CALL CENTER IN KENTUCKY. AND WE REQUIRED THEM TO GIVE, YOU KNOW, $7 MILLION IN TOTAL BACK TO SERVICE MEMBERS, INCLUDING THE ONE WHOSE FATHER HAD COMPLAINED TO US IN THE EARLY DAYS.>>IS THAT ON THE COMPLAINT DATA BASE?>>IT IS, YES. IT’S PROBABLY IN THE COMPLAINT DATABASE.>>SERVED A PURPOSE.>>LIKE I SAID, THERE’S A GREAT VIDEO. I THINK HIS NAME IS RE. THERE’S A VIDEO OF THE FATHER AND THE SON THAT THE CFPB MADE AND I THINK ELIZABETH WARREN MADE A VIDEO TOO. BUT ANYWAY, THE REASON I MENTION THIS CASE IS BECAUSE WE DIDN’T JUST STOP THERE WITH THE SETTLEMENT AND REQUIRING THEM TO GIVE THE MONEY BACK. I WORKED WITH HOLLY IN THE EARLY DAYS OF THE BUREAU AND SHE LED THE OFFICE OF SERVICE AFFAIRS. OF COURSE, SHE WAS VERY INTERESTED IN THIS CASE, AND WE KEPT HER TEAM APPRISED AS IT WAS MOVING ALONG. AND AFTERWARDS WHEN WE ANNOUNCED THE SETTLEMENTS, SHE USED THAT TO GO TO THE PENTAGON AND SAY, HEY, LOOK AT THIS ALLOTMENT PROGRAM. THIS SERVICE MEMBER WAS — HAD TO PAY AN EXTRA $200 BECAUSE OF THIS ALLOTMENT PROGRAM. AND YOU’VE GOT ALL OF THESE SHADY LENDERS AROUND BASES THAT ARE TAKING ADVANTAGE OF THE ALLOTMENT PROGRAM. YOU SHOULD REALLY TAKE A HARD LOOK AT ALLOTMENTS AND THINK ABOUT IF IT’S STILL WORTH HAVING. AND SO THE PENTAGON SET UP A WORKING GROUP. I WAS THE POLICY LEAD FOR THE CFPB AND WE HAD HOLLY AND SETH ON HER TEAM. AND ALONG — TO MAKE A LONG STORY SHORT, IT TOOK MANY MEETINGS, WE WE CONVINCED THE PENTAGON TO BAN THESE FOR CONSUMER CREDIT. THEY STILL EXIST FOR PAYING RENT. I THINK YOU CAN STILL PAY YOUR MORTGAGE THROUGH AN ALLOTMENT. BUT YOU CAN’T MAKE — PAY A CAR LOAN OR PURCHASE ANY JEWELRY OR OTHER PRODUCT OUTSIDE OF A MILITARY BASE AND REPAY ALLOTMENT. SO THAT WAS, I THINK, A GOOD EXAMPLE OF THE CFPB EMBRACING INNOVATION BACK UNDER CORDRAY. I KNOW NOW THE CFPB IS MAKING A NEW PUSH WITH A SAND BOX AND OTHER THINGS THAT THEY CLAIM WILL HELP CONSUMER FRIENDLY INNOVATION. MAYBE WE’LL TALK ABOUT THEM LATER. BUT I THINK IT’S IMPORTANT TO POINT OUT THAT THE CFPB HAS ALWAYS BEEN IN FAVOR OF INNOVATION IN FAVOR OF THE CONSUMER. AND IN THIS CASE WE SAID HERE’S THIS OLD SYSTEM NOT GOOD FOR CONSUMERS. LET’S DO AWAY WITH IT AND ENCOURAGE PEOPLE TO USE THE FREE BILL PAY AND ONLINE BANKING THAT IS MUCH BETTER FOR THEM THAN THE OLD SYSTEM. SO I WANT TO SHIFT TO STATE AGENCIES FILLING THE GAP. A LOT OF PEOPLE ARE WRITING ARTICLES ABOUT HOW STATE AGENCIES ARE BEEFING UP CONSUMER FINANCIAL PROTECTION EFFORTS. AND IT’S TRUE. WE ARE. I THINK THE CFPB IS IRREPLACEABLE AND STILL DOING INCREDIBLY IMPORTANT WORK AND I WAS HAPPY TO HEAR FROM PEGGY THIS MORNING THAT MUCH OF THE EXAM WORK IS STILL GOING ON AND STRONG. AND, I MEAN, THE AGs CANNOT REPLACE THE CFPB. BUT WHAT WE CAN DO IS WE CAN BE ON THE CUTTING EDGE, I THINK, TAKE ON THE CASES THAT MAY BE ONES THAT THE NEW DIRECTOR IS NOT WILLING TO TAKE ON AND NOT WILLING TO BRING. AND WE HAVE SEEN THAT A NUMBER OF UNFORTUNATE ACCIDENTS HAVE DROPPED DRAMATICALLY SINCE ACTING DIRECTOR MULVANE TOOK OVER. SO A COUPLE THINGS WE’RE WORKING ON. ONE IS THE LAWSUIT. THAT IS ONE WHERE THE CFPB HAS AN OUTSTANDING CASE AGAINST NAVIANT THEY FILED IN 2017. THERE ARE ALSO FIVE STATE AG LAWSUITS AGAINST NAVIANT. I THINK THAT’S A GOOD EXAMPLE THAT THE CFPB IS DOING GOOD WORK. THEIR CASE IS STILL MOVING IT. THEY’RE LITIGATING IT REALLY HARD AGAINST THE LAWYERS ON THE OTHER SIDE. THEY’RE DOING GREAT WORK ON DISCOVERY. AND THEY’RE A GOOD PARTNER TO THE STATES. AND I WANT TO RECOGNIZE THAT. AT THE SAME TIME, THE STATES ARE WORKING VERY HARD AS WELL ON OUR OWN LAWSUITS BECAUSE WE RECOGNIZE THAT THE CFPB LAWSUIT, SOMETHING COULD HAPPEN TO IT. I MEAN, THERE HAS BEEN PUBLISHING SPECULATION IN THE — PUBLIC SPECULATION IN THE MEDIA ABOUT THE MEETINGS WITH NAVIATN. SO WE ARE HOPEFUL THAT THE CFPB WILL KEEP UP GOOD WORK ON THAT CASE, BUT WE’RE NOT COUNTING OUR CHICKENS. AND WE’RE PURSUING OUR LAWSUITS AS THOUGH THEY’RE THE ONLY ONES OUT THERE AND WE NEED TO DO THAT. SO THAT’S AN EXCITING CASE. I’M HAPPY TO TALK MORE ABOUT THE SUBSTANTIVE ALLEGATIONS THERE. THERE’S ALSO EQUI FAX. EVERYONE KNOWS THERE’S A BREACH THAT THEY’RE WORKING ON. THAT’S AN EXCITING ONE. AND I THINK I’LL JUST EXPLAIN WHAT A MULTI-STATE IS, BECAUSE SOME PEOPLE MAY NOT KNOW. BACK IN THE 90s, STATE AGs STARTED WORKING TOGETHER IN A VERY FORMAL WAY TO INVESTIGATE THE TOBACCO COMPANIES. AND THEY INSTITUTIONALIZED THIS PROCESS OF ACTUALLY BANNING TOGETHER AND SHARING RESOURCES AND SIGNING COMMON INTEREST AGREEMENTS. AND IT’S BECOME A REALLY POWERFUL WAY FOR AGs TO DO WORK AGAINST THESE BIG NATIONAL ENTITIES. AND IT’S PARTICULARLY HELPFUL FOR SMALLER AG OFFICES WHERE THEY MAY ONLY HAVE FIVE PEOPLE IN CONSUMER PROTECTION FOR THE WHOLE STATE. SO EQUI FAX IS AN EXAMPLE OF THAT WHERE, OF COURSE, IS STATE IS INTERESTED IN THAT CASE. ANOTHER GOOD EXAMPLE OF THAT WAS WELLS FARGO. WE ANNOUNCED THE SETTLEMENT IN DECEMBER OF 2018. $550 MILLION WAS PAID TO THE STATES. AND THIS STEMMED FROM THE CASES OF THE ACCOUNTS — THE UNNECESSARY ACCOUNTS THAT PEOPLE CREATED AND ALSO THE FORCED-PLACE AUTO INSURANCE. THAT WAS A CASE WHERE THE CFPB HAD DONE ITS OWN ACTIONS. THEY SETTLED ONE IN APRIL OF 2018. AND WE TOOK A LOOK AT THAT AND WE THOUGHT WE NEED TO DO OUR OWN. THERE’S MORE TO BE DONE THERE. AND THE PUBLIC SETTLEMENT INCLUDES SOME FINDINGS THAT WENT BEYOND WHAT THE CFPB FOUND. AND IT WAS A GOOD EXAMPLE, I THINK, OF WELLS FARGO REALIZING LIKE, OKAY, THE AGs, THEY’RE GOING TO HOLD OUR FEET TO THE FIRE. AND THERE’S A LOT I CAN’T TALK ABOUT THAT’S CONFIDENTIAL THERE. BUT SUFFICE IT TO SAY THAT I THINK THE AG’S INVOLVEMENT WAS VERY HELPFUL IN THAT MATTER. ANOTHER CASE THAT I WANT TO MENTION THAT’S JUST A SMALLER ONE BUT WHICH IS A FUN ONE IS THE DOMINION CASH POINT CASE. SO THIS IS AN EXAMPLE OF WHERE STATE AGs TRIED TO STOP SOME OF THE CROSS BORDER STUFF THAT GOES ON. IN PENNSYLVANIA, WE HAVE A USE RE LIMIT, LIKE MANY STATES. SO PAY DAY LENDING IS ILLEGAL IN PENNSYLVANIA. THERE’S A COMPANY CALLED DOMINION CASH POINT BASED IN DELAWARE AND MAKING TITLE LOANS TO CONSUMERS FROM PENNSYLVANIA. THEY WERE ADVERTISING IN PENNSYLVANIA. THEY HAD A WEBSITE DIRECTED TOWARDS PENNSYLVANIA BORROWERS WITH PA IN THE URL. [ LAUGHING ] >> AND THEY ENCOURAGED PENNSYLVANIIANS TO DRIVE ACROSS THE BORDER TO DELAWARE AND TAKE OUT A TITLE LOAN. THE COMPANY HAS GONE OUT OF BUSINESS. BUT WE SUED THEM BECAUSE THEY TOOK $5 MILLION FROM PENNSYLVANIA BORROWERS. AND WE WANT THEM TO PAY BACK THE LEGAL INTEREST PORTION OF THAT, WHICH IS ABOUT $3 MILLION. SO THIS WAS MY FIRST STATE COURT CASE. I ONLY GOT TO WORK ON FEDERAL CASES AT THE BUREAU. AND NAVIANT IS ALSO FILED IN FEDERAL COURT. I GOT TO LEARN ABOUT THE PROCEDURES OF THE PHILADELPHIA COURT SYSTEM. AND FORTUNATELY I HAVE GOOD LAWYERS IN OUR PHILLY OFFICE TO TUTOR ME ALONG THE WAY. I’M CONSTANTLY BUGGING THEM ABOUT HOW THAT WORKS. BUT, YOU KNOW, THIS IS A CASE WHERE THE OWNERS TOOK ALL THIS MONEY FROM CONSUMERS. THEY’VE NOW SCROLLED IT AWAY IN TRUSTS. AND THEY’RE TRYING TO KEEP IT AWAY FROM OUR HANDS. AND WE REALIZED THAT THEY JUST WEREN’T GOING TO GIVE US THE MONEY UNLESS WE SUED THEM. AND SO NOW WE’RE IN DISCOVERY IN THAT CASE. IT’S A VERY FAST TIMELINE. I THINK SCHEDULED FOR TRIAL LIKE LATER THIS YEAR. SO THAT’S AN EXAMPLE OF THE KIND OF THINGS AGs CAN DO AND HAVE TO DO. WHERE YOU MIGHT NOT SEE THE CFPB SUING SUCH A SMALL COMPANY, ALTHOUGH SOME OF THE RESPITE ACTIONS WERE AGAINST PRETTY SMALL COMPANIES. BUT THE AGs, WE HAVE TO TAKE ON PEOPLE AT ALL DIFFERENT LEVELS. FROM THE BIGGEST WELLS FARGO TO THE REALLY SMALLER ONES. AND DOMINION IS NOT EVEN THE SMALLEST. WE DO HOME IMPROVEMENT CONTRACTOR CASES WHERE THERE’S TEN PEOPLE THAT GOT BAD PLUMBING LINES PUT IN THEIR BASEMENT. I DON’T WORK ON THOSE CASES. I ONLY DO CONSUMER FINANCE. BUT THAT’S WHAT THE AG CONSUMER PROTECTION OFFICES HAVE TO DO. SO I GUESS I JUST WANT TO — I JUST WANT TO CLOSE BY EMPHASIZING WHAT I SAID BEFORE, WHICH IS WE CAN’T REPLACE THE CFPB. BUT WE’RE DOING OUR BEST. WE’RE SHIFTING RESOURCES AWAY FROM THE PLUMBERS AND TOWARDS THE WELLS FARGOS. [ LAUGHING ] >> AND WE’RE GOING TO CONTINUE TO DO THAT. I KNOW OTHER STATES ARE DOING THE SAME THING. I’M GOING OUT TO NEW JERSEY TO HELP TALK TO THEM ABOUT WHAT THEY CAN DO, WHAT THEY’VE GOT SOME NEW FOLKS THERE AND THEY’RE REALLY EXCITED TO DO MORE IN CONSUMER FINANCE. I’M GOING TO VISIT WITH THE MICHIGAN AG’S OFFICE IN THE COMING MONTHS. THE NEW AG HERE. SO, YOU KNOW, I THINK THERE’S INTEREST ALL OVER THE COUNTRY IN TERMS OF DOING MORE IN CONSUMER FINANCIAL PROTECTION. AND AS LONG AS WE KEEP WORKING HARD, I THINK WE CAN SURVIVE THE NEXT TWO TO FOUR YEARS UNTIL WE HAVE A NEW DIRECTOR OF THE CFPB.>>THANKS, NICK. LISA DONNER IS NEXT. SHE’S THE EXECUTIVE DIRECTOR OF THE AMERICANS FOR FINANCIAL REFORM.>>THANKS, ERIK. I SHOULD TURN THIS ON. AND THANKS, MICHAEL, FOR INVITING ME. MAYBE I SHOULD START BY SAYING IT’S — THERE ARE A LOT OF PEOPLE IN THIS ROOM WHO PLAYED A HUGE ROLE FROM THE INSIDE IN BUILDING THE CONSUMER BUREAU AT DIFFERENT STAGES OF ITS LIFE. I FEEL LIKE WE AT OUR PARTNERS PLAYED A ROLE FROM THE OUTSIDE. BUT MAYBE THAT MAKES IT EASIER FOR ME TO SAY AS A FRAMING DEVICE THAT THOUGH WE CLEARLY ARE FACING A BUNCH OF CHALLENGES RIGHT NOW WITH THE CHANGE IN LEADER SHIP OF THE BUREAU, I DO THINK IT’S REALLY IMPORTANT TO TAKE A MOMENT AND CELEBRATE ACTUALLY WHAT A HUGE SUCCESS THE BUREAU HAS BEEN. AND WHAT A DIFFERENCE IT HAS MADE IN CONSUMER PROTECTION. WHAT A DIFFERENCE IT HAS MADE IN CHANGING THE RULES AND CHANGING THE EXTENT TO WHICH INSTITUTIONS FEEL LIKE THEY HAVE TO FOLLOW THE RULES. AND WHAT A DIFFERENCE IS MADE IN ACTUALLY LEADING US DESPITE THE CHALLENGES OF THIS MOMENT IN A STRONGER POSITION, I THINK, TO KEEP DOING BETTER THAN THAT. BOTH ON CONSUMER REGULATION AND FRANKLY ON FINANCIAL REGULATION BEYOND THAT. SO I DO — I DO THINK THAT’S WORTH CELEBRATING AND IMPORTANT TO CELEBRATE. AND I DON’T SAY THAT AT ALL TO SAY, YOU KNOW, OUR WORK IS DONE. I THINK EVEN APART FROM THE CHALLENGES OF THE MOMENT, FIRST I THINK ONE OF THE REALLY IMPORTANT LESSONS OF THE HISTORY OF THE BUREAU AND THE FIGHTS AROUND IT, WE NEED TO SET THE BAR HIGHER IN TERMS OF WHAT WE EXPECT AND DEMAND ON CONSUMER FINANCIAL REGULATION AND OUTCOMES FOR PEOPLE AND ON FINANCIAL REGULATION GENERALLY. AND SO WE SHOULD BE SATISFIED FOR THAT REASON. AND THEN ALSO WE TALKED A LITTLE ABOUT WEALTH HERE. BUT THINKING ABOUT AN INSTITUTION LIKE THAT WHERE ON THE ONE HAND THERE’S BEEN SOME GOOD REGULATORY WORK AND SOME GOOD KIND OF SPEAKING OUT FROM BELOW ON THE PART OF THE WORKERS. AND SOME CHANGES HAVE BEEN FORCED. AND YET WE HAVE THIS GIANT INSTITUTION WHERE EVERY TIME YOU LOOK, THERE IS ANOTHER ROUND OF REALLY TROUBLING ABUSES IN A DIFFERENT PART OF THE BUSINESS. AND SO CLEARLY WE HAVEN’T SOLVED THE PROBLEM OF MAKING FUNDAMENTAL CHANGE AT AN INSTITUTION LIKE THAT THAT TOUCHES SO MANY LIVES. ALL RIGHT. SO FIRST A COUPLE COMMENTS ON WHAT WORKS. AND THEN — OR SOME CONTRIBUTIONS TO THE DISCUSSION OF WHAT WORKED. THEN ON SOME OF THE FRIGHTENING THINGS HAPPENING AT THE MOMENT. AND THEN A LITTLE ON WHAT NEXT. YOU KNOW, SAVING THE OBVIOUS TO AN AUDIENCE THAT KNOWS THIS WELL, BUT THE BUREAU IN THE FIRST PHASE OF ITS LIFE DID WHAT IT WAS SUPPOSED TO DO, RIGHT? IT USED THE SET OF TOOLS THAT IT WAS GIVEN AND THE SORT OF STRUCTURAL FEATURES BAKED INTO IT TO PURSUE ITS MISSION. AND THAT ADDED UP TO A SIGNIFICANT IMPACT, INCLUDING THE $12 BILLION IN CONSUMER WE LEAF TALK ABOUT ALL OF THE TIME. IT GOT CHANGED BY THE ENFORCEMENT ACTION. IT WASN’T JUST THE $12 MILLION TO THOSE PEOPLE. AND INCLUDE SIGNIFICANT RULE MAKINGS THAT STOPPED MAJOR HARM THAT WAS AT THE LENDING CRISIS AND SET GUARD RAILS FOR SORT OF MORE EMERGING PRODUCTS AND MARKETS LIKE IN THE PREPAID SPACE. INCREDIBLY IMPORTANT. AND I THINK, YOU KNOW, ERIK TALKED A LITTLE BIT ABOUT THE SORT OF STRUCTURAL FEATURES AND THE DESIGN OF THE BUREAU, AND MIKE IS GOING TO TALK A LITTLE BIT MORE ABOUT SOME PARTICULAR RULES AND MARKET CHANGES AS EXAMPLES OF THIS. SO I WANTED TO TALK A SECOND ABOUT MORE OF SORT OF THE CHOICES, PROCESS AND STRUCTURAL CHOICES THAT THE BUREAU MADE THAT HELPED ENABLE THE — SOME OF THOSE SUCCESSES. AND I THINK ARE USEFUL LESSONS FOR EFFECTIVE REGULATION. AND I THINK WE SHOULD SPEND THE TIME TO TALK MORE TO THE PEOPLE WHO KNOW THIS STUFF MUCH BETTER THAN ME. THE PEOPLE ON THE INSIDE TO THINK THROUGH SOME OF THESE LESSONS AS WELL. I THINK THE FOCUS ON BEING CONSUMER FACING AND TREATING CONSUMERS AS THE AGENCIES CONSTITUENCY AND BUILDING STRUCTURES AND PROCESSES TO MAINTAIN THAT MISSION FOCUS ARE INCREDIBLY IMPORTANT. YOU KNOW, SO FAILURES AND ERIK TALKED ABOUT THIS IN THE BANK REGULATORY WORLD. WE’RE PARTIALLY ABOUT MISSION. NOT HAVING A CONSUMER PROTECTION MISSION UNIQUELY. BUT NOT ONLY THE SEC HAS A VERY SUBSTANTIAL CONSUMER PROTECTION MISSION THAT IT HAS OFTEN FAILED TO PAY ATTENTION. AND MINDING SAFETY AND SOUNDNESS OUGHT TO BE NOT JUST ABOUT MINDING IT FROM THE PERSPECTIVE OF EACH INDIVIDUAL INSTITUTION, BUT FROM THE PERSPECTIVE OF THE SYSTEM AND THE PUBLIC WHICH IS DIFFERENT — A DIFFERENT PERSPECTIVE ON SAFETY AND SOUNDNESS. AND THERE ARE A BUNCH OF STRUCTURAL FORCES THAT MOVE FINANCIAL REGULATORS AWAY FROM A PUBLIC INTEREST FORCES, INCLUDING JUST THE POWER AND THE MONEY OF THE BANKS. AND THEN ALL OF THE LITTLE WAYS THAT THAT’S MANIFEST. EVEN WHEN WE, SORT OF THE CONSUMER ADVOCACY COMMUNITY, ARE ACTIVE AND ENGAGED. THERE’S NOT AS MANY OF US. WE’RE NOT GOING TO HAVE A FRACTION OF THE MEETINGS WITH A FRIENDLY REGULATOR THAT INDUSTRY DOES. THERE’S ALL KINDS OF DATA THAT THEY HAVE THAT WE DON’T HAVE. SO THERE’S NO WAY TO UNDERSTAND THOSE THINGS UNLESS A REGULATOR IS TAKING THAT RESPONSIBILITY AND SERVING THE PUBLIC AND DOING IT. SO I THINK, FOR EXAMPLE, THE CHOICE TO NOT JUST — THE COMPLAINT DATABASE WAS A STATUTORY REQUIREMENT. BUT MAKING IT PUBLIC WAS A CHOICE. AND THEN TAKING THE NEXT STEP TO MAKE THE NARRATIVES PUBLIC WAS A CHOICE. AND ALL THOSE THINGS, I THINK, KIND OF LOCK IN A VIRTUOUS CYCLE THAT DATABASE IS MORE ATTRACTIVE TO PEOPLE IF THEY CAN LEARN SOMETHING FROM IT, AS WELL AS USE IT, AND IT’S CERTAINLY MORE EFFECTIVE IN SHAPING BANK ACTIONS IF PEOPLE KNOW THEY’RE GOING TO SEE WHAT THEY DID OR DIDN’T DO. AND YOU HEAR FROM ALL KINDS OF PEOPLE, INCLUDING PEOPLE WHO TALK TO INDUSTRY ABOUT WHAT THEIR RESPONSE HAS BEEN. OR ATTORNEYS WHO IT’S SORT OF FUNNY FOR A LAWYER WHO HAS ALL OF THOSE TOOLS TO, YOU KNOW, SAY, YEAH, BUT ACTUALLY WE GET BETTER RESULTS SOMETIMES. WHEN MY CLIENT FILES A COMPLAINT BECAUSE THEY KNOW IT’S GOING TO BE SEEN. THEN THROUGH MONTHS OF LITIGATION. DOING THINGS LIKE HOLDING PUBLIC HEARINGS AROUND THE COUNTRY TO TALK ABOUT SUBSTANTIVE ISSUES AND HEAR FROM PEOPLE. DOING THINGS LIKE PUBLISHING SUPERVISORY HIGHLIGHTS. BECAUSE EACH INDIVIDUAL SUPERVISORY PROCESS IS PRIVATE. BUT TELLING THE PUBLIC WHAT IS HAPPENING IN THOSE EXAMS I THINK IS INCREDIBLY IMPORTANT AND GIVES YOU A SENSE OF WHAT THE AGENCY IS DOING AND HOW YOU MIGHT AFFECT CHANGE. YOU KNOW, CERTAINLY WE SAID TO LOTS OF OTHER AGENCIES LIKE YOU COULD DO SOMETHING LIKE THAT. YOU COULD TELL US WHAT YOU’RE SEEING AND IT WOULD MAKE A DIFFERENCE. I THINK USING ENFORCEMENT ACTIONS TO BOTH MAKE SURE YOU’RE GETTING MONEY BACK FOR PEOPLE IN MEANINGFUL WAYS AND TO CHANGE CONDUCT AND EDUCATE BOTH THE PUBLIC AND INSTITUTIONS ABOUT WHAT THE LAW IS AND THE EXPECTATION THAT IT WILL BE FOLLOWED. WILLINGNESS TO GO AFTER BIG AND SOMETIMES SMALL ACTORS WHEN THEY’RE DOING EXOTIC THINGS. JUST BECAUSE THE PRACTICE WAS WIDESPREAD. NOT THAT MEANS YOU HAVE TO LET IT GO. AND USING RESEARCH AND REPORTS REALLY EFFECTIVELY. BOTH TO INFORM RULE WRITING AND TO SHAPE THE CONVERSATION AND EXPOSE PROBLEMS AS FOR AN EXAMPLE WAS DONE ON A STUDENT LOAN. SO THAT’S SORT OF A PIECE OF THE GOOD NEWS. IN TERMS OF WHERE WE ARE NOW, FIRST I THINK IT’S TRUE AT THE SAME TIME THAT THOUGH THE FOLKS IN CHARGE I THINK ESSENTIALLY DON’T BELIEVE THE BUREAU SHOULD EXIST AND DON’T AGREE WITH THE MISSION, THEY CAN’T JUST WISH IT AWAY. RIGHT. THERE’S INSTITUTION THERE AND THEY CAN’T MAKE IT GO AWAY. THAT’S A GOOD THING. THAT DOESN’T MEAN THEY CAN’T DO A BUNCH OF HARM. SO I’M GOING TO TALK ABOUT A COUPLE OF THE PIECES OF WHAT WE ARE MOST WORRIED ABOUT THAT IS HAPPENING RIGHT NOW. ONE PIECE IS A REAL CHANGE IN THE APPROACH TO ENFORCEMENT. AND OBVIOUSLY WE CAN’T SEE A BUNCH OF THAT BECAUSE YOU CAN’T SEE WHAT DOESN’T HAPPEN. OR YOU CAN’T SEE THE DETAILS OF WHAT DOESN’T HAPPEN. BUT YOU CAN SEE SOME NUMBERS ABOUT WHAT DOESN’T HAPPEN. AND OUR COLLEAGUE CHRIS PETERSON DID AN EXHAUSTIVE ACCOUNTING IN THE LAST COUPLE OF WEEKS OF ENFORCEMENT ACTIONS BEFORE AND AFTER THE CHANGE IN LEADERSHIP. AND IN THE PEAK ENFORCEMENT YEAR, WHICH WAS 2015, THERE WERE 55 ENFORCEMENT ACTIONS BROUGHT. LAST YEAR THERE WERE 11. THE AVERAGE RECOVERY OR MONEY BACK FOR CONSUMERS IN THOSE CASES WAS CLOSE TO 57 MILLION PER CASE. THIS IS NOT QUITE A FAIR NUMBER. BUT 2.4 MILLION FOR THOSE CASES. SO ABOUT 43 MILLION IN RESTITUTION FOR EACH WEEK OF THE TENURE. 6.4 M 6.4 MILLION UNDER MOLVANY. THERE WAS A BUNCH OF LEGACY CASES. BUT 925,000 A WEEK UNDER THE PRESENT DIRECTOR. 15 STUDENT LENDING CASES VERSUS NONE. 11 CASES OF LENDING DISCRIMINATION OF ONE KIND OR ANOTHER VERSUS NONE. SO THAT’S A BIG CHANGE. THE UNDERMINING OF THE OFFICE OF FAIR LENDING AND EQUAL OPPORTUNITY BY STRIPPING OF IT AND REPURPOSING IT TO ADVOCACY COORDINATION AND EDUCATION RATHER THAN DEMANDING COMPLIANCE WITH THE LAW. CLOSING THE OFFICE FOR STUDENTS AND YOUNG CONSUMERS AND SORT OF REASSIGNING THAT STAFF TO SERVE WITHIN THE OFFICE OF FINANCIAL EDUCATION. AND THEN TURNING AROUND THE RULE MAKING AGENDA SO THAT INSTEAD OF A FOCUS ON CONSUMER PROTECTION RULES, A LOT OF THE RULE MAKING ENERGY HAS BEEN FOCUSED ON SORT OF REVERSING CONSUMER PROTECTION, INCLUDING NOTABLY OBVIOUSLY IN THE THINGS NOT DONE, TAKING AN OVERDRAFT RULE OFF THE AGENDA OF THINGS TO DO. TAKING THE SMALL BUSINESS DATA COLLECTION RULE OFF THE AGENDA OF THINGS TO DO. ROLLING BACK — PROPOSING TO ROLL BACK THE PAY DAY RULE. AND PUTTING OUT FOR PROPOSAL THIS SAND BOX PROPOSAL THAT NICK REFERRED TO, WHICH WE THINK IS AN INCREDIBLY DANGEROUS PROPOSAL THAT IF IT GOES FORWARD AS IT WAS WRITTEN, IT ESSENTIALLY WOULD ALLOW INDIVIDUAL EMPLOYEES WITHOUT — IN 60 DAYS, AGENCIES GIVING THEMSELVES 60 DAYS TO RESPOND TO REQUESTS FOR SWEEPING EXEMPTIONS AND EXCEPTIONS WITH NO PUBLIC INPUT AND VERY LITTLE VISIBILITY. NO REQUIREMENT THAT THE COMPANY NOT CURRENTLY BE FACING LITIGATION OR ENFORCEMENT ACTIONS. THEY’RE WILLING TO ACCEPT APPLICATIONS FROM TRADE ASSOCIATIONS OR SERVICE PROVIDERS WHO SERVE WHOLE MARKETS. NOT JUST INDIVIDUAL PROVIDERS. SO IT’S SORT OF A — IT’S A GIANT LOOPHOLE TO ALMOST ANYTHING OR EVERYONE WITH NO PROCESS WHICH SEEMS LIKE AN ASTOUNDINGLY DANGEROUS, AS WELL AS EXTREME CASE OF OVERREACH PROPOSAL. AND THEN EARLIER, I GUESS, THE LAST SORT OF — IT WASN’T A RULE MAKING, BUT A LOT OF TIME AND ENERGY IT FELT LIKE DODD SPENT WHEN IT FIRST CAME TO THE BUREAU ON THIS REQUEST FOR INFORMATION PROCESS REQUESTING COMMENT ON A WHOLE BUNCH OF VERY PROCESS — VERY IMPORTANT PROCESS ISSUES ABOUT THE BUREAU THAT FELT LIKE AN EXERCISE IN INVITING INDUSTRY TO, YOU KNOW, WRITE ITS COMPLAINTS DOWN. AND WE HAD THE OPPORTUNITY TO COMMENT AS WELL. BUT THE QUESTIONS WERE OFTEN VERY VAGUE OR VERY BROAD. THERE WAS VERY LITTLE TIME. PORTIONS VERY DIFFICULT TO RESPOND TO IF YOU DIDN’T HAVE THE PERSPECTIVE OF SOMEBODY WHO HAD BEEN INSIDE THE PROCESS AND IT’S NOT CLEAR WHAT’S HAPPENING WITH REGARD TO THOSE. SO JUST SORT OF ANOTHER EXAMPLE OF A GREAT DEAL OF ENERGY BEING EXPENDED ON DEREGULATION REALLY. AND THE SERIES OF LIKE WARNING FLAGS ON THINGS TO WATCH OUT FOR IN TERMS OF CHANGE. I MEAN, SOME OF THE CHANGE — THE CHANGES SUGGESTED INCLUDED LIKE STOPPING SHARING INFORMATION, FOR EXAMPLE. MAKING IT — PUTTING UP BARRIERS TO MAKE IT MORE DIFFICULT TO EFFECTIVELY USE WHAT YOU LEARN WITH ONE PIECE OF INFORMATION GATHERING TO TAKE ACTION TO CHANGE THOSE PRACTICES. SO HOW WE THINK ABOUT OUR JOB IN — I GUESS MAYBE ONE LAST THING TO SAY HERE ON THE TO DO MY ONE SENTENCE ON THE FRONT. I WOULD SAY ONE OF THE THINGS THAT I THINK IS PARTICULARLY WORRISOME IN THIS MOMENT IS THINGS. THAT’S PARTIALLY WHAT THE SAND BOX IS BEING CHARACTERIZED AS. IT’S NOT THAT THERE CAN’T BE GOOD NEW PRODUCTS OR THAT THERE CAN’T BE GOOD REASONS TO BE INTERESTED IN INNOVATION. BUT IT DOES FEEL LIKE THE WORD IS BEING USED KIND OF AS A GENERIC FAIRY DUST THAT YOU SPRINKLE ON ANYTHING AND THAT’S A REASON TO NOT LOOK AND NOT BE REGULATED. AND IT ALSO SEEMS LIKE IT IS TRUE THAT THERE CAN BE A PARTICULAR LACK OF VISIBILITY FOR SOME PRODUCTS THAT HAPPEN SUBSTANTIALLY ONLINE. AND SO IT’S A CONTEXT IN WHICH THE PUBLIC IS EVEN MORE DEPENDENT ON AN EFFECTIVE REGULATOR TO MAKE SURE THAT WE HAVE FAIR OUTCOMES. SO IT’S PARTICULARLY WORRISOME TO NOT HAVE THAT CONFIDENCE AT A TIME WHEN NEW PRODUCTS ARE BEING DEVELOPED AND DECISIONS BEING MADE. ALL OF THAT I’M GOING TO RETURN TO MY CHEERFUL PERSPECTIVE. [ LAUGHING ] >> FOR A SECOND. ALL THAT SAID, IT DOES FEEL LIKE WE ARE IN A GOOD — BECAUSE OF THE WORK OF THE BUREAU AND BECAUSE OF THE ORGANIZING WORK OUTSIDE OF IT, WE ACTUALLY ARE AT A FAIR POSITION TO RESIST ALL OF THESE CHANGES. I DON’T EXPECT THAT THE SAND BOX PROPOSAL WILL BE FINALIZED AS WRITTEN AND PREVAIL. AND I THINK WE HAVE BEEN AN INCREDIBLY POSITION ON THE HILL FOR A LONG TIME AND WE’VE HAD TWO YEARS OF HOSTILITY FROM BOTH HOUSES AND THE ADMINISTRATION AND YET MANAGED TO NOT SEE ANY FUNDAMENTAL STRUCTURAL CHANGES IN THE BUREAU. AND THAT’S BECAUSE I THINK THE SORT OF INITIAL THEORY THAT THE WAY TO PROTECT IT FROM THE LONG-TERM WAS NOT TO BE TIMID AND CAREFUL, BUT TO BE CAREFUL TO DO THE RIGHT THING AND TO HAVE AN IMPACT WAS RIGHT. AND BECAUSE HAVING AN AGENCY WHERE THE FACTS MATTER AND WHERE THE VOICES OF CONSUMERS MATTER IS USEFUL FOR MAKING POLICY CHANGE. BUT IT’S ALSO USEFUL FOR OUR ORGANIZING. BECAUSE IT GIVES US A REASON TO KEEP MAKING THOSE ARGUMENTS AND KEEP ORGANIZING THOSE VOICES. AND THAT HAS HELPED US NOT ONLY WITH REGARD TO THE BUREAU, BUT WITH REGARD TO CONGRESS AND TO THE BROADER PUBLIC. SO I THINK WE JUST ARE IN A STRONGER POSITION BECAUSE OF HAVING HAD THOSE PUBLIC CONVERSATIONS THAN WE WOULD BE HAD WE NOT DONE SO AS EVIDENCE, FOR EXAMPLE, BY NOT HAVING HAD THE PAY DAY RULE OVERTURNED BY A CRA. THAT WAS A REAL RISK AND A REAL WIN. SO I THINK WE CLEARLY HAVE PLENTY OF DEFENSIVE WORK TO DO. BUT I THINK WE ALSO HAVE AN OPPORTUNITY TO BE AMBITIOUS BOTH ABOUT SOLUTIONS AND ABOUT HOW WE DESCRIBE THE PROBLEMS AND MAKE SURE THAT WE DON’T GET STUCK IN KIND OF A NARROW VIEW OF WHAT CONSUMER PROTECTION IS. BUT THAT WE FRAME WHAT IS AT STAKE AS WHAT IT IS, WHICH IS THAT THESE ARE REALLY FUNDAMENTAL MATTERS OF PEOPLE’S ECONOMIC SECURITY, THEIR HEALTH, THEIR HAPPINESS, THEIR HOMES, AND ALSO FUNDAMENTAL — FUNDAMENTALS OF JUSTICE AND DECENCY. IS OUR FINANCIAL SYSTEM PUNISHING PEOPLE FOR BEING POOR OR IN SOME OTHER WAY VULNERABLE. IS IT INCREASING RACIAL WEALTH GAP OR ARE WE DEMANDING IT DID SOMETHING DIFFERENT THAN THAT. AND THAT’S A CONVERSATION THAT WE CAN PREVAIL AROUND IF WE CONTINUE TO HAVE IT. SO I’LL STOP THERE.>>THANK YOU. MIC MIKE CALHOUN WILL BE OUR LAST PANELIST.>>SO THANK YOU, AGAIN, TO MICHAEL AND THE ORGANIZERS OF THIS CONFERENCE. AND I THINK JUST YOU REALLY ARE FORTUNATE HERE TO HAVE THE ARCHITECTS AND THE BUILDERS OF THE CFPB AND DODD-FRANK HERE TODAY. MICHAEL WAS THE POINT PERSON FOR THE ADMINISTRATION. AND AT THE VERY FRONT LINE, AS WELL AS THE GENERAL, IF YOU WILL, OF THE WHOLE CAMPAIGN. SO I WANTED TO START BY GIVING A LITTLE BACKGROUND ON THE CENTER FOR RESPONSIBLE LENDING. BECAUSE IT TIES INTO MY COMMENTS, WHICH WILL BE IN THREE AREAS. FIRST A LITTLE MORE DETAIL ABOUT HOW OUT OF WHACK THE SYSTEM WAS BEFORE THE CRISIS AND BEFORE CFPB. IT’S MORE ON SOME OF THE CHANGES AND SOME EXAMPLES, AS LISA MENTIONED, ABOUT VERY SUCCESSFUL TRANSFORMATIONS REALLY OF HOW AREAS AND PRODUCTS WORK. AND THEN FINALLY SOME OF THE FUTURE ISSUES, INCLUDING SOME FUTURE CAUTIONS. SO THE CENTER FOR RESPONSIBLE LENDING IS A POLICY ARM OF SELF HELP CREDIT UNIONS WHICH WAS STARTED IN 1980. THE COMMUNITY AND FINANCIAL DEVELOPMENT INSTITUTION. WE WERE FOUNDED TO ADDRESS THE RACIAL WEALTH GAP, WHICH IN 1980 WAS 10 TIMES ON AVERAGE FOR WHITE BLACK HOLDS AND TODAY IT STANDS THERE AND IS HEADED IN THE RIGHT DIRECTION STILL. OUR INITIAL FOCUS WAS ON SMALL BUSINESS LENDING AND MORTGAGE LENDING. SO WE DID A LOT OF MORTGAGE LENDING. TODAY WE OPERATE ABOUT 60 BRANCHES. HAVE ABOUT 150,000 RETAIL CUSTOMERS AROUND THE COUNTRY. WE PROVIDE THE FULL RANGE OF CONSUMER FINANCES. EVERYTHING FROM BAKE ACCOUNTS, CREDIT CARDS, HOME MORTGAGES, AND THEN AS WELL AS CONSUMER MORTGAGES. AND HOW WE GOT INTO THE POLICY BRANCH WAS OUR — IT WAS IN THE LATE 1990s. AND WE HAD EXPERIENCE OF BORROWERS THAT WE HAD PUT INTO HOME LOANS COME BACK TO US ON THE BRINK OF FORECLOSURE. AND WE LOOKED AT THESE AND THEY WERE TRULY UNBELIEVABLE. THEY WOULD HAVE DOUBLE DIGIT INTEREST RATES. TEN POINTS OR MORE OF UP FRONT FEES. CREDIT INSURANCE THROWN IN AT OUTRAGEOUS TERMS. AND AS ERIK MENTIONED, THEY WERE TOTALLY LEGAL AT THE TIME. AND SO WE TEND TO BE A WALKING GROUP. SOME PEOPLE TEND TO SAY A WELL DESIGNED SPREAD SHEET IS OUR VISION OF BEAUTY IN SELF HELP. [ LAUGHING ] >> SO WE SET OUT AS WE TEND TO DO AND SET OUT IN TERMS OF LAWYERS AND RESEARCHED THE OFFICES AROUND THE STATE TO SEE HOW WIDESPREAD. IS THIS JUST A HANDFUL OF FOLKS AND DID SOME OTHER RESEARCH. AND THE RESULTS WERE PRETTY ASTOUNDING. SO AT THE MACRO LEVEL, WE FOUND THAT IN NORTH CAROLINA, THE LEADING SUB PRIME MEMBER AT THE TIME, THE ASSOCIATES, HAD 88 OFFICES IN NORTH CAROLINA ALONE. WE’RE A DECENT SIZE STATE, BUT THAT’S A BUNCH OF OFFICES. ANOTHER THING WE LEARNED IS THE COMPANY WAS AN AFFILIATE, A DIVISION AT THE TIME AND TIED TO WHERE WE ARE TODAY, A FORD MOTOR COMPANY. AND IT WAS SO WILDLY PROFITABLE, THIS DIVISION WAS MAKING MORE MONEY THAN THE ENTIRE REST OF THE COMPANY, INCLUDING ALL OF THE CAR BUILDING AND SELLING AT THE TIME. SO THIS IS — YOU KNOW, THEY WRAP THIS UP. THIS IS ABOUT ACCESS. THIS WAS ALL ABOUT THE MONEY AND EXTRAORDINARY SUMS OF IT. AND THEN FINALLY, AND I’LL TIE THIS INTO ANOTHER POINT, WE FOUND LOOKING AT THE DEEDS THAT IN THE COURSE OF ABOUT THREE YEARS, THESE FOLKS HAD REFINANCED ONE IN FIVE OF THE HABITAT FOR HUMANITY HOMEOWNERS OUT OF — ZERO INTEREST MORTGAGES INTO THESE UNBELIEVABLY ABUSIVE MORTGAGES. AND YOU WOULD ASK WHY WOULD ANYBODY EVER GIVE UP THEIR ZERO INTEREST MORTGAGE. IT TURNED OUT THESE WERE THEIR PERFECT TARGET. BECAUSE THESE WERE OVERWHELMINGLY RE FINANCED LOANS TO PEOPLE WHO WERE STRUGGLING TO MAKE IT MONTH TO MONTH. AND THE HABITAT FOR HUMANITY OWNERS WERE HOUSE POOR. THEY HAD HOME EQUITY, VERY SMALL INCOME. THEY HAD OTHER CREDIT. CREDIT CARDS INSTALLMENT LOANS. AT THAT TIME PAY DAY LOANS WERE LEGAL IN NORTH CAROLINA. THANKFULLY NO MORE. AND THE SALES PITCH WAS REFINANCE YOUR HOME WITH US. WE’LL CATCH YOU UP ON ALL YOUR DEBTS. WE’RE GOING TO REFINANCE ALL OF THAT INTO YOUR HOME, SIGN THE PAPERS. YOU DON’T HAVE TO BRING ANY CASH TO CLOSING. BUT BURIED IN ALL OF THAT FINE PRINT IS YOU JUST LOST ALL OF YOUR HOME EQUITY. SO HABITAT WHEN THEY LEARNED OF THIS QUICKLY TOOK STEPS TO BLOCK THAT. BUT THE POINT ABOUT THE CRISIS AND TWO THINGS, JUST THE DEPTH OF THE CRISIS, AS MICHAEL AND THE OTHERS IN THE ADMINISTRATION KNEW, WE WERE WITHIN LIKE A WEEK OR TWO OF PEOPLE NOT GETTING THEIR PAYCHECKS. THAT THEY DID NOT PUBLICIZE THAT BECAUSE OF THE PANIC IT WOULD HAVE CREATED. BUT THE EXTRAORDINARY STEPS THAT WERE TAKEN WERE NOT JUST BECAUSE WE’RE GOING TO HAVE SOME BANKS FAIL. BUT IT WAS GOING TO BE A DEEP ECONOMIC WINTER WHERE PEOPLE COULDN’T BUY FOOD NEXT WEEK. I MEAN, WE WERE THAT CLOSE. AND THE CRAZY THING WAS THIS WAS NOT JUST AN AVOIDABLE CRISIS, IT WAS AN ENABLED CRISIS BY THE PEOPLE WHO WERE SUPPOSED TO STOP IT. SO LET ME GIVE YOU AN EXAMPLE. SO JUST FIRST HOW OUT OF WHACK THIS SYSTEM IS SO YOU UNDERSTAND HOW WE ENDED UP THERE. IN THE LINGO OF AGENCIES, THESE FINANCIAL REGULATORS WERE WHAT YOU WOULD CALL CAPTURED AGENCIES, MEANING THE INDUSTRIES THAT WERE SUPPOSED TO REGULATE REALLY CONTROL THEM. AND IN THIS SENSE, IT WAS LITERALLY TRUE TO AN EXTRAORDINARY EXTENT. SO AS ERIK EXPLAINED, YOU WERE — YOU COULD SOMETIMES YOU COULD PICK WHICH AGENCY WOULD BE YOUR REGULATOR. SO IN PARTICULAR IN THE WORLD OF BANKS, YOU GOT TO PICK WHETHER THE NATIONAL — GENERAL NATIONAL BANK REGULATOR, THE OCC, OFFICE OF COMPTROLLER CURRENCY, WAS YOUR REGULATOR. THIS WAS BIG FOR AGENCIES BECAUSE THE AGENCIES — AND THIS WAS DESIGNED TO GIVE THEM INDEPENDENCE, BUT IT HAD THIS PERVERSE EFFECT — THEIR BUDGETS WERE PAID 100% BY THE FEES OF THE BANKS THAT THEY REGULATE. AND SO THERE WAS THIS FAMOUS MOMENT WHERE COUNTRY WIDE, WHICH BECAME A VERY SUBSTANTIAL BANK, THOUGHT THAT THE OCC WAS DANTING TO PERHAPS CONSTRAIN SOME OF THEIR RECKLESS MORTGAGE LENDING. AND SO THEY SAID BASICALLY SO LONG. WE’RE MOVING TO THE OTFs. AND, BY THE WAY, THAT’S ONE-FOURTH OF YOUR OVERALL AGENCY BUDGET THAT’S GOING WITH US. AND THAT SENT SHOCK WAVES, SHOCK WAVES THROUGH THE AGENCIES. IT WAS WE WANT TO REMIND YOU WHO’S BOSS HERE AND DON’T FORGET IT. AND IT DID. AND LITERALLY, ALTHOUGH THIS STILL HAPPENS TODAY, IN PUBLIC SPEAKING AND WRITTEN DOCUMENTS, THE BANK AGENCIES REFERRED TO THE BANKS AS THEIR CUSTOMERS. AND THEY COMPETED BY WHO COULD BEST SERVE AND DEFEND THEIR CUSTOMERS. AND SO YOU SAW THIS HAPPEN IN A COUPLE OF WAYS. SO, FOR EXAMPLE, THE OCC AND OTHER AGENCIES DID THIS TOO. RATHER THAN, AS YOU’VE HEARD, NICK DESCRIBED WORKING WITH STATES, THEY SERVED AS DEFENDERS OF THEIR BANKS AGAINST STATE ENFORCEMENT ACTIONS. THE MOST WELL KNOWN OF THESE WERE — WAS WITH PROVIDIAN, A SUB-PRIME CREDIT CARD COMPANY. AND CALIFORNIA AG DID AN EXTENSIVE INVESTIGATION, FOUND WIDESPREAD ABUSES. AND THE OCC CAME IN AND SAID WE’LL TAKE OVER THE INVESTIGATION AND THEN ENTERED INTO A SWEETHEART SETTLEMENT WITH HIM. THEY SAW THEMSELVES, THAT WAS A SERVICE THAT THEY PROVIDED TO THEIR CUSTOMERS. THE OCC BY STATUTE HAS A GOOD BIT OF DISCRETION ABOUT PREEMPTING STATE LAWS AND SAYING BANKS, NATIONAL BANKS, DON’T HAVE TO COMPLY WITH STATE LAWS. IN THE CASE OF THE MORTGAGES AND USE OF MORTGAGES, THE STATES WERE STARTING TO NOTICE THIS PROBLEM. AND SO WE WORKED IN 1999 NORTH CAROLINA PASSED THE FIRST STATE PREDATORY LENDING LAW AND HAD SOME TOUGH PROVISIONS. WE PASSED OTHER ONES, WORKED WITH GROUPS. LISA WAS INVOLVED IN PASSING A NUMBER OF THESE. AND ULTIMATELY CLOSE TO TWO DOZEN OF THESE LAWS WERE PASSED. SO THE RESPONSE OF THE OCC IN RESPONSE TO THEIR REQUEST FROM THEIR CUSTOMERS WAS TO ISSUE A RULE SAYING THAT NATIONAL BANKS DID NOT HAVE TO COMPLY WITH ANY OF THESE STATE LAW PROTECTIONS AGAINST ABUSIVE MORTGAGES. AND THAT NOT ONLY PROTECTED THEM, IT CREATED AN UNEVEN PLAYING FIELD. AND SO THE STATE CHARTERED BANK STARTING GOING TO STATE LEGISLATORS AND SAYING WE WANT PARITY. IF THE NATIONAL BANKS GET EXEMPTION, YOU CAN’T TREATI US, THE LOCAL BANKS. AND THEN YOU HAVE THIS RAY CE O THE BOTTOM ON THE SCOPE OF REGULATION THERE. AND THEN GOING BACK TO OUR HABITAT EXAMPLE. THE FEDERAL RESERVE WAS IN A 1992 LAW WAS GIVEN THE RESPONSIBILITY AND THE AUTHORITY TO PROTECT AGAINST ABUSIVE MORTGAGE REFINANCING BY ANY ENTITY, BANK OR NON-BANK. AND THEY DIPPED THEIR TOE IN THIS WATER ONCE. AND THIS WAS IN EARLY 2000. THEY WERE KIND OF ASHAMED ABOUT WE WERE BEATING THEM AND OTHERS PRETTY HARD ABOUT THIS TIME. THEY WERE KIND OF ASHAMED ABOUT THE HABITAT REFINANCING. BECAUSE, YOU KNOW, PEOPLE WORKED FOR HABITAT VOLUNTEER. PEOPLE WERE PRETTY OUTRAGED. SO THEY PROPOSED A RULE THAT WOULD PUT RESTRICTIONS ON REFINANCING OF ZERO INTEREST MORTGAGES FROM NON-PROFITS ARE FROM GOVERNMENTAL ENTITIES WHICH WERE WIDESPREAD. PRETTY MODEST STEP. THEY DECIDED IT WAS A LEAP TOO FAR, THOUGH, AND WITHDREW THE PROPOSED RULE. IT TOOK NO ACTION WHATSOEVER TO PROTECT THOSE BORROWERS AFTER SHOWING THE ABUSES THERE. THE OTHER THING THAT WAS DONE WAS THERE WAS BASICALLY AN UNWRITTEN BUT WIDELY RECOGNIZED RULE WITHIN THE — WITHIN THESE REGULATORS WOULD BE THE ONLY STANDARDS THAT THEY WOULD ISSUE WERE VEAGUE ASPIRATIONAL STATEMENTS. BECAUSE THEIR FEAR WAS, FIRST OF ALL, THE BANKS WANTED TO HAVE A LOOSE STANDARD THAT THEY WOULD BE JUDGED BY BY THE SUPERVISOR. BUT ALSO UNDER THE LEGAL STANDARDS, YOU COULD USE NATIONAL BANK RULES AS AN EXAMPLE. AND STATES DID THIS IN PRIVATE LITIGANTS DID TOO COULD BE EVIDENCE THAT SOMETHING WAS AN UNFAIR TRADE PRACTICE. AND SO THE BANKS DIDN’T WANT ANY STANDARDS THERE BY THE REGULATORS THAT COULD BE USED BY STATE AGs OR PRIVATE LITIGANTS. AND SO, FOR EXAMPLE, THE OCC RESPONSE ON THESE PREDATORY LOANS IS TO SAY BANKS SHOULD NOT CHARGE UNREASONABLE FEES. THAT IS AS FAR AS THEY WENT. AND THE BANKS WERE ADAMANT THAT THEY SHOULD NOT HAVE ANYTHING CLOSE TO A BRIGHT LINE STANDARD, WHICH IS, AS WE’LL TALK ABOUT A LITTLE LATER, WHEN THEY HAD A REAL ENFORCER LIKE DIRECTOR CORDRAY, THEY SUDDENLY WANTED VERY SPECIFIC STANDARDS. [ LAUGHING ] >> THEY’RE LIMITED HOW FAR. AND, YOU KNOW, SO IT’S — [ LAUGHING ]>> IT’S BASICALLY HOW MUCH IT CHANGED. SO ABOUT ALL OF THIS GOING ON, THE OTHER THING I’LL SAY REAL QUICKLY, CRL, THIS WAS — THERE WAS A LOT OF EVIDENCE AND A LOT OF PEOPLE KNEW THIS WAS THE HOUSE OF CARDS THAT WAS GOING TO COLLAPSE. CRL USING INDUSTRY DATA PUBLISHED A REPORT IN 2006 WHEN WE SAID THERE WOULD BE TWO — WELL OVER 2 MILLION FORECLOSURES OF SUB-PRIME LOANS, AND WE THOUGHT THAT WAS A VERY LOW ESTIMATE. THE RESPONSE OF INDUSTRY WAS TO REQUEST A GAO STUDY AGAINST US FOR SO DISRUPTING THIS WELL-FUNCTIONING MORTGAGE MARKET. FOR THOSE OF YOU WHO SAW THE BIG SHORT, IT REALLY IS ACCURATE. LISA HAS A CLOSE FRIEND WHO WAS THE PRIME CHARACTER IN THE BIG SHORT. AND IT REALLY WAS THAT CRAZY AT GROUND LEVEL. SO YOU WOULD THINK AFTER THE COMING GOES TO THE EDGE OF THE ABYSS THAT INDUSTRY WOULD BE ABLE TO CHASE THEM. THAT THERE WOULD BE THIS CONSENSUS THAT WE NEEDED TO CHANGE THINGS. WELCOME TO WASHINGTON DC. [ LAUGHING ] >> SO NOT SAID IS THE DODD-FRANK ACT PASSED. BUT INDUSTRY VILIFIED, NOT ALL OF THEM, LET ME BE CLEAR, BUT TO A VERY LARGE PERCENT, VILIFIED THE EFFORT AND MICHAEL BAR. I REMEMBER INDUSTRY MEMBERS COMING AND SAYING THAT MICHAEL BAR, THE GULL OF HIM. WE ASKED FOR CHANGES IN THE BILL AND HE SAYS, WELL, WILL YOU SUPPORT THE BILL IF I GIVE YOU THE CHANGES. AND THEN HE WON’T GIVE THEM TO US UNLESS WE’RE GOING TO SUPPORT THE BILL. [ LAUGHING ] >> AND THEY’RE LIKE THE GULL OF HIM. AND I HAD THAT HAPPEN ON MULTIPLE OCCASIONS. AND THE BILL ULTIMATELY PASSES BY A RAZOR-THIN MARGIN. I MEAN, IT WAS DOWN TO THE VERY LAST VOTES. SO THAT IS — THAT IS THE STATE OF WHERE WE WERE WHEN THE CFPB WAS PASSED. AND FOR US AND WITHIN OUR SHOP, WE TALK ABOUT CREATION OF CFPB IS SIMILAR TO THE CREATION OF THE EPA AND HOW IT REALLY WAS A MILESTONE IN HOW THIS COUNTRY LOOKED AT THE ENVIRONMENTAL PROBLEMS, A RECOGNITION OF THE IMPACT OF IT AND THE NEED OF COORDINATED SCOPE. AND IT REALLY — EVEN IN UNFRIENDLY ADMINISTRATIONS, IT REALLY HAS CHANGED HOW THE COUNTRY LOOKS AT ENVIRONMENTAL REGULATION. SO GOING QUICKLY BECAUSE I WANT TO LEAVE TIME FOR QUESTIONS FROM THIS QUITE KNOWLEDGEABLE AND EXPERT AUDIENCE, THE CHANGES REALLY WERE SEE CHANGES PARTICULARLY WHEN YOU LOOK BACK AT JUST HOW AMAZINGLY DYSFUNCTIONAL THE SYSTEM WAS. AND THEN THE OTHER PART OF IT, WHICH ABOUT THE WELCOME TO WASHINGTON, YOU ALSO HAD WHAT CONSIDER CONSIDERED CAPTURED COMMITTEES. SO THE WAY YOU DO THINGS IN WASHINGTON, IF YOU’RE A BANK, YOU GIVE ALL YOUR POLITICAL CONTRIBUTIONS TO THE BANKING COMMITTEE MEMBERS AND LEADERSHIP. AND SO THE BANKING COMMITTEE MEMBERS ARE EXPECTED TO PRIMARILY RAISE THEIR CAMPAIGN CONTRIBUTIONS FROM THE INDUSTRY THAT THEY REGULATE. IN FACT, THERE ARE EVEN SOME COMMITTEES WHERE YOU ONLY CAN GET ON ONE BECAUSE THEY’RE SO LUCRATIVE FOR FUNDRAISING. AND SO IT’S VERY HARD TO GET ANYTHING THROUGH THOSE COMMITTEES. SO, FOR EXAMPLE, THE MILITARY LENDING ACT DID NOT GO THROUGH THE NORMAL COMMITTEE STRUCTURE BECAUSE IT WOULDN’T HAVE MADE IT THROUGH. WE COULDN’T GET A HEARING THROUGH THE MATRIX COMMITTEE STRUCTURE. IT WENT THROUGH AS AN AMENDMENT TO THE DEFENSE APPROPRIATIONS ACT. SO IT WENT THROUGH ARMED SERVICES. I’LL GIVE A SHOT OUT TO NOT ONLY SENATOR SHELBY WHO SIGNED OFF ON IT AND DID NOT REQUIRE IT TO GO THROUGH HIS COMMITTEE. BECAUSE HE KNEW IT WOULDN’T GET THROUGH HIS COMMITTEE AND HE WANTED IT TO PASS. SO THE BIG CHANGES, THE NON-BANK SUPERVISION IS THE HUGE CHANGE BECAUSE SO MUCH OF THE BAD ACTIVITY WAS THERE. AND THAT IS STILL CONTINUING. THE PUBLIC COMPLAINT DATABASE, LIKEWISE, WE TALKED WITH LENDERS. AND MOST OF THE MAJOR BANKS HAVE OFFICIAL PROGRAMS DESIGNED TO PREVENT COMPLAINTS FROM CUSTOMERS FROM ESCALATING FROM A COMPLAINT BEING FILED WITH THE BUREAU. AND SO THAT’S PART OF WHAT LISA WAS DESCRIBING AND NICK THAT PEOPLE FIND THAT FILING THESE COMPLAINTS WITH THE BUREAU IS REMA REMARKABLY EFFECTIVE AND SIMPLY RAISING THE THREAT OF FILING A COMPLAINT WITH THE BUREAU IS VERY EFFECTIVE WITHIN THE INSTITUTIONS THEMSELVES. THE ENFORCEMENT, AS I SAID, THE INDUSTRY NOW WANTS TO CABIN ENFORCEMENT BY HAVING THE RULES AS SPECIFIC AS POSSIBLE. AND THEN THE AG ENFORCEMENT. I MEAN, ONE OF THE NOT WIDELY RECOGNIZED PROVISIONS OF DODD-FRANK AT THE TIME OF CFPB IS IT SPECIFICALLY AUTHORIZED AGs TO ENFORCE THE RULES AND THE UDAP AUTHORITY OF THE CFPB THAT WAS PUT IN THERE PRECISELY FOR THESE TIMES WHEN WE KNEW — WHEN WE WERE PASSING WORKING ON DODD-FRANK AND CFPB, WE ALWAYS SAID THERE WILL BE A JAMES WATT HEAD OF THE CFPB. AND THAT’S JUST LIFE IN WASHINGTON DC FOR THOSE OF YOU WHO ALL REMEMBER HIM AS HEAD OF THE INTERIOR WHERE HE WAS PRETTY MUCH WANTED TO NULLIFY THE AGENCY AT THE TIME. AND SO THERE WERE SAFEGUARDS TO BE BUILT IN THERE TO THE EXTENT THEY COULD. AND I WANT TO — YOU KNOW, THE ONE REFORM — I THINK THE IDEA OF BLOWING UP THE CFPB IS UNLIKELY, AS LISA SAID. BUT I DO WANT TO REMIND PEOPLE THAT TWO YEARS AGO THERE WERE OPEN PLANS OF USING SPECIAL PROCEDURES, BUDGET RECONCILIATION TO, IN FACT, ABOLISH THE CFPB AND DISTRIBUTE ITS STAFFS BACK TO THE PREVIOUS AGENCIES THAT HAVE BEEN INEFFECTIVE. IT WAS THE GREAT WORK CFPB HAD DONE THAT MADE THAT POLITICALLY UNPOPULAR, AS WELL AS A LOT OF WORK BY GROUPS. I THINK THE ONLY — THE TWO THREATS THAT ARE OUT THERE NOW, I THINK ONE THAT GETS LESS POPULARITY IS GOING TO A COMMISSION RATHER THAN A SINGLE DIRECTOR. MANY OF US ARE VERY STRONGLY AGAINST THE COMMISSION BECAUSE WE HAVE SEEN THAT THE COMMISSIONS ARE SORT OF THE WORST OF BOTH WORLDS. THAT IF YOU — THE COMMISSIONS DID NOT DO SO WELL UNDER THE OBAMA ADMINISTRATION. AND THEY WOULD DO JUST AS POORLY TODAY LOADED UP WITH APPOINTMENTS FROM THE CURRENT ADMINISTRATION. AND ONE OF THE IRONIES IS THE MODEL FOR THE CFPB STRUCTURE WAS TAKEN FROM THE REGULATOR OF THE FEDERAL HOUSING FINANCE SYSTEM, INCLUDING FANNY AND FREDDIE MAC. AND THAT BILL WAS DRAFTED IN LARGE PART BY REPUBLICANS WHO SPECIFICALLY SOUGHT A SINGLE DIRECTOR BECAUSE THEY KNEW THAT’S WHAT THEY NEEDED TO HAVE EFFECTIVE ACCOUNTABILITY AND OVERSIGHT OF FANNIE MAE AND FREDDIE MAC WHO THEY WANTED REIGNED IN. SO THAT WAS CLOSELY COPIED FOR THE CFPB, AND I THINK THE SAME REASONING APPLIES THAT IF YOU WANT THE EFFECTIVENESS AND ACCOUNTABILITY. THE OTHER IS SOME THREAT THAT THEY WERE TRYING TO PUT IT UNDER APPROPRIATIONS WHICH WOULD HUGELY WEAKEN IT. BECAUSE THEN YOU GET BUDGET WRITERS. SO, FOR EXAMPLE, IN THIS WHOLE HOUSING CRISIS, LISA TALKED ABOUT IT AND NICK TALKED ABOUT THE MORTGAGE BROKERS WERE SELLING THESE LOANS AND GOT INCENTIVES. THEY GOT PAID TWICE AS MUCH TO SELL YOU ONE OF THESE RISKY LOANS. IF THEY SOLD YOU A STANDARD 30 YEAR FIXED RATE PRIME LOAN. WELL, HUD STARTED TO REGULATE THAT PRACTICE. AND SO THE BROKERS WENT AND GOT A BUDGET WRITER PUT ON HUD’S BUDGET SAYING THEY COULDN’T REGULATE THE BROKERS. AND SO THAT’S ANOTHER REASON WHY WE’RE SO CONCERNED ABOUT EVER GETTING TO APPROPRIATED FUNDING. SO LET ME QUICKLY GO THROUGH A COUPLE OF PLACES WHERE — I MEAN, YOU’VE SEEN REAL C CHANGES. ONE IS IN MORTGAGE, BOTH ORIGINATION AND SERVICING. IT IS JUST A TOTALLY DIFFERENT WORLD. MORTGAGES ARE FUNDAMENTALLY SAFER. BORROWERS ARE TREATED FUNDAMENTALLY BETTER. AND MOST IN INDUSTRY AGREE THAT IT IS A BETTER SYSTEM. THERE ARE PLACES WHERE THEY WANT TWEAKS AROUND THE EDGES. BUT IN GENERAL THEY THINK THE CFPB WAS CERTAINLY VERY CLOSE TO THE MARK IN THE REGULATIONS THERE. ANOTHER WOULD BE WITH CREDIT CARDS WHERE, AS I THINK YOU ALL REMEMBER, IT WAS A PRETTY DYSFUNCTIONAL WILD, WILD WEST MARKET. AND A COUPLE OF THE PRACTICES WERE THINGS LIKE THE ESCALATING LATE FEES. THEY WERE MAKING A THIRD OF THEIR TOTAL REVENUES OFF OF FEES RATHER THAN THE INTEREST THEY CHARGED. THEY WOULD GIVE YOU A TEASER RATE AND THEN RAISE THE RATE ON YOUR BALANCES. IN MOST PARTICULARLY FOR BORROWERS WHO WERE LESS WEALTHY, IT WAS HARD FOR THEM TO MOVE THOSE BALANCES AT TIMES. SO THEY WERE JUST STUCK WITH THE HIGHER PAYMENT. AND THEN THE ONE THAT SORT OF BROUGHT IT TO THE HEAD WERE THESE OFFERS OF FREE FINANCING. ZERO INTEREST FINANCING FOR SIX MONTHS OR A YEAR. AND THIS IS WHERE THERE’S SOME ALIGNMENT WITH INDUSTRY THAT THE INDUSTRY WORRIES ABOUT THE RATES AT THE BOTTOM THAT THEY SAW IN THE MORTGAGE WHERE IF YOU DID NOT HAVE TEASER RATES, YOU COULD NOT COMPETE BECAUSE THEY LOOKED CHEAPER TO BORROWERS. WE ACTUALLY HAD CREDIT CARD COMPANIES COME TO US BEFORE DODD-FRANK AND ASK US TO WORK ON CREDIT CARD LEGISLATION BECAUSE THEY COULD NOT COMPETE FAIRLY WITH EACH OTHER AND JUST WERE CANNIBALIZING EACH OTHER’S BUSINESS TO MEET THE MARKETING PLOYS, THEY HAD TO MAKE THESE WILD OFFERS. BUT TO MAKE THE NUMBERS WORK, THEY HAD TO LOAD IN FINE PRINT SO THAT NOBODY WOULD ACTUALLY QUALIFY TO ACHIEVE ALL OF THOSE BENEFITS. AND THEY DIDN’T LIKE THAT. SO TO WIND UP HERE WITH SOME — THE ISSUES GOING FORWARD, I THINK OVERDRAFT, STUDENT LENDING. WADE HENDERSON IS GOING TO TALK ABOUT STUDENT LENDING IS A THREAT ON THE MAGNITUDE OF THE SUB-PRIME MORTGAGE CRISIS FOR COMMUNITIES OF COLOR. ARBITRATION. THE CFPB DID ITS PART AND PUT OUT A RULE. WE NEED TO CONTINUE TO FIGHT AGAINST MANDATORY ARBITRATION. AND THEN TWO AREAS LISA HAS TALKED ABOUT THESE PROPOSALS TO CHANGE, IF YOU WILL, HOW THE BUREAU OPERATES AND WHAT SOME OF THE FOUNDATIONAL RULES ARE. LIKE WHAT IS THE SCOPE. THE PAY DAY RULE IS IN LARGE — THE EFFORTS BY CFPB TO REWIND AND REPEAL THE PAY DAY RULE IS IN LARGE PART AN ATTEMPT TO REWRITE THE STANDARD AND GREATLY WEAKEN THE STANDARD OF WHAT’S AN UNFAIR, DECEPTIVE TRADE PRACTICE AND HOW DO YOU PROVE IT. AND WE THINK TOTALLY UNJUSTIFIED, ILLEGAL WAY. ANOTHER AREA THAT CUTS ACROSS AND MAYBE ONE OF OUR SPEAKERS LISA RICE WILL BE HERE TOMORROW, IS DESPERATE IMPACT. THAT HUD IS COMING OUT WITH A RULE THAT TRIES TO NOT REPEAL IT BUT TO MAKE IT TOTALLY INEFF INEFFECTIVE, WHICH WOULD BE A HUGE SETBACK ACROSS THE WHOLE BOARD FOR CIVIL RIGHTS ENFORCEMENT. SO SOMETIMES — IN CONCLUSION, SOMETIMES CONSUMER PROTECTION IS COMPARED, AND NICK CAN RELATE TO THIS AS HACKING BACK THE JUNGLE. THERE IS A WHOLE COTTAGE INDUSTRY COMING UP WITH NEW TWISTS AND TURNS OF HOW DO YOU TAKE ADVANTAGE OF CONSUMERS. THESE ADMINISTRATIVE CHANGES I AGREE TOTALLY WITH LISA ABOUT HOW FUNDAMENTAL THEY HAVE AND I THINK HOW STICKY THEY ARE. AND ONE CAUTIONARY TALE ABOUT NOT LETTING OUR GUARD DOWN. IN THE 1970s FOR THOSE OF US DOING CONSUMER PROTECTION WORK BACK THEN, THERE WERE TWO EVENTS. ONE WAS RALPH NADER PROPOSED A CONSUMER PROTECTION AGENCY. IT PASSED ONE HOUSE IN ’75. THE DECISION WAS TO NOT COMPROMISE BECAUSE THEY WERE GOING TO PASS IT AFTER CARTER GOT ELECTED. AFTER CARTER GOT ELECTED, INDUSTRY RAISED THE HUGE CAMPAIGN AND KILLED THE BILL AND IT DIED. AT THE SAME TIME, THE FTC WASN’T AS LIMITED IN RULE MAKING AUTHORITY WHEN IT WAS ORIGINALLY SET UP AS IT IS TODAY. IN FACT, IT HAD VAST RULE MAKING AUTHORITY IN THE ’70s. AND UNDERTOOK A RANGE OF RULE MAKING ACROSS FUNERAL SERVICES, ILLEGALLY BUNDLED AND DECEPTIVELY PRESENTED. USED CAR SALES. THEY WERE ADDRESSING ALL OF THOSE. AND LED BY THE CHAMBER OF COMMERCE, THEY TOOK — ESSENTIALLY TOOK AWAY THE RULE MAKING AUTHORITY. THEY LIMITED TECHNICALLY TO “JUDICIAL RULE MAKING” WHICH IS NOT THE ORDINARY RULE MAKING AND HAS NOT BEEN USED SINCE. SO THESE AUTHORITIES CAN BE TAKEN AWAY. WE NEED TO BE VIGILANT. BECAUSE THE BENEFIT OF THE CFPB FOR CONSUMERS AND OVERALL ECONOMY HAS BEEN EXTRAORDINARY AND WE NEED TO MAKE SURE IT CONTINUES.>>THANKS, MIKE. SHOULD WE OPEN IT UP TO QUESTIONS TO THE AUDIENCE? [ INAUDIBLE ].>>WHERE IS THE MIC? J J .>>THANK YOU SO MUCH. I’M LISA SERVON. I HAVE A QUESTION THAT DOESN’T PROBABLY HAVE AN EASY ANSWER. I’M IN THE INCLUSION IN THE U.S. AND UK. AND ONE OF THE THINGS, THERE’S A LOT OF SIMILARITIES IN THE ENVIRONMENT AND THE AGENCIES AND POLICIES THAT HAVE BEEN CREATED TO DEAL WITH THESE ISSUES. ONE OF THE THINGS THAT REALLY SURPRISED ME THE MOST, THOUGH, WAS THE EXTENT TO WHICH THE FIRMS THAT ARE REGULATED BY THE FCA, THE FINANCIAL CONDUCT AUTHORITY THERE, APPROVE OF THE MISSION AND HAVE REALLY BOUGHT INTO IT. SO I OPENED MY LAPTOP. SO 68% OF THOSE FARMS RATE THE OVERALL EFFECTIVENESS OF THE FDA BETWEEN A 7 AND A 10. 10 BEING THE HIGHEST. AND FOR THOSE CLAIMING A LOW EFFECTIVENESS RATING, 1 TO 3, 24% SAID THAT THE FCA SHOULD BE DOING MORE TO PREVENT WRONGDOING. THAT’S WHY THEY RATED IT LOW. AND SO IT’S CLEARLY A REALLY DIFFERENT ENVIRONMENT THAN IT IS HERE. EVEN THOUGH THERE’S SO MUCH SIMILARITY IN THE CONTEXT. AND, AGAIN, I DON’T THINK THERE’S AN EASY ANSWER. BUT I WONDER IF YOU COULD JUST SPECULATE ON THAT. AND WHY THERE ISN’T MORE BUY-IN. I MEAN, THERE ARE OBVIOUS ANSWERS, BUT THERE’S OBVIOUS ANSWERS THERE TOO THAT HAVE NOT TURNED OUT TO BE THE TRUTH IN TERMS OF WHY THERE’S SUCH SUPPORT.>>DOES ANYBODY KNOW THINKING ABOUT THE FCA?>>SO I WOULD JUMP IN SOME BECAUSE PAY DAY LENDING.>>YES.>>YOU HAVE A LOT OF INTERNATIONAL — PAY DAY LENDING IS NOT SO MUCH MA AND PA AS IT IS BIG INTERNATIONAL FINANCIAL COMPANIES. AND A NUMBER OF THOSE AND INSTALLMENT LENDERS OPERATE THE U.K. AND U.S. MARKETS. I THINK SOME OF IT IS YOU LOOK AT THE U.K. AND EUROPE MORE BROADLY IS THERE’S AN EXPECTATION OF GREATER GOVERNMENT OVERSIGHT AND REGULATION. YOU LOOK ACROSS THE BOARD, THEY DON’T TOLERATE THE INTERCHANGE FEE MONOPOLY THAT WE HAVE HERE. THEIR PRIVACY STANDARDS ARE MUCH GREATER. AND SO I THINK A LOT OF IT IS JUST A BASELINE. THERE’S AN EXPECTATION AMONG BOTH CONSUMERS AND INDUSTRY THAT THERE WILL BE RULES OF THE ROAD AND YOU’RE NOT OUT THERE TO DEFEND ON YOUR OWN OR DO WHATEVER YOU WANT.>>THANK YOU.>>I COULD ADD, IT’S NOT DIRECTLY IN RESPONSE TO YOUR QUESTION, BUT I THINK THERE’S SUPPORT FROM THE BANKING INDUSTRY FOR TO BE LOOKING ACROSS BANK AND NON-BANK MARKETS DOING SIMILAR THING WITH THE SAME LEVEL OF OVERSIGHT THROUGH SUPERVISION. SO PREVIOUS TO THE CFPB, THERE WAS OFTEN THIS TERM USED THAT THEY’RE NOT REGULATED. THE NON-BANKS ARE NOT REGULATED. THAT ALWAYS BOTHERED ME. OF COURSE, THEY’RE SUBJECT TO THE SAME LAWS AND REGULATIONS. I THINK WHAT PEOPLE MEANT BY THAT IS THEY’RE NOT OVER SEEN IN THE SAME WAY IN THE WAY YOU DESCRIBE WHERE THERE’S SOMEONE REALLY KIND OF OVERSEEING THEIR COMPLIANCE AND TRYING TO ENSURE THAT THEY HAVE COMPLIANCE MANAGED SYSTEM IN PLACE TO TRY TO PROACTIVELY COMPLY. NOT JUST WAITING TO GET CAUGHT. AND SO I THINK THERE IS SUPPORT FOR THAT CONSISTENT LOOK. AND IT’S PARTICULARLY IMPORTANT IN THE MORTGAGE MARKETS WITH THE GROWTH OF THE NON-BANK SECTOR AND MORTGAGE ORIGINATION. AND THAT HAS BEEN THE CASE FOR A WHILE IN MORTGAGE SERVICING, BUT THAT’S GETTING EVEN STRONGER, I THINK.>>THAT WAS GREAT. IT’S REALLY SORT OF WORRISOME TO GO DOWN HISTORY ROAD LIKE YOU ALL HAVE JUST TAKEN US. THE QUESTION I HAVE IS A COUPLE OF THEM. ONE, LISA, YOU SUGGESTED THAT THE CFPB AND THE EFFORTS BEHIND CONSUMER PROTECTION SHOULD HAVE ACTUALLY GONE FURTHER THAN THEY DID IN THE OBAMA ADMINISTRATION UNDER THE DIRECTOR. IT WOULD BE GREAT TO HEAR YOU TALK ABOUT THAT. MIKE, THE OTHER NIGHT I SAT DOWN FOR ENTERTAINMENT TO WATCH ON HBO THE UNTOLD STORY OF THE 2008 FINANCIAL CRISES. [ LAUGHING ] >> I DIDN’T SEE YOU IN IT, MICHAEL. [ LAUGHING ] >> I CAN — AND I WAS WATCHING IT WITH SOMEBODY WHO IS NOT IN OUR FIELD. AND HE’S LIKE DIDN’T THE GOVERNMENT KNOW WHAT WAS HAPPENING? LIKE, YOU KNOW, HOW WAS THIS NOT KNOWN? AND I REMEMBER A CONFERENCE THAT BEN BURNACKE WAS ASKED ABOUT IN 2007, LOOK WHAT’S HAPPENING IN THESE LOW INCOME COMMUNITIES. AND THE ANSWER WASN’T QUITE FULFILLING AT THAT POINT. NOW THAT WE’RE TEN YEARS POST, WHAT WOULD YOU SAY ABOUT LIKE WHAT WAS KNOWN, WHAT WAS IGNORED, NOTWITHSTANDING ALL OF THE POINTS YOU JUST MADE ABOUT CAPTIVE. BUT LIKE WHAT HAPPENED? ALL OF YOU.>>RIGHT. I ACTUALLY WANT TO START WITH THAT SECOND QUESTION TOO.>>IS YOUR MIC ON?>>OOPS. CAN YOU HEAR? IS IT ON NOW. YEAH. BECAUSE I THINK LOTS OF US HAVE THINGS TO SAY ABOUT WHAT WAS KNOWN. AND I DO THINK IT’S A VERY IMPORTANT STORY. AND THERE’S A COUPLE OF PIECES OF IT THAT FEEL EVEN MORE VIVID TO ME IN RETROSPECT THAN THEY DO AT THE TIME. I THINK AS MIKE WAS SAYING, WE — THERE WAS PLAIN AS DAY EVIDENCE OF THE FORECLOSURES THAT WERE EXPANDING IN THOSE COMMUNITIES, PRIMARILY COMMUNITIES OF COLOR AND LOW INCOME COMMUNITIES THAT WERE TARGETED WITH PREDATORY LOANS. EVEN BEFORE THOSE FORECLOSURES STARTED, THERE WAS PLAIN AS DAY EVIDENCE OF THE STRUCTURALLY ABUSIVE FEATURES OF THE MORTGAGES BEING SOLD, BOTH ON THE ABILITY TO PAY SIDE AND ON THE EQUITY EXTRACTING HIGH FEES AND PREPAYMENT PENALTIES SIDE. AND ON THE KIND OF STRUCTURAL INCENTIVES TO SCREW IT UP. COSTS CREATED, BY THE WAY, BY THE PREMIUM SYSTEM AND THE WAY THAT PEOPLE WERE PAID. SO PEOPLE KNEW IT FROM THEIR LIVED EXPERIENCE. THEY KNEW IT BECAUSE THEY SHOULD HAVE KNOWN IT BECAUSE THE EVIDENCE WAS NOT THAT HARD TO FIND. AND THEY KNEW IT BECAUSE THEY SHOULD HAVE KNOWN IT BECAUSE PEOPLE WERE BRINGING IT TO THE REGULATORS. AND THE RESPONSE FROM THE REGULATORS IN MY EXPERIENCE WAS VERY OFTEN TO SORT OF REFUSE TO LOOK AT THE EVIDENCE THAT THEY HAD AND TO SAY THAT’S JUST WHAT YOU’RE BRINGING US. THIS IS JUST ANECDOTE. BRING US DATA. WHICH WAS A PARTICULARLY TERRIBLE ANSWER WHEN THEY, IN FACT, COULD HAVE GOTTEN THE DATA, HAD THEY CHOSEN TO. AND HUD DID DO ONE — WE TALKED ABOUT THIS LAST NIGHT A SECOND. YOU KNOW, THROUGH MUCH, MUCH, MUCH ADVOCACY, HUD DID A REPORT, PRETTY MODEST CAREFUL REPORT. THEY WERE NEVER ABLE TO MAKE IT INTO ANYTHING. AND SO THERE WAS — IT WAS AN EXTRAORDINARILY WILLFUL FAILURE TO KNOW, BECAUSE THERE WAS SO MUCH MONEY BEING MADE ON THE OTHER SIDE. IT WAS ENORMOUSLY PROFITABLE AND PEOPLE DID NOT WANT IT TO STOP. AND SO THEY DIDN’T SPEND IT. AND NONE OF THE PEOPLE –>>DID THEY SEE IT WAS GOING TO GET — EVERYBODY THOUGHT PRICES WERE — EVALUATIONS WERE GOING TO KEEP GOING UP.>>YEAH. IT’S HARD NOT TO GO BACK TO — IT’S HARD FOR PEOPLE TO BELIEVE THINGS THAT THEY ARE PAID NOT TO BELIEVE. AND THAT PEOPLE WITH FANCY DEGREES AND FANCY SUITS TOLD THEM NOT TO BELIEVE. AND WHEN THE PEOPLE WHO WERE HURT FIRST WERE NOT THEIR NEIGHBORS.>>IT REALLY WAS FINANCIAL. YOU CANNOT BELIEVE THE AMOUNT OF MONEY AGAIN SO — I MEAN, WHAT WE OFTEN USED OUR TESTIMONY WE HAD FROM LENDERS IN THE BUSINESS SAID I GET PAID TWICE AS MUCH FOR DOING A NO DOCK LONE AS I DO FOR DOING A DOCUMENTED LOAN. IT’S LESS WORK. AND THE REASON IS BECAUSE THEY DIDN’T REALIZE THIS, THE NO DOCK LOANS, THE OPTION ARM LOANS, THESE 228 LOANS ALL CARRIED HIGHER INTEREST RATES THAN A REGULAR 30 YEAR, FIXED RATE MORTGAGE. BORROWERS OFTEN DIDN’T UNDERSTAND THAT. BUT WE OFTEN FOUND BORROWERS WOULD GIVE FULL DOCUMENTATION FOR THEIR LOANS AND DIDN’T EVEN KNOW THEY GOT A NO DOCK LOAN. AND THE LENDERS HAD RULES DO NOT INCLUDE ANY OF THE DOCUMENTATION PAPERS IN THE FILE. BECAUSE THEY ALSO DIDN’T WANT TO SHOW THE MISMATCH. AND THEN EVEN AT THE REGULATOR LEVEL, THE REPORTS IN 2007, THE REGULATORS BRAGGED THAT THEY HAD SET A RECORD FOR THE LOWEST NUMBER OF BANK FAILURES. THE LONGEST STREAM OF LOW BANK FAILURES BECAUSE ALL OF THIS MONEY WAS POURING IN. THE LOSSES HADN’T HIT YET. BUT THE EXTRAORDINARY AMOUNTS OF MONEY. SO THE BROKER GETS PAID MORE, THE LENDER GETS PAID MORE, THE SECURE TIESER GETS PAID MORE. AND THE YIELD IS BETTER THAN WHAT THEY SUDDEN.>>AND THEY ALL WANTED VOLUME. MORE AND MORE AND MORE OF IT.>>SO WE HAD — I REMEMBER THE PROBLEM — THIS IS WHERE THEY DID NOT HAVE ENOUGH LOANS. THERE WAS SO MUCH DEMAND. SO BIG ESTABLISHED FIRMS, BERR-STERN CAME TO US AND TALKED TO US AND WE SAID STAY AWAY FROM US. THEY SET UP A MORTGAGE COMPANY AND THEY NEEDED RAW MATERIALS FOR THESE LOANS. EVEN THAT WASN’T ENOUGH. SO THEY SET UP — THEY SET UP WHAT’S THE FINANCIAL EQUIVALENT OF FANTASY FOOTBALL FOR SUB-PRIME MORTGAGES WHERE YOU COULD BET AND BUY SECURITIES, SYNTHETIC SECURITIES, BASED ON HOW THESE MORTGAGES PERFORMED, EVEN THOUGH THEY WEREN’T DIRECTLY TIED TO THE MORTGAGES BECAUSE THERE WEREN’T ENOUGH MORTGAGES TO GO AROUND, BECAUSE EVERYBODY WANTED IN ON THIS BONANZA AND FEEDING FRENZY.>>AND WHEN YOU TALK TO — WHEN YOU TALK TO DIFFERENT INSTITUTIONS, WHEN WE CONFRONTED, YOU KNOW, EVERYBODY PRETENDED THAT THEY WEREN’T RESPONSIBLE. AND THEY WERE JUST — THEY WERE JUST ONE PART OF A SYSTEM THAT SOMEBODY ELSE CONTROLLED. SO, YOU KNOW, THE LENDERS WHO WERE USING THE WALL STREET MONEY WOULD SAY THIS IS HOW THE MONEY COMES TO US. WE HAVE NO CHOICE. THIS IS HOW WE DO IT. AND THE WALL STREET MONEY WOULD SAY WE’RE NOT MAKING THE LOANS. WE CAN’T TELL THEM WHAT TO DO.>>WHICH COMES DOWN TO THE QUESTION.>>BUT THERE IS SOME TRUTH IN THAT. I MEAN, SO WE WERE A MORTGAGE LENDER. AND WE SAW 80% OF OUR VOLUME GO AWAY. BECAUSE WE WERE TELLING PEOPLE HERE IS A GOOD, FULLY DOCUMENTED SAFE 30 YEAR FIXED-RATE MORTGAGE, AND THE BROKER WAS SAYING DON’T GIVE ME YOUR DOCUMENTATION. I’M GOING TO GIVE YOU THIS TEASER RATE MORTGAGE THAT DOESN’T ESCROW THROUGH YOUR TAXES, ET CETERA. IT LOOKS CHEAPER. AND IT IS VERY HARD IN THE INDUSTRY WHEN THERE’S A RACE TO THE BOTTOM TO SAY, NO, I’M JUST GOING TO GIVE UP ALL OF THAT MARKET SHARE AND STAY WITH MY STANDARDS. AND SO THERE HAS BEEN SOME CONVERSION WITHIN THE INDUSTRY THAT THEY RECOGNIZED IT’S ACTUALLY BETTER BUSINESS MODEL FOR THEM TO HAVE REASONABLE BASIC RULES OF THE ROAD. I DO THINK THERE HAS BEEN A CHANGE. AND, AS I SAY, THE BIG BANKS ARE NOT ASKING TO ROLE BACK THE CREDIT CARD RULES. THE BASIC OF THE MORTGAGE, ORIGINATION SERVICING RULES.>>AND ANOTHER QUESTION, IT WASN’T SO MUCH MEANT — YOU KNOW, THERE WAS — THERE WERE MORE RULES YET TO BE WRITTEN AT THE BUREAU. AND A BUNCH OF IMPORTANT STUFF THAT DIDN’T GET GOTTEN TO. AND A BUNCH OF PLACES WHERE WE THOUGHT RULES SHOULD HAVE BEEN — PARTICULAR RULES SHOULD HAVE BEEN STRONGER THAN THEY WERE. I WAS TALKING LESS ABOUT THAT, THOUGH, AND MORE ABOUT SORT OF BEING AMBITIOUS ABOUT THE BIG PICTURE AND I THINK OF STUDENT LENDING AS MIKE SAID AS ONE PLACE WHERE WE ARE FACING A HUGE CRISIS. THAT’S CERTAINLY NOT JUST ABOUT MATTERS WITHIN THE CFPB JURISDICTION BUT IS A HUGE CRISIS THAT NEEDS TO BE TREATED. OR, YOU KNOW, I THINK OF LIKE THE CREDIT REPORTING SYSTEM, FOR EXAMPLE, WHERE THERE’S A SET OF PROBLEMS THAT PEGGY TALKED ABOUT AND THAT’S ABOUT ACCURACY AND ACTUALLY MAKING SURE THAT ERRORS ARE CORRECTED AND THE INFORMATION ISN’T — AND THEN ABOUT BEING THOUGHTFUL ABOUT WHAT ADDITIONS OR SUBTRACTIONS TO WHAT INFORMATION IS USED HAS WHAT CORDRAY. BUT THEN ALSO THERE’S A SET OF QUESTION A DEEPER SET OF QUESTIONS ABOUT THE WAY THE CREDIT SCORING SYSTEM FUNCTIONS. LIKE WHAT ARE THE PROBLEMS WITH THE SYSTEM THATTEN IF THE TECHNICAL DETAILS ARE RIGHT IF YOU HAVE LESS WEALTH, YOU’RE MORE LIKELY TO BE LATE ON YOUR BILLS. AND IF YOU HAVE LESS FAMILIAL WEALTH YOU HAVE FEWER PLACES TO TURN. WHAT ABOUT TURNING THE EXISTING EXISTENCE OF WEALTH INTO SYSTEM THAT KEEP CHARGING YOU MORE OR DENYING ACCESS TO BETTER PRODUCTS. THAT FEELS LIKE THE KIND OF NEXT ORDER OF QUESTION THAT WE SHOULD BE ASKING ABOUT. >>WE WILL TAKE MAYBE ONE MORE QUESTION. FOR THE PEOPLE WATCHING ON THE VIDEO SCREEN. THEY COMPLAINED ABOUT ALL OF US NOT SPEAKING INTO THE MIC. >>ONE THING THEY MENTIONEDS SUBPRIME LOANS. TWO REALLY QUICK ONES. ONE IS AFTER BANKRUPTCY THE FIRST THING THAT GENERAL MOTORS WAS A SUBPRIME LENDER. AND THE SECOND THING IS ANYONE HEARD WHAT ROSHIDA HAD TO SAY AT THE HEARING ON SUBPRIME LOANS IN HER DISTRICT I WAS WONDERING IF ANYONE HAS ANY COMMENTS. >>ABSOLUTELY. ONE OF THE CHALLENGES WITH THIS IS IT’S HARD TO GET PEOPLE TO DO APPLE TO APPLE COMPARISON OF DEFAULT RATE WITH MORTGAGES. THEY USE THE MORTGAGE DEFAULT RATE — WELL THAT’S A BENCHMARK. PEOPLE KNOW WHAT THAT IS. AUTOS THEY FLIP THROUGH — YOU GO FROM LATE PAYMENT TO USING YOUR CAR IN 60 DAYS IN MOST STATES. AND SO THEY WILL ADVERTISE WE’RE ONLY 4% DELINQUENT. THOSE PEOPLE WILL CYCLE THROUGH FOR DEFAULT RATE. THE SUBPRIME AUTO IS A DISASTER. SANTANDER HAVE HAD PROBLEMS THERE. THEY WERE GOING AFTER A LOT OF THEM AS WELL AS THE OTHER REGULATORS. THAT’S ONE THING IS THE PORT CFPB HAS CHANGED THE WHOLE ENVIRONMENT. IF YOU LOOK AT THE OTHER REGULATORS. I THINK THE OTHER REGULATORS ARE DOING A BETTER JOB BECAUSE OF THE CFPB HAS DONE. FEDERAL SERVE HAS GONE AFTER WEALTH PRETTY HARD. ASSET CAP AND ALL THESE THINGS. THAT WAS NOT HOW IT WAS DONE PRE-DODD FRANK. I DO THINK IT’S CHANGE INSTEAD >>ONE SPECIFIC POINT TIEING THE AUTO AND THE EXPECTATIONS FOR OTHER REGULATORS. YOU KNOW, AUDIT — CFPD GOT THEMSELVES EXEMPTED. AS CONSOLATION PRIZE THEY FTC HAS REGULAR — IT’S TERRIBLE IMPOSSIBLE PROCESS. BUT REGULAR RULE-MAKING AUTHORITY IN THAT AREA. THEY HAVEN’T DONE ANYTHING WITH IT. AND YOU KNOW, THE KIND ON BONUSY YIELD SPREAD THAT WERE A PROBLEM IN MORTGAGE MARKET STILL EXIST IN THE AUTO FINANCE MARK AND DRIVE RACIAL DISCRIMINATION. AND YOU KNOW WE SHOULD ALL BE DEMANDING THAT THE FTV ACT ON ITS AUTHORITY TO DEAL WITH ABUSIVE AUTO LOANS. >>CAN WE ACKNOWLEDGE OUR PANEL. [APPLAUSE]>>WE HAVE A TEN-MINUTE BREAK. WE WANT TO START ON TIME. MILLI. FAMILIAL. ALL RIGHTY. GOOD MORNING. WELCOME TO PANEL ON INVESTOR PROTECTION. MY NAME THE ANDREW WU. ASSISTANT PROFESSOR OF TECHNOLOGY AND OPERATIONS AND ASSISTANT PROFESSOR OF FINANCE AND ROSS SCHOOL OF BUSINESS. AT ROSS AND ALSO IN COLLABORATION WITH MULTIPLE SCHOOLS ACROSS CAMPUS, WE HAVE LUNGED MULTIPLE FINN TECH INITIATIVE AIMED AT PUTTING US AT THE FOREFRONT OF EDUCATION. ACTION BASED LEARNING PROGRAMS THAT PLACE STUDENTS DIRECTLY IN FINN TECH START-UP AND COLLABORATIVE RESEARCH WITH LEADING PETITIONER. ON THE CONSUMER SIDE TECHNOLOGY HAS REALLY BROUGHT A DAZZLING AND COMPLEX ARRAY OF NEW PRODUCTS AND TECHNOLOGIES ON ALL FRONTS OF A CONSUMER’S FINANCIAL LIFE. FROM PAYMENT TO CREDIT AND LENDING TO INVESTMENT AND TO FINANCIAL PLANNING AND ADVISORY. FOR INSTANCE, ROBO ADVISORS THE PRACTICE OF ALGORIT MICCALLY PROVIDING ADVICE BASED ON THE CLIENT’S FINANCIAL SITUATION AND RISK TOLERANCE AND AUTOMATICALLY EXECUTED THE ADVICE FOR A FRACTION OF THE FEES CHARGED BY HUMAN ADVISORS. THAT HAS BECOME 100 BILLION-DOLLAR INDUSTRY LAST YEAR. AND IT’S POISED TO BECOME A TRILLION DOLLAR INDUSTRY IN THE NEXT FIVE YEARS. YOU KNOW AFTER THE CRYPTAL BUBBLE HAS BURST THERE’S NEW PRODUCTS. STABLE CRYPTAL CURRENCIES POISED TO FULLY DIGITIZE A CONSUMER’S FINANCIAL LIFE. BUT WITH ALL THAT EXCITEMENT IN THE LAST COUPLE OF YEARS PEOPLE SEEM TO HAVE STARTED TO FORGET THE BASIC CORE PRINCIPALS OF CONSUMER AND INVESTOR PROTECTION. AND BECAUSE ALL THESE PRODUCTS COME WITH A SLEW OF UNFORESEEN RISK THAT POTENTIALLY HAS HUGE IMPLICATIONS FOR BOTH THE INVESTORS THEMSELVES AND ALSO THE MARKET. SO TODAY WE HAVE A DISTINGUISHED PANEL OF EXPERTS ON CONSUMER INVESTOR PROTECTION AND WE WILL EXPLORE THE CURRENT REGULATORY LANDSCAPE AS WELL AS RECENT DEVELOPMENTS IN CONSUMER PROTECTION. AND HOW NEW TECHNOLOGICAL INNOVATION EFFECT THE DIRECT RELATIONSHIP BETWEEN THE CONSUMERS, THE INVESTORS, THE REGULATORS AND ALSO THE MARKETS. SO FOR THIS PANEL INSTEAD OF INDIVIDUAL PRESENTATIONS, WE’RE GOING TO GO RIGHT INTO A FREE FLOW DISCUSSION. I WILL START BY RAISING SOME QUESTIONS TO THE PANEL. WE’LL GO FROM THERE. AND THEN WE’RE GOING TO OPEN UP TO THE AUDIENCE FOR Q&A. I GUESS IN MY FIRST QUESTION FOR MANY OF YOU ON THE PANEL, WE HAVE BEEN SEEING FOR YEARS THAT THE STANDARD OF CONDUCT FOR FINANCE PROFESSIONALS IS THE MOST IMPORTANT STEP AND FOR POLICY MAKERS COULD TAKE TO IMPROVE PROTECTIONS FOR THE AVERAGE RETAIL CONSUMERS AND INVESTORS. WHY IS THIS SO IMPORTANT? >>I WILL JUMP IN. I’M BARBARA ROPER. INVESTOR FOR THE CONSUMER FEDERATION OF AMERICA. I HAVE BEEN WORKING ON THIS ISSUE IN ONE FORM OR ANOTHER SINCE I JOINED CFA IN 1986. I WROTE MY FIRST LETTER ON THIS TOPIC TO FCC IN 1999. AND I’M SURE WE’RE GOING TO GET IT SOLVED ANY DAY NOW. IF YOU THINK ABOUT THE INVESTMENT MARKETPLACE OUT THERE. THERE IS AS YOU SAY AN ENORMOUS. ONE OF THE THINGS WE DO REALLY WELL IS INNOVATE. THERE’S A PRODUCT FOR EVERY NEED YOU MAY HAVE. SOMETIMES HUNDREDS OR THOUSANDS OF PRODUCTS FOR YOU TO CHOOSE FROM TO PROVIDE CAPITAL GROWTH OR INCOME OR WHATEVER IT IS YOUR INVESTMENT GOAL IS. AND WHAT WE KNOW ABOUT MOST INVESTORS THEY DON’T HAVE THE FINANCIAL SOPHISTICATION TO LOOK AT THOSE AVAILABLE INVESTMENTS AND DETERMINE WHICH ONES ARE THE BEST FOR THEM. AND DURING THAT PERIOD SINCE — WHEN I STARTED IT CFA THERE WAS QUITE A SMALL PERCENTAGE OF THE POPULATION THAT INVEST. IT’S NOW THE AWE FUND OUR RETIREMENT. IT’S THE WAY WE FUND OUR CHILDREN’S CHILD EDUCATION. THE INVESTOR WHOSE ARE OUT IN THIS MARKETPLACE ARE FINANCIALLY U U UNSO SO FIST INDICATED. THEY TURN TO FNL FINANCIAL PROFESSIONAL TO MAKE THE CHOICES. IF YOU HAVE $100 OR A FEW MILLION. IF YOU WANT ONE TIME ADVICE ABOUT WHAT TO DO ON ROLLOVER OR COME PREHENCESIVE PLANNING. IF YOU WANT TO PLAY ASSET FEE OR RETAINER FEE THERE’S A BUSINESS MODEL OUT THERE WITH YOU IN MIND. BUT MOST OF THE PEOPLE OUT THERE WHO ARE COMPETING FOR YOU BUSINESS CALL THEMSELVES FINANCIAL ADVISORS, MARKET THEIR SERVICES AS LONG-TERM TRUSTED ADVICE DEDICATED TO ACTING IN YOUR BEST INTEREST. THEY ARE EITHER BROKERS OR INSURANCE AGENTS REGULATED EXCLUSIVELY AS SALES PEOPLE WITH NO OBLIGATION TO RECOMMEND TO YOU THE INVESTMENTS THAT WOULD ACTUALLY BE THE BEST OPTION FOR YOU. AND EVEN IN THE AREA WHERE TECHNICALLY WE HAVE A FIDUCIARY DUTY FOR INVESTMENT ADVISOR WHOSE ARE OUT THERE WHO ARE SUPPOSED TO APPARENTLY ACT IN YOUR BEST INTEREST AT ALL TIMES CANNOT DISCLOSE OR NEGOTIATE THAT OBLIGATION AWAY, AS ENFORCED BY THE FCC ALL THEY HAVE TO DO IS DISCLOSE TO YOU THE WAYS IN WHICH THEY ARE NOT GOING TO ACT IN YOUR BEST INTEREST AND THEY HAVE SATISFIED THEIR FIDUCIARY OBLIGATION. WE HAVE A POPULATION THAT’S VULNERABLE THAT IS USING THE MARKET FOR VITALLY IMPORTANT PURPOSES. RELYING ON FINANCIAL PROFESSIONAL WHO AREN’T HELD TO STANDARD OF CONDUCT EVEN REMOTELY ADEQUATE TO PROVIDED A Y ADEQUATE PROTECTION. >>>CAN I JUMP IN. I’M STEVE HALL. WE’RE A GROUP IN EXISTENCE SINCE 2010. AND REALLY FOR MUCH OF OUR EARLY YEARS OF ADVOCACY WE’RE FOCUSED ON MAKING SURE THE FINANCIAL SYSTEM WAS TABLE AND COULD AVOID ANOTHER DEVASTATING FINANCIAL CRISIS LIKE THE 2008 NIGHTMARE. BUT, IN FACT, THIS ISSUE, TO ECHO A LOT OF BARB WAS SAYING REALLY IN OUR MINDS TOOK ON SUCH AN IMMENSE IMPORTANT GRAPHTATIONAL PULL THAT WE GOT HEAVILY ENGAGED IN THE FIDUCIARY RULE. AND I THINK TO RECAPITULATE IT’S ABOUT PROTESTING INVEST ORS IN THE MOST FUNDAMENTAL SENSE ACROSS A BROAD RANGE OF PRODUCT SERVICES AND FINANCIAL PROFESSIONALS. BUT WE ALSO SEE IMPORTANCE IN THIS ENDEAVOR BECAUSE THERE’S A CONNECTION TO FINANCIAL STABILITY. IN OTHER WORDS WHEN LARGE NUMBERS OF INVESTORS ARE EXPLOITED, THAT TENDS TO REALLY GENERATE THE RAW MATERIAL THAT CAN BE PART AND PARCEL OF A FINANCIAL CRISIS. IN 2008, WHAT WAS IT? IT WAS EXPLOITED PREDATORY BEHAVIOR AMONG MORTGAGE BROKERS AND MORTGAGE LENDERS. AND IT’S IMPORTANT TO SEE THAT THE VALUE OF INVESTOR PROTECTION IS CRITICAL IN AND OF ITSELF BUT IT ALSO HAS A KIND OF NEXUS TO THE REST OF THE FINANCIAL WORLD AND A FINANCIAL MARKETPLACE. AND THE OTHER FOOTNOTE I WANTED TO ADD. IN A WAY IT’S SORT OF DISCOURAGING. BECAUSE WE HAVE A ENOUGH OF A CHALLENGE FACING US IN TERMS OF TRYING TO GET THE FCC TO DO A MUCH BETTER JOB WHAT IS CURRENTLY A TERRIBLE RULE, WE THINK IT’S ALL ALSO IMPORTANT STILL NOT TO LOSE SIGHT OF THE FACT THAT IN THE END EVEN A VERY STRONG STANDARD HAS GOT TO BE ENFORCEFUL IN A MEANINGFUL WAY. WE MUSTN’T LOSE SIGHT OF THE FACT THAT THE CHALLENGES ASSOCIATED WITH MANDATORY ARBITRATION, LOSS OF ACCESS TO THE COURT SYSTEM, WE HAVE TO KEEP THOSE IN MIND AND FIGHT ON THAT FRONT AS WELL. >>LET ME JUMP IN WITH JUST A LITTLE BIT OF DATA TO TRY TO BOLSTER WHAT YOU TWO WERE JUST SAYING. CONSUMERS I THINK DO RIGHTFULLY THINK WHEN SOMEONE SAID THEY ARE GIVING THEM ADVICE, THAT IT’S ADVICE. NOT A SALES PITCH. SOMETIMES PEOPLE WOULD SAY TO ME LIKE, WHY DO WE NEED TO REGULATE ADVISORS. YOU KNOW WHAT YOU ARE GETTING WHEN YOU GO TO USED CAR DEALER. IMAGINE IF THEY MARKETED THEMSELVES AS TRANSPORTATION ADVISORS. COME TO ME THE FIGURE OUT THE BEST BUS ROUTES. WE SORT OF — THAT’S A LAUGHABLE IDEA. BUT ESSENTIALLY THERE ARE FINANCIAL ADVISORS THAT, THAT IS WHAT THEY ARE BASICALLY DOING. SO WHAT DOES THAT MEAN? I DIDN’T INTRODUCE MYSELF. I’M BETSEY STEVENSON ASSOCIATE PROFESSOR IN THE DEPARTMENT OF LABOR IN BOTH CAPACITY GETTING INVOLVED IN THIS RULE. AND WHEN I WAS AT CEA JANE DOKKO AND I PUT TOGETHER A ROBERT TO TRY TO QUANTIFY WHAT WAS GOING ON IN THE INDUSTRY. THE THING THAT REALLY STRUCK ME IS THAT REALLY A LOWER BOUND OF ESTIMATE RETIREES END UP WITH 5 TO 10% LESS SAVINGS BECAUSE OF CONFLICTED ADVICE. AND I SAY THIS AS A LOWER BOUND ESTIMATE. IMPERACLE SCHOLARS WE WANT TO SHOW CAUSAL EFFECTS. WE’RE NOT TRYING TO FIGURE OUT THE EXACT MAGNITUDE OF THE EFFECT. WE’RE TRYING TO SHOW ALL THE PLACES IN I WE CAN SAY FOR SURE. CONFLICTED ADVICE CAUSES THIS LOSS. AND SO WE GET THESE ESTIMATES OF FIVE TO TEN PERCENT. WHAT DOES THAT MEAN FOR TYPICAL PERSON INVESTING OVER A 30-YEAR PERIOD AND DRAW DOWN THEIR RETIREMENT ASSETS. THEY WILL RUN OUT OF ASSETS ABILITY FIVE YEARS EARLIER. YOU MENTIONED WHAT DOES THIS MEAN FOR THE FINANCIAL STABILITY. WHAT DOES THIS MEAN FOR OVERALL FINANCIAL STABILITY OF THE FEDERAL GOVERNMENT. WHO WILL PICK UP THE SLACK WHEN PEOPLE RUN OUT OF RETIREMENT ASSETS. WHERE IS THE PRESSURE GOING TO BE WHEN THE BABY BOOMERS RUN OUT OF MONEY. SO THEY ARE NOT JUST TAKING MONEY FROM THE BABY BOOMERS. THEY ARE TAKING MONEY FROM ALL OF US BECAUSE I THINK THERE’S A ENORMOUS PRESSURE FOR THE FEDERAL GOVERNMENT TO STEP IN AND HELP THESE FOLKS OUT WHEN THEY RUN OUT OF MONEY. WE ALL HAVE A VESTED INTEREST IN SOLVING THIS PROBLEM. >>HI, MY NAME THE JANE DOKKO. I WANTED TO INTRODUCE MYSELF AND I ALSO OFFER YOU KNOW A SOMEWHAT DIFFERENT PERSPECTIVE. I’M AN ASSISTANT VICE PRESIDENT OF THE BANK OF CHICAGO. MY PARTICIPATION IS ON BEHALF OF MYSELF AS CONCERNED CITIZEN AND NOT ONLY BEHALF OF ANYONE ELSE. I’M GLAD, BETSEY THAT YOU REMEMBER THE ESTIMATES. THEY’VE BEEN BURIED SORT OF DEEP IN MY MIND. I’VE KIND OF JUST — KIND OF JUST FORGOTTEN OR HAVE SORT OF BURIED A LOT OF THE WORK THAT WE DID BECAUSE WHERE WE ARE NOW WITH YOU KNOW THE REGULATION AND SORT OF THINKING ABOUT INVESTOR PROTECTIONS IS VERY DIFFERENT FROM WHERE WE WERE FIVE YEARS AGO AND SORT OF WHAT’S HAPPENED TO YOU KNOW SORT OF THE FATE OF PROTECTING CONSUMERS AND SAFERS FROM THE CONFLICTS TAKING SORT OF DEPRESSIONING TOLL. I’M GLAD THAT YOU REMEMBER THAT. I GUESS YOU KNOW THE OTHER PERSPECTIVE THAT I BRING IS AS SOMEONE THAT WORKED ON HOUSEHOLD FINANCIAL DECISION MAKING AND SORT OF STUDIED HOW PEOPLE MAKE DECISIONS ON BEHALF OF THEMSELVES, AND IT’S NOT JUST VULNERABLE POPULATIONS THAT GETS SWINDLED INTO BAD INVESTMENTS OR YOU KNOW COMPLEX ANNUITIES, WHERE THEY SNEEZE AND THEN THEY LOSE ALL THEIR MONEY. I MEAN THESE PROBLEMS EXTEND TO A BROAD SWATH OF SAVERS AND RESEARCH SHOWS THAT THERE’S A LOT OF COMPLEXITY IN FINANCIAL MARKETS. AND DREW ALLUDED TO THIS EARLIER WHEN HE DESCRIBED TECH THAT LOCKCAL INNOVATION THAT CHANGED THE LANDSCAPE FOR FINANCIAL ADVICE. PART OF THE REASON THE IMPACT ON SAVERS ARE SO LARGE IS THE MISTAKES THAT PEOPLE CAN MAKE AND SORT OF THE SET OF VULNERABLE PEOPLE IS REALLY LARGE. >>FOR THOSE IN THE AUDIENCE WHO HAS ABOUT DONE KEPT UP WITH THE REGULATORY UPDATES. THERE HAS BEEN A SIGNIFICANT CHANGE IN THE REGULATORY LANDSCAPE IN THE INVESTMENT ADVISORY MARKET. SO BASICALLY IN 2015 THE DEPARTMENT OF LABOR PROPOSED A REALLY SWEEPING RULE ON FIDUCIARY DUTY. WHICH BASICALLY SAID THAT AS LONG AS YOU AS A FINANCIAL ADVISOR. AS LONG AS YOU HAVE ANYTHING TO DO WITH FINANCIAL ADVISORY, OR RETIREMENT PLANNING, THESE TYPE OF ACTIVITIES YOU ARE AUTOMATICALLY CONSIDERED A FIDUCIARY AND THEREFORE HELD WITH FIDUCIARY DUTY. YOUR HELD WITH A STANDARD THAT YOU NEED TO PUT YOUR CLIENTS INTEREST STRICTLY ABOVE YOURS. IT DOESN’T MATTER IF YOU’RE A BROKER PAID ON COMMISSION OR INSURANCE AGENT OR ADVISOR. THIS WOULD HAVE TREMENDOUS IMPACT ON THE COMMISSION-BASED BROKERS AND ADVISORS WHO ARE MOSTLY HAS BEEN REGULATED BY FINRA AND HELD A LOWER STANDARD. THIS WOULD IMPACT THE COMPLIANCE STRUCTURE OF THE ENTIRE FINANCIAL ADVISORY AS A WHOLE. THE FINANCIAL INDUSTRY REALLY FOUGHT TOOTH AND NAIL AND AGAIN THIS AND AFTER REALLY PROTRACTED SERIES OF LEGAL BATTLES AND THE RULE WAS ESSENTIALLY VACATE BAD I THE FIFTH CIRCUIT COURT. LAST YEAR AND WAS EXPECTED TO BE REPLACED BY THE FCC’S REGULATION WHAT’S CALLED THE REGULATION BEST INTEREST. WHICH IS ESSENTIALLY A WEAKER VERSION OF THIS. AND THAT’S EXPECTED TO BE RELEASED BY THE FALL. SEVERAL OF OUR PANELEST ARE ACTUALLY INSTRUMENTAL IN CREATING THIS FIDUCIARY RULE. I WOULD LIKE TO HEAR SOME OF YOUR INCITES ON THE CREATION OF THIS RULE AND IT’S RATIONALE. AND ITS RELATION FOR THE — WITH CONSUMER PROTECTION AND — ESPECIALLY IN THE CURRENT AGE. >>LET ME START AND THEN I WILL TURN IT TO YOU GUYS. BUT FIRST OF ALL I’M JUST GOING TO DISAGREE. THAT IT WAS A SWEEPING RULE. I’VE WATCHED WHAT WAS HAPPENING IN OTHER COUNTRIES UK AND NETHERLANDS. THEY ARE SWEEPING WOULD BE BANNING COMMISSIONS AND WHAT THIS WAS TRYING TO DO. YOU CAN TAKE YOUR COMMISSION BUT YOU STILL HAVE YOUR CLIENT’S INTEREST FIRST. YOU NEED TO MEET A BEST INTEREST STANDARD. TO REALLY UNDERSTAND WHERE THIS WAS COMING FROM YOU HAVE TO UNDERSTAND HOW THE RETIREMENT LANDSCAPE STARTED CHANGING. SO IT USED TO BE MOST PEOPLE GOT A DEFINEDBY PLAN. WHICH MEANT THEIR EMPLOYER OFFERED THEM SOME KIND OF RETIREMENT PLAN AND IT ESSENTIALLY A PENSION THAT WOULD PAY THEM SOME FIXED AMOUNT. THEY DIDN’T HAVE TO WORRY ABOUT THE RETURNS. THAT WAS THEIR EMPLOYER’S JOB TO WORRY ABOUT THE RETURNS. BECAUSE THEY WERE TOLD WAS THE BENEFIT THEY WERE GETTING. IN THE STARTING IN THE 1970’S. WE STARTED HAVING DEFINED CONTRIBUTION PLANS 401(K)S AND THEY ARE STILL TIED TO PEOPLE’S EMPLOYERS. AND SO THAT HAS BEEN THE BIG SHIFT IS TO 401(K)S THAT GET ROLLED OVER INTO IRA’S. WHEN YOU ASK YOU KNOW WHERE THIS CONFLICTED ADVICE COMING FROM. MY FAVORITE STUDY WAS A GUY WHO HAD HIS MONEY A SECRET SHOPPER WHO HAD HIS MONEY IN THE FEDERAL GOVERNMENT’S THRIFT SAVING PLAN. THE LOWEST FEE PLAN YOU COULD POSSIBLY HAVE. THE GUY CALLS NINE ADVISORS AND SAID SHOULD I ROLL IT INTO IRA OR LEAVE IT WHERE IT IS. EIGHT OF THE NINE SAY YOU NEED TO ROLL IT. SO THAT — THAT’S THE — THAT IS THE CHANGING LANDSCAPE. I THINK DOL — IF YOU WANT TO KNOW WHY IT’S OPPOSED SO MUCH BY INDUSTRY IT COMES BACK TO THAT 5 TO 10% THEY TAKE OUT OF RETIREMENT SAVERS. WE ESTIMATED 17 BILLION A YEAR. PEOPLE ARE GOING TO FIGHT LIKE HELL OVER 17 BILLION A YEAR. FINANCIAL INDUSTRY DOESN’T WANT TO GIVE THAT BACK TO RETIREES. IT’S A TOUGH REGULATORY NOT TO CRACK. BUT DOL DIDN’T GO SWEEPING. WHAT THEY DID WAS I THOUGHT VERY SURGICALLY WENT IN AND SAID HERE’S WHAT WE NEED TO DO TO GIVE PEOPLE A MINIMUM SET OF PROTECTIONS THAT WHEN THEY ARE SEEKING ADVICE THEY KNOW AT LEAST THEIR BEST INTEREST ARE GOING TO BE THE FRONT OF PEOPLE’S MINDS. >>JUST TO JUMP IN REALLY QUICKLY BEFORE BARB, I KNOW YOU HAVE A LOT OF INTERESTING THINGS TO SAY ON THIS TOPIC. I WANT TO PUSH BACK ON THE IDEA IT WAS SWEEPING. IT’S NOT SWEEPING. BECAUSE IT’S IT WAS JUST TARGETED AT RETIREMENT PRODUCTS. LOTS OF PEOPLE GET FINANCIAL ADVICE FOR LOTS OF THINGS THAT ARE NOT RELATED TO RETIREMENT. THE RULE DIDN’T TOUCH THAT. >>I JUST LIKE TO SAY I THINK WHAT THE INDUSTRY FOUND SO THREATENING ABOUT THE DOL RULES NOT THE WORDS BEST INTEREST BUT THE DOL MEANT THE WORDS “BEST INTEREST.” YOU KNOW, WHEN THEY — SERIOUSLY. IT SOUNDS LIKE A JOKE. BUT IT’S ACTUALLY TRUE. FINRA DESCRIBES THEIR SUITABILITY STANDARD AS REQUIRING BROKERS TO MAKE RECOMMENDATION CONSISTENT WITH THE BEST INTEREST OF THEIR CUSTOMER AND PREVENTING THEM FROM PLACING THEIR OWN INTEREST AHEAD OF THE CUSTOMER. THAT’S HOW THE FCC DESCRIBES THE FIDUCIARY DUTY. THAT’S HOW DOL DESCRIBED ITS FIDUCIARY STANDARD. AND SO THE WORDS ARE VIRTUALLY INDISTINGUISHABLE. WHEN DOL SAID “BEST INTEREST” THEY MEANT YOU HAVE TO LOOK WHAT YOU HAVE AVAILABLE THERE AND YOU HAVE TO DECIDE WHICH ONE OR ONES YOU THINK ARE THE BEST MATCH FOR THE INVESTOR. AND I REMEMBER WHEN I READ — I THINK COMMENT FROM FINRA — THEY SEEM TO THINK BEST INTEREST MEANS BEST INTEREST. >>YES. THAT’S BECAUSE OF THE INVESTOR. THE SECOND PIECE OF WHAT DOL DID THAT WAS SO IMPORTANT THEY SAID YES, YOU CAN HAVE YOUR — YOU CAN GET YOUR COMMISSIONS. YOU CAN GET TRANSACTION-BASED PAYMENTS. BUT THIS BUSINESS OF SALES QUOTAS AND SALES CONTEST AND GETTING PAID 10 TIMES AS MUCH TO SELL THIS PRODUCT AS THAT PRODUCT. YOU GOT TO PUT SOME SERIOUS POLICIES AND PROCEDURES IN PLACE TO REIN IN THOSE CONFLICTS. YOU STARTED TO SEE BEFORE THE RULES DEMISED REAL CHANGES. WE WERE AT THE BRINK OF A REVOLUTION. IN THE WAY SERVICES WERE GOING TO BE OFFERED TO THE INVESTING PUBLIC. WE HAD SOMETHING CALLED CLEAN SHARES. WHICH ALLOWED FOR A TRANSACTION BASED PURCHASE OF MUTUAL FUNDS THAT — WHERE THE FEES SET BETWEEN THE BROKER AND THE ADVISOR, YOU KNOW AND THE CUSTOMER INSTEAD OF BY THE MUTUAL FUND DECIDING HOW MUCH THE BROKER WOULD GET PAID TO SELL ME A MUTUAL FUND. YOU REALLY STARTED TO SEE SOME INNOVATIVE CHANGES TAKING PLACE TO RING OUT SOME OF THESE EXCESS SIDE CONFLICTS IN THE BROKER DEALER BUSINESS MODEL. DISAPPEARED IN A FLASH WHEN THE RULE WAS OVERTURNED. AND THE SAME GROUPS THAT WENT INTO COURT TO SUE — THE STOP THE DOL RULE ARE CHOMPING AT THE BIRTH TO PUSH FCC RULE THROUGH WHICH USES VIRTUALLY IDENTICAL WORDS BEST INTEREST CAN’T PLACE THE BROKER’S INTEREST AHEAD OF INVESTORS INTEREST BUT DOESN’T MEAN THAT. BEST INTEREST CERTAINLY DOESN’T MEAN YOU HAVE TO RECOMMEND THE BEST OF THE AVAILABLE PRODUCT. THE PROHIBITION OF PLACING THE BROKER’S INTEREST AHEAD OF THE CUSTOMER DOESN’T MAKE IT INTO THE SAFE HARBOR. IT’S THE CHIEF THING THE FCC USES TO SELL THEIR RULE. AND IT DOESN’T MAKE INTO THE SAFE HARBOR. EVERYTHING IS SO VAGUE AND UNDEFINED THAT WE I HALTS NO CONCRETE MEANING AND WE’VE SEEN HOW THAT ENFORCE SIMILAR CONCEPT IN THE ADVISORS CONTEXT AND THERE’S NO THERE THERE. THAT’S WHY THE RULES AFFLICT ON THE FCC RULE. >>THERE’S AN INTERESTING LEGAL PERSPECTIVE THAT COMES TO BARE HERE. BOTH THE RULE AND THE FCC RULE. WITH RESPECT TO DOL, THEY WERE DEALING AGAINST THE BACKDROP OF ARISA WHICH IS FAMOUSLY A STRONG STATUE WHICH RECOGNIZES THE FUNDAMENTAL IMPORTANCE OF CON FIRING SPECIAL PROTECTION ON RETIREMENT ASSETS, AND MAKE IT CLEAR THERE’S ABUNDANT AUTHORITY TO REQUIRE A BROAD FIDUCIARY STANDARD. ONE THING THEY WERE FACING AND ONE REASON WHY IT WASN’T AS SWEEPING AS IT COULD HAVE BEEN. NUMBER ONE A YEAR AFTER ARISA WAS PASSED IN ’74, ’75 COMES ALONG THERE’S INDUSTRY INFLUENCE THAT COMES TO BARE AND THEY PUT IN PLACE A RULE WHICH IS TERRIBLE. IT HAS A COMPLICATED ARRAY OF PRECONDITIONS BEFORE THE FIDUCIARY STATUS ACTUALLY KICKS IN. IT SAYS IN EFFECT THE ADVICE HAS TO BE RENDERED ON A REGULAR BASIS. IT HAS TO BE THE PRIMARY BASIS. REALLY FOR 40 YEARS, WHAT HAPPENED WAS INDUSTRIES PRACTICES, AND EXPECTATIONS BECOME ENTRENCHED. THE DOL HAD TO FIGHT AGAINST THAT. THE SECOND THING THEY WERE UP AGAINST. AND I THINK THEY REALLY DESERVE CREDIT IN PARTICULAR IN THE WAY THEY HANDLED THIS. THEY WANTED TO CONFER GREATER PROTECTION FOR IRA OWNERS. BECAUSE OF THE WAY ARISAS STRUCTURED IN TITLE 2 WHICH DEALT IRA ACCOUNTS THEY DIDN’T HAVE THE SAME AUTHORITY TO ACT. THEY TOOK SOME VERY CREATIVE STEPS I THINK BY ALL ACCOUNTS TOO CREATIVE ACCORDING TO INDUSTRY AND THREE-JUDGE PANEL OF THE FIFTH CIRCUIT TO REALLY TRY TO FIX THAT GAP. AND IT WAS AN ADMIRAL EFFORT. I THINK WE CAN TALK LATER ABOUT THE LAWSUITS. A LOT OF INTERESTING OBSERVATIONS THERE. ON THE FCC FRONT, QUICKLY. IT’S DISAPPOINTED BECAUSE IN DODD FRANK CONGRESS GAVE THE FCC VERY CLEAR AUTHORITY TO ESTABLISH A BROAD STRONG AND UNIFORM FIDUCIARY STANDARD FOR INVESTMENT ADVISORS AND BROKER DEALER REPS AND ONE OF THE REASONS WHY I THINK FROM OUR PERSPECTIVE. THEY LASHED ON TO THE WEAKEST STATUTORY AUTHORITY ON WHICH TO PREDICATE THEIR RULE. >>SO FOLLOWING UP ON THAT, ABOUT FCC RULE. YOU KNOW JUST FROM BOTH LEGAL PERSPECTIVE AND ALSO FROM AN ECONOMIC PERSPECTIVE. DO YOU THIS RULE COULD BE IMPROVED? YOU KNOW, FROM ON THESE PERSPECTIVES AND ALSO IF YOU WERE CHIEF ECONOMIST AT THE FCC WHAT WOULD YOU DO TO MAKE THIS RULE BETTER IN TERMS OF INVESTOR PROTECTION? >>YEAH. TO STEVE’S POINT WE FUNDAMENTALLY DISAGREE WITH THE APPROACH THE FCC TOOK IN THE LEGAL AUTHORITY THEY USED. BUT WHAT WE INSTEAD OF FIGHTING THAT FIGHT, ALTHOUGH I THINK THAT’S MAKES THEM VULNERABLE IN COURT. INSTEAD OF FIGHTING THE FIGHT WE TRIED TO ENGAGE CONSTRUCTIVELY. YOU WANT TO RAISE THE STANDARD OF CONDUCT OVER THE SUITABILITY STANDARD. YOU SAY YOU WANT TO PREVENT BROKERS FROM PLACING THEIR INTEREST AHEAD OF THEIR CUSTOMERS INTEREST. HERE ARE THE CHANGES YOU WOULD NEED TO BE MAKE IN YOUR RULE AN IMPORTANTLY YOUR TERMS OF THE RECALL TO ACHIEVE THAT. THE FIRST ONE IS TO YOU DON’T NECESSARILY HAVE TO CHANGE THE LANGUAGE AROUND THE BEST INTEREST STANDARD. BUT THE INTERPRETATION OF THAT STANDARD NEEDS TO MAKE CLEAR THAT IT — WHEN THEY SAY YOU HAVE TO ACT IN THE BEST INTEREST OF CUSTOMERS IT MEANS YOU HAVE TO RECOMMEND THE INVESTMENTS YOU REASONABLY BELIEVE AFTER A PRUDENT PROCESS REPRESENT THE BEST OF THE REASONABLY AVAILABLE INVESTMENTS THE BEST MATCH FOR YOUR INVESTOR. IT SHOULD BE — IF 1,000 MUTUAL FUNDS SATISFY SUITABILITY BEST INTEREST SHOULD BE SATISFIED BY I DON’T KNOW TEN OR 20. IT’S NEVER GOING TO BE JUST ONE PERFECT INVESTMENT. BUT IT OUGHT TO BE A NARROWING DOWN OF THE INVESTMENTS. THE SECOND IS IF YOU WANT TO PREVENT BROKERS FROM PLACING THEIR INTEREST AHEAD OF THE CUSTOMERS LET’S GET THAT INTO THE OPERATIONAL PROVISIONS OF THE RULE THAT FULLY SATISFIED COMPLIANCE. AND THE WAY TO DO THAT IS TO TAKE WHAT’S ALREADY THE BEST PROVISION IN THE RULE. ONE OF THE THINGS THAT IT DOES. IT SAYS BROKERS HAVE TO HAVE POLICIES AND PROCEDURES IN PLACE THAT ARE REASONABLY DESIGNED TO MITIGATE FINANCIAL CONFLICTS OF INTEREST. REASON POLITICAL ZINED TO DO WHAT. IT DOESN’T SAY. REASONABLY DESIGNED TO PUTTING THE INTEREST OF THE ASSOCIATED PERSON AHEAD OF THE CUSTOMERS WOULD BE A REALLY NICE WAY TO INCORPORATE THAT CONCEPT INTO THE OPERATIONAL PROVISIONS OF THE RULE AND TO PUT SOME REAL MEAT INTO THE MITIGATION REQUIREMENT. THEN YOU MIGHT SEE SOME OF THESE THINGS LIKE THE SALES QUOTAS FOR THE SAIL OF PROPRIETARY PRODUCTS OR THE CONTESTS TO ENCOURAGE IF SALE OR REVENUE SHARING PAYMENTS. GETTING PAID MORE TO PUSH THE PRODUCTS THAT PAY THE FIRM MORE. WHATEVER. YOU MAY SEE SOME OF THOSE CONFLICTS ACTUALLY REINED IN. INDUSTRY THINKS THEY WILL BE ABLE TO PAPER OVER THOSE KIND OF CONFLICTS WITHOUT HAVING TO MAKE MEANINGFUL CHANGE. THEN THE THIRD ONE WHICH IS NECESSARY ACTUALLY TO ENSURE THAT THIS RULE DOESN’T WEAKEN EXISTING PROTECTIONS FOR INVESTORS. IS THAT BROKERS WHO ARE AN ONGOING DUTY OF TRUST AND CO COYFY — CONFIDENCE NEED TO HAVE ONGOING DUTY JUST AS COURT FOUND THEY HAVE UNDER THE STATE COMMON LAW FIDUCIARY STANDARDS. BY SAYING THAT BROKER AUTOMATICALLY ABSOLUTELY AND EVERY CIRCUMSTANCE HAVE NO ONGOING DUTY AT THE END OF A TRANSACTION, THIS RULE ACTUALLY WEAKENS ONE OF THE FUNDAMENTAL PROTECTION THAT INVESTORS NOW GET. >>YEAH. I AGREE COMPLETELY WITH BARB OO ANALYSIS. I THINK HAND IN HAND WITH THAT, THAT THIS PROPOSED RULE RELIES MUCH TOO MUCH ON DISCLOSURE. THIS IS AUDIENCE IS VERY SO SOPHISTICATED. IT’S ESPECIALLY TRUE AND THIS GOES BACK TO THEME WE TALKED ABOUT AT THE BEGINNING. YOU KNOW, FINANCIAL ADVICE TECHNICAL. IT’S COMPLICATED. IT’S ALMOST TO EXPECT DISCLOSURE TO SERVE THE BEST INTEREST OF AN INVESTOR WHO NEEDS ADVICE IS LIKE ASKING A PATIENT, RIGHT, TO BASICALLY TO EDUCATE THEMSELVES AND THEN MAKE THE DECISIONS ABOUT WHAT IT IS THAT THEY SHOULD DO TO LOOK AFTER THEIR HEALTH. THE ASYMMETRY THERE IS JUST ASTONISHING AND PEOPLE DON’T NECESSARILY THINK OF IT THAT WAY IN FINANCE BUT IT’S TRUE. AND THEN ON A YOU KNOW, THERE’S A WHOLE CLUSTER OF ISSUES AROUND DISCLOSURE. IT’S MAINLY EXCESSIVE RELIANCE ON DISCLOSURE AND SO HAPPENS DISCLOSURE TESTED THE TESTING IT HAS BEEN DONE BY INDEPENDENT ORGANIZATIONS CLEARLY INDICATES THAT THE DISCLOSURE REGIME IS WOEFULLY ADEQUATE. THE FCC DIDN’T DO HOMEWORK BEFORE THEY PUT OUT THE PROPOSAL. IT NEEDS AN ENORMOUS AMOUNT OF WORK. >>IF I COULD PICK UP ON THE POINT ABOUT DISCLOSURE. I AGREE WITH YOUR CHARACTERIZATION OF THE PROBLEMS WITH DISCLOSURE. AND I MEAN AS ECONOMIST THE IDEA YOU WOULD TRY TO ADDRESS FOUNDATIONAL PROBLEMS WITH INCENTIVE BY USING FINE PRINT IS SO BIZARRE TO ME. AND IN PART IT’S BECAUSE YOU KNOW THERE’S ALL THIS RESEARCH THAT SHOWS THAT YOU KNOW DISCLOSURE OFTEN HAVE UNINTENDED CONSEQUENCES IF BROKERS DISCLOSURES THAT THEY ARE CONFLICTED, YOU KNOW, THAT, SOMETIMES LEADS THE PEOPLE RECEIVING THE ADVICE TO TRUST THEM MORE, NOT LESS. I MEAN, THERE’S BEEN SORT OF INDEPENDENT STUDIES OF DISCLOSURE ON HOW SORT OF LIKE A PSYCHOLOGICAL LEVEL PEOPLE READ, HOW MUCH TIME D HEY THEY SPEND READING THE DOCUMENT. WHAT INFORMATION DO THEY RETAIN. VERSES NOT RETAIN. AND NONE OF THAT IS LIKE TERRIBLY OPTIMISTIC. BUT IT WILL CHANGE YOU KNOW INVESTORS BEHAVIOR. THAT’S REALLY JUST WHAT IS SO PROBLEMATIC ABOUT THE DISCLOSURE REGIME. THEY AIM TO SOLVE THE PROBLEM BY CHANGING YOU KNOW THE INFORMATION THAT INVESTORS GET AND CHANGING INVESTORS MAYOR WHEN WE HAVE A LOT OF EVIDENCE, YOU KNOW BETSEY CITED EARLIER. THE PROBLEMS ARE NOT AMONG PEOPLE WHO ARE TRYING TO SAVE AND WORK TOWARD A SECURER RETIREMENT. IT’S ON THE OTHER SIDE. >>SO LET ME JUST ADD A LITTLE BIT TO WHAT JANE WAS SAYING ABOUT DISCLOSURE. ALTHOUGH WE’RE ALL IN VEHEMENT AGREEMENT HERE. BUT I THINK I THINK MY NATURAL INCLINATION HAD BEEN FOR FULL DISCLOSURE. TURNS OUT THAT’S WRONG. WHEN WE WERE LOOKING AT THE DOL RULE, WE SPENT A LOT OF TIME THINKING ABOUT DISCLOSURE. WHAT WOULD BE A DISCLOSURE REGIME THAT WOULD WORK? I BECOME CONVINCED THAT DISCROW SHER — DISCLOSURE WILL NEVER WORK. AND BAD DISCLOSURE WILL REALLY, REALLY HURT. HOW DOES IT HURT? STUDIES SHOW THAT PEOPLE HAVE A LITTLE BIT OF MORAL COMPASS. THAT MORAL COMPASS PREVENTS THEM FROM CHEATING PEOPLE COMPLETELY. BUT WHEN WE GIVE THEM DISCLOSURE THEIR MORAL COMPASS GETS WORSE BECAUSE THEY THINK I DISCLOSED. NOW THEY MORAL COMPASS SAID DON’T CHEAT THE OLD GUY. YOU TOLD THE OLD GUY WHAT TO EXPECT. THE PROBLEM IS THE BROKER DEALERS THEMSELVES ARE LESS CONSTRAINED BY THEIR OWN MORAL COMPASS. THEN ON THE FLIP SIDE THE CONSUMERS WHO ARE GETTING IT ARE THINKING, AS JANE MENTIONED, OH, WELL AT LEAST HE TOLD ME. MAYBE I CAN TRUST HIM MORE. I JUST WANTED TO CIRCLE BACK TO THAT, THAT RETIREMENT FOR A LOT OF PEOPLE IS REALLY STRESSFUL. I’M PRETTY SOPHISTICATED. AND I STILL DON’T LIKE TO THINK ABOUT MY RETIREMENT PLANNING. AND WHAT PEOPLE WANT IS SOMEONE THAT THEY CAN TRUST. THAT WILL GIVE THEM ADVICE THAT WILL TELL THEM WHAT TO DO SO THEY CAN STOP THINKING ABOUT THIS HARD PROBLEM. THAT TRUST IS A REALLY IMPORTANT PART OF THE RELATIONSHIP. AND YOU CAN’T HAVE IT IF THE PERSON DOESN’T HAVE YOUR BEST INTEREST AT HEART. YOU SHOULD NOT TRUST. AND I THINK THE ONLY DISCLOSURE I COULD GET MIND THE VERY BEGINNING LOOKING YOU IN EYE SAY DO NOT TRUST ME. NOTHING SAY IS TRUE. >>JUST FOLLOW UP ON THE POINT OF THINKING LIKE A ECONOMIST. ECONOMICALLY STUDYING UNDERSTAND THE NATURE OF THE EXTENT OF SAD RICERY CONFLICT OF INTEREST. AND THAT CULMINATED IN AT THE WHITE HOUSE COUNSEL OF ECONOMIC ADVISORS REPORT THAT BASICALLY SAID, WELL THE COST THE INVESTORS UP TO 17 BILLION A YEAR. 1 PERCENTAGE POINT A YEAR. FCC RECENTLY PUT OUT A SERIES OF ECONOMIC ANALYSIS IN SUPPORT OF THE REC-B-I. IN PARTICULAR GIVEN THERE’S 11 ECONOMIST ON BIPARTISAN BASIS COME OUT AND WROTE A LETTER THAT POINTED OUT A SERIES OF FLAWS WITH THAT ECONOMIC ANALYSIS. WONDERING WHAT YOUR THOUGHTS ARE ON THAT. >>IT COULD BE IMPROVED. >>ALL ECONOMICS ANALYSIS CAN BE IMPROVED. THAT’S ALWAYS A GIVEN. I SPENT TIME READING THROUGH THEIR ANALYSIS. I WAS HESITATE TO CALL IT AN ANALYSIS. AND BECAUSE THE BASIC STRUCTURE OF IT WAS LET’S DENY THE PROBLEM EXISTS, AND THEN CONCLUDE THAT THE RULE HAS MINIMAL IMPACTS BECAUSE THERE’S NO PROBLEM. I’M SORRY IF GLOSSING OVER NUANCES AND COMPLEXITIES. THAT WAS SORT OF MY TAKE AWAY FROM IT. AND THEN YOU KNOW I STARTED TO THINK, WELL, WHY WOULD A FEDERAL AGENCY THAT IS YOU KNOW SORT OF BOUND BY GUIDELINES AND REGULATIONS TO PUT FORWARD BENEFIT COST ANALYSIS WHEN THEY PATROL MULLGATE NEW REGULATIONS. THAT CONSIDERS THE SOCIETAL BENEFIT AND HARMS OF REGULATION. THE POLITICAL ECONOMY CHALLENGES YOU KNOW WITHIN THE FCC. WHEREBY FACTUAL ANALYSIS COULDN’T INFORM THEIR POLICY DELIBERATIONS. THEN I JUST GOT DEPRESSIONED. THAT WAS MY TAKE AWAY OF THEIR ECONOMIC ANALYSIS. I WILL SPARE YOU THAT. THIS LETTER THAT ANDREW REFERRED TO. DATING BACK TO 1982 SUBMITTED A LETTER TO AGENCY SAYING YOU HAVEN’T DEFINED THE REGULATORY PROBLEM THAT YOU’RE TRYING TO SOLVE. AND HERE’S ARE SOME ISSUES YOU HAVEN’T CONSIDERED. LIKE THE IMPACT OF CONFLICT OF INTEREST ON ADVICE. FOR EXAMPLE, YOU HAVEN’T CONSIDERED THE AVAILABLE ECONOMIC EVIDENCE. I MEAN JANE IS RIGHT. TO CALL THIS AN ECONOMIC ANALYSIS APPLIES THAT THERE’S ANALYSIS. AND THERE’S NOT. I THINK WHEN I LOOK FOR THE EXPLANATION OF WHY IT’S SO LACKING, I THINK IT’S BECAUSE THE FCC IS FUND-RAISER AFRAID OF BEING SUED BY SIFMA AND NOT THE TRADE ASSOCIATION FOR BROKER DEALER FIRMS AND NOT AT ALL AFRAID OF BEING SUED BY CFA. AND SO IF THEY WERE WRITING A RULE THAT THEY THOUGHT THE INDUSTRY WOULD CHALLENGE, THEY WOULD HAVE HAD TO BE FAR MORE RIGOROUS. BUT I THINK THAT ARE COMPLACENT IN THINKING THAT AS LONG AS THE BROKERS ARE HAPPY WITH THE RULE AND BELIEVE ME THEY ARE HAPPY, THEY DON’T HAVE ANY LEGAL RISK. I DON’T THINK THEY’VE ADEQUATELY WEIGHED THE DEGREE BY THE ADVISORS ARE UNHAPPY WITH THE RULE. THERE’S STILL EXPOSURE THERE. IT’S SORT OF A REALITY OF THE SYSTEM IS THAT FOR A GROUP LIKE OURS TO TRY TO GET STANDING TO SUE TO CHALLENGE A RULE IS EXTRAORDINARILY DIFFICULT FOR THE INDUSTRY TO CHALLENGE A RULE THEY DON’T LIKE IS COSTLY BUT MUCH EASIER AND THAT’S WHAT WENT INTO THAT CALCULATION. >>YEAH. ONCE AGAIN TO BRING A LITTLE BIT OF THE MORE LEGAL PERSPECTIVE. EVEN TO ISSUE OF ECONOMIC ANALYSIS. I LOVE THE WAY JANE PUT IT. IT’S REALLY SPOT ON. AND IF YOU LOOK AT HER POINTS AND THE OTHER POINTS ABOUT THE SHORTCOMINGS, THEY DON’T PASS MUSTER UNDER ANY OF THE LEGAL TEST THAT GOVERN WHAT AN AGENCY HAS TO DO TO JUSTIFY ITS RULES ON ECONOMIC GROUNDS. AND IN THE — ONE OF THE BEDROCK PRINCIPALS OF ADMINISTRATIVE LAW AN AGENCY HAS TO CONSIDER ALL OF THE RELEVANT FACTORS. WE’RE STEPPING BEYOND ECONOMIC ANALYSIS. WHAT’S THE RELEVANT FACTOR. THERE’S A PROBLEM HERE. AND IT’S HUGE. AND THEY JUST YOU KNOW GLOSSED OVER THAT SO RIGHT THERE YOU’VE GOT A LEGAL ISSUE THAT’S SORT OF CONNECTED TO THE SO-CALL ECONOMIC ANALYSIS. EVEN IF YOU DRILL DOWN MORE TECHNICAL LEVEL THE SECURITIES LAW ARE EFFECT. THEY DON’T REQUIRE THE FCC TO CONDUCT AN DETAILED COST-BENEFIT ANALYSIS TO QUANTIFY AND MATCH UP AND BALANCE THEM. THE STATUTE DO REQUIRE THE FCC TO DO WHAT WE CAN ECCF ANALYSIS. TO CONSIDER THE IMPACT OF THE RULE ON EFFICIENCY, COMPETITION, CAPITAL FORMATION. AND EVEN UNDER THAT CLEAR-CUT STANDARD, THE AGENCY DID A DISMAL JOB AND THE ONE THAT STANDS O OUT. AND WE TALKED ABOUT THIS AT SOME POINT OR ANOTHER. THEIR COMPETITION ANALYSIS. WHAT’S GOING ON WITH THIS RULE. THERE ARE DESPERATELY PROTECTING AND PRESERVING TWO DIFFERENT STANDARDS FOR TWO GROUPS OF THE ADVISORY INDUSTRY THE BROKER DEALERS AND THE INVESTMENT ADVISOR. IT’S NOT A COHERENT COMPETITIVE OR LEVEL PLAYING FIELD. IT JUST FLIES IN THE FACE OF WHAT MAKES COMPETITIVE SENSE. FINALLY, YOU KNOW LITTLE KNOWN FACT IS THAT IN THE VERY SECTION THAT DETAILING THE FCC’S OBLIGATION TO DO THIS KIND OF CONSIDERATION OF ECONOMIC FACTORS IT SAID CRYSTAL CLEAR FIRST AND ABOVE ALL ELSE IN ESSENCE YOU HAVE TO CONSIDER THE PUBLIC INTEREST. AND SO NO MATTER WHAT THE FCC MIGHT TRY TO DO,EN IF IT WERE TO SORT OF DOT MORE I’S AND TRY TO MAKE THIS THING PASS MUSTER UNDER AN ECONOMIC TEST, WHAT THEY CAN CONTINUE TO GLOSS OVER IS THE MOUNTAIN OF EVIDENCE THAT THERE’S IMMENSE HARM BEING DONE AND UNTIL THEY GET TO THAT POINT THEY WILL NEVER BE ABLE TO HAVE THE FOUNDATION FOR A RULE. >>I THINK THE ONLY THING I WANT TO ADD TAKE IT BACK TO WHAT DID — WHAT DID WE DO AT CEA. THAT WAS A REPORT THAT WASN’T DESIGNED TO BE A COST BENEFIT ANALYSIS OF A RULE AT ALL. IT WAS DESIGNED TO REALLY LAYOUT THE PROBLEM AS THE RESEARCH COMMUNITY INDEPENDENT RESEARCHERS HAD STARTED TO IDENTIFY. THERE’S A NUMBER OF PAPERS OUT THAT HAVE FOUND PROBLEMS WITH CONFLICTS. AND WHAT WE WERE DOING WAS PULLING THEM ALL TOGETHER TO BE ABLE TO SAY, LOOK, THERE IS A COHERENT PROBLEM HERE. WHERE DOES IT COME FROM? WE’VE TALKED ABOUT CONFLICTS. BUT WE HAVEN’T REALLY PUT NAILED DOWN WHAT DO WE MEAN. WE SEE EXCESSIVE CHURNING. RESEARCH DOCUMENTS THAT BECAUSE THESE BROKER DEALERS GET PAID FOR CHURNING, THAT PEOPLE ARE EXCESSIVELY CHURNED. WHAT IS EXCESSIVE CHURNING MEAN. EXCESSIVE FEES FOR THEM AND THAT’S ONE OF THE THINGS THAT EATS DOWN PEOPLE’S RETIREMENT SAVINGS. THE OTHER THING WE SEE PEOPLE STEERED INTO OVERLY C CON — COMPLEX HARDER TO SEE THE COST ADVISOR IS GETTING WHEN IT’S COMPLEX PRODUCT. YOU CAN LOOK EASILY AT A PASSIVE INDEX MUTUAL FUND AND SEE WHAT THE FEES ARE. IT’S MUCH MORE HARDER TO TEASE OUT WHAT YOUR PAYING WHEN IT’S A COMPLEX PRODUCT. YOU SEE PEOPLE STEERED INTO INAPPROPRIATE PRODUCTS FOR THEM. BECAUSE OF THE FACT THAT IT’S GOING TO GENERATE FEES FOR THE ADVISOR. THE COST TO THE PERSON IS NOT JUST THE FEES. BUT THE FACT THAT THE PRODUCT IS INAPPROPRIATE. IT’S GOING THROUGH SYSTEM MATTCALLY AND SAYING, LOOK THE RESEARCH SHOWS, THIS IS WHAT HAPPENS WHEN PEOPLE GET ACCESS TO CONFLICTED ADVICE. AND THERE’S ONE STUDY WHAT HAPPENED WHEN TAKE CONFLICTED ADVICE AWAY. AND RETIREMENT ACCOUNTS WENT UP. THAT’S NOT THE EVIDENCE AS FCC IS INTERESTED IN RIGHT NOW. >>AND WERE CALLED OUT ON THIS BY THE 11. I THINK — THE CHIEF ECONOMIMENT. THEY WEREN’T JUST SENIOR ECONOMIST. FORMER SENIOR ECONOMIST. THEY WERE CHIEF COMMITEST AND CALLED OUT ON THE FACT THEY DIDN’T BRING THIS EVIDENCE TO BARE. >>JUST TO BE CLEAR. THE DOL TOOK THE EXCELLENT ANALYSIS THAT YOU ALL DID AT CEA AND FURTHER DEVELOPED IT. YOU KNOW, IT’S I SAID RECENTLY THAT COMPARING THE FCC ECONOMIC ANALYSIS LIKE COMPARING DICK AND JANE TO PH.D. DISSEVERALTATION. THEY ARE NIGHT AND DAY. >>SPEAKING REPORT. AFTER YOU RELEASED THE REPORT THERE’S ALMOST LIKE IMMEDIATE PUSH BACK ON THAT ANALYSIS. RIGHT. YOU KNOW, WHAT WAS YOUR REACTION? DID YOU EXPECT IT. WHAT IS YOUR — IS THERE ANYTHING YOU LEARNED FROM THIS EXPERIENCE WITH ALL THE INDUSTRY KIND OF FOLLOW UP WITH THAT? >>JANE, YOU WANT THE GO FIRST. >>I MEAN, I GUESS I THINK YOU KNOW, FROM THE ADVICE THAT YOU KNOW, I GOT FROM BETSEY, WHO HAD SERVED IN GOVERNMENT BEFORE AND HAD WORKED ON THIS RULE OF THE YEARS. I THINK WE EXPECTED PUSH BACK. I DIDN’T APPRECIATE THE SCALE OF IT. I LEARNED I DON’T KNOW AFTER I LEFT GOVERNMENT THAT THE FINANCIAL INDUSTRIES SPENT A HEALTHY 7 FIGURE SUM FUNDING RESEARCH THAT WOULD UNDERMINE THE REPORT. THAT MIND ME FEEL I HAD DONE SOMETHING RIGHT. YOU FORGET THING IF FINGER QUOTES. THAT’S A GREAT WAY TO PUT IT. I THINK IT’S SIMPLE. THEY ARE MAKING A LOT OF MONEY OFF PEOPLE. THEY WANT TO KEEP MAKING MONEY OFF OF PEOPLE. THEY ARE, OF COURSE, WHEN YOU KNOW YOU RA VEHICLES THE EMPEROR HAS NO CLOSED. I THOUGHT THE SCALE OF PUSH BACK MAENLT THAT WE WERE NOT WRONG. BUT WHEN IN ASSESSING THE SCALE OF THE PROBLEM. THAT’S WHY WHEN WE HAD GOOD EVIDENCE TO COME UP WITH 17 BILLION NUMBER THEY NEEDED TO FIGHT BACK AND THEY NEEDED TO TRY TO DISCREDIT OUT. I DON’T THINK THEY WERE SUCCESSFUL IN THAT IN ANY WAY. >>ONE THING INTERESTING ABOUT THAT THE REASON WE HAD FOCUS ON THE ECONOMIC ANALYSIS ON THAT AT ALL WAS BECAUSE ONE OF THE INDUSTRIES INITIAL TACTICS TO DEFEAT THE PROPOSAL THEY HADN’T ADEQUATY ASSESSED THE ECONOMIC IMPACT. THEY NEEDED MORE DETAILED ECONOMIC ANALYSIS. THAT’S ONE OF THEIR INITIAL ARGUMENTS THAT GOT THE INITIAL PROPOSAL WITHDRAWN. I THINK THERE’S AN INTERESTING IMPLICATION IN THAT FOR INDUSTRY. AND WHILE IT — WHICH IS THAT BY DEFINITION IF THAT’S THE WAY THEY WANT TO PLAY THIS GAME, EVERY ISSUE WILL BE FOUGHT BASED ON HOW HARMFUL THEIR CONDUCT IS FOR THEIR CUSTOMERS. THAT WILL BE THE PUBLIC DEBATE. IT WILL BE PAINFUL FOR THEM AND UGLY. AND THE DOL’S ANALYSIS HELD UP IN COURT. AND STEVE CAN TALK ABOUT THAT. IN COURT AFTER COURT AFTER COURT UNTIL EXTREME PAN NECESSARILY ONE COURT OVERTURNED IT. ONE OF THE REASON, WE SEE SUCH A SHODDY ANALYSIS IF THEY DID A DIE CENT ANALYSIS THAT HAVE TO PROPOSE A DECENT RULE. >>ALL GOOD POINTS. MY OWN VIEW IS THAT THE INDUSTRY WAS NEVER SUCCESSFUL IN REALLY LAYING A GLOVE ON EVEN THAT MODEST 17 BILLION. AS A RESULT OF THAT, WHAT THEY HAD TO DO WAS RESORT TO A COUPLE OF OTHER DEEPLY MISLEADING MITT MITTOLOGIES TO FIGHT BACK AGAINST THE DOL’S RULE. IN VARIANCE OF THE SAME ARGUMENT ARE BEING DEPLOYED AGAINST FCC. THEY ARE MUCH MORE COMFORTABLE. THERE’S CONTEXT IS DIFFERENT. IT’S STRONG BROAD FIDUCIARY LIMITING ACCESS. IT’S JUST EXTRAORDINARILY KIND OF PERVERSE WAY OF LOOKING AT REGULATION. WHERE PAYDAY LENDER THE AGENCY IT SELF SAYING IF WE HAVE STRONG UNDERWRITING STANDARD IN PLACE PAYDAY LENDERS WILL GO OUT OF BUSINESS. AND PEOPLE WILL LOSE ACCESS TO CREDIT. IT’S A LITTLE BIT LIKE SAYING TO A MALNOURISHED STARVING PERSON DON’T YOU WANT TOMS OF THIS ROTTEN POISONOUS FOOT. IT DOESN’T MAKE SENSE WHEN YOU TAKE A CLOSE LOOK AT IT. THE OTHER THING THEY DID IN THE DOL CONTEXT THAT THE FCC WAS THE AGENCY THAT HAD THE EXPERTISE THE JURISDICTIONAL POWER TO DEAL WITH THIS ISSUE AND THERE’S YOU KNOW THERE’S HALF AED TOEN REASONS WHY THAT IS COMPLETELY WRONG. CONGRESS AND ARISA MADE IT CLEAR THE DOL HAS RESPONSIBILITY FOR RAE TIREMENT ACCOUNT. NOTHING THAT THE DODD FRANK HAD IT NEGATED THAT. IN FACT, IT REINFORCED THE NOEGS BY SAYING TO THE FCC WE WANT TO GIVE YOU GREATER AUTHORITY TO PROTECT INVESTORS WITH A FIGURESY DUTY AND AT THE SAME TIME THEY SAID NOTHING ABOUT SAILING BACK THE AUTHORITY. NEITHER OF THOSE ARGUMENT MADE SENSE. BUT IN THIS CRAZY WORLD, THEY GOT TRACTION. >>>I JUST WANTED TO ADD THE SMALL SAVER ARGUMENT JUST ALWAYS DROVE MY CRAZY. BECAUSE IT’S ESSENTIALLY THE ARGUMENT THAT IF PEOPLE KNEW HOW MUCH THEY WERE PAYING US FOR THIS ADVICE THEY WOULD STOP PAYING US FOR THIS ADVICE. OKAY. MAYBE. THAT SOUNDS GOOD. THEY SHOULD STOP PAYING IF THEY DON’T WANT TO. ONCE WE HAD DONE OUR ANALYSIS I THINK IT MADE IT EASIER TO TALK ABOUT THAT. IT WAS THE PROBLEM FIRST OF ALL IS WERE CHARGING THEM TOO MUCH. PEOPLE WERE ONLY WILLING TO PAY IT BECAUSE THE FEES WERE JUST SO HIDDEN. >>I LIKE TO THROW IN ONE SIDE NOTE. THE INDUSTRY GROUP THAT WENT INTO COURT TO CHALLENGE THE RULE THE BASIS FOR THEIR ARGUMENT WAS WE ARE NOTED A VASORS. WE NEAR SALES PEOPLE ENGAGED IN ARM’S LENGTH COMMERCIAL SALES TRANSACTION, NO DIFFERENT THAN A CAR DEALER. AND THE COURT BOUGHT IT. WHEN THEY ARE NOT IN COURT THEY ARE BACK TO BEING TRUSTED ADVISORS. THEIR ARGUMENT IS LESS COMPELLING. IF YOU PASS THIS RULE, YOU’RE WILL LOSE ACCESS TO BIASSED SELL RECOMMENDATION FROM A SALES PERSON WHO HAS INCENTIVE TO RECOMMEND THE PRODUCTS THAT ARE MOST PROFITABLE FOR THE FIRM INSTEAD OF THE ONES THAT ARE BEST FOR YOU. OH, NO. BEYOND THAT AND TO GET INTO AN ISSUE THAT ANDREW WOULD LIKE TO TALK ABOUT TECHNOLOGY HAS FUNDAMENTALLY CHANGED THIS EQUATION. NOT JUST THROUGH THE ADVENT OF ROBO ADVISOR BUT BY ALLOWING FOR THE AUTOMATION OF ADVICE THAT WERE ONCE LABOR INTENSIVE. WE HAVE A VARIETY OF OPTIONS AVAILABLE IN THE MARKETPLACE NOW WHERE ADVICE IS AVAILABLE UNDER A FIDUCIARY STANDARD AT VERY LOW COST TO VERY ACCOUNTS. AND SO IN THE UNLIKELY EVENT THE BROKER DEALERS THEY ALWAYS IF YOU I’LL TAKE MY BALL AND GO HOME. IN THE EVENT THEY WOULD ABOUT THIS MARKET ENTIRELY IF YOU MADE THEM ACT IN THEIR CUSTOMER’S BEST INTEREST THERE IS A VIABLE ALTERNATIVE OUT THERE AVAILABLE TO FILL THAT SPACE THAT WOULD LEAVE INVESTORS MUCH BETTER OFF THAN THEY ARE TODAY. WHEN THE FIDUCIARY RULE WAS FIRST INTRODUCED. FIRST PROPOSED. IT TURNS OUT THAT NOT VERY SURPRISINGLY THE ROBO ADVISORS WERE THE BIGGEST PROPONENTS WITHIN THE FINANCIAL SERVICE INDUSTRY. THEIR ARGUMENT THAT WELL IF IT RAISES THE STANDARD THE COST WILL GO UP. YOU KNOW I’M JUST WONDERING WHAT DOES THE PANEL THINK. IS ROBO ADVISOR THE COST. AND WHAT GENERAL RULE DOES TECHNOLOGY HAVE IN PLAYING THIS — TO SOLVE THIS PROBLEM? >>I THINK THAT THE CHALLENGE IS THAT PEOPLE LIKE TO THINK THAT THEY ARE UNIQUE AND THEY WANT TO HAVE THAT TRUSTED PERSONAL RELATIONSHIP WHEN IT COMES TO RETIREMENT. BUT THE TRUTH IS THE TYPICAL PERSON HAS TYPICAL RETIREMENT NEEDS AND THEREFORE IS ACTUALLY WELL SERVED BY LOW COST ROBO ADVISING. ONE OF MY FAVORITE COMMERCIALS I SAW FOR YOU KNOW ADVISOR SHOWS THAT A FAMILY ON TV THEY ARE AT KIDS SOCCER GAME. GETTING READY FOR WORK. YOU AREN’T YOU’RE UNIQUE. YOU NEED UNIQUE ADVICE. THAT WASN’T UNIQUE. THAT’S WHAT WE ALL DO. WE ALL HAVE DINNER AND GO TO WORK. WE ALL DO SOMETHINGS WITH OUR KIDS. I THINK YOU MAKE THE CASE FOR ROBO ADVICE THERE. SO THEY ARE TRYING TO CREATE THIS IDEA NO, NO; YOU NEED SOMETHING SPECIAL WHEN IN REALITY YOU HAVE VERY SIMILAR NEEDS AND WHAT THEY NEED TO HAVE AS MUCH MONEY AS POSSIBLE IN ETIREMENT AND LOW COST ADVISING CAN DO THAT. >>I WOULD LIKE TO SAY JUST FROM A SLIGHTLY DIFFERENT PERSPECTIVE. ONE TO POINT OUT IT WAS ACTUALLY THE FIDUCIARY ADVISORY COMMUNITY AS A WHOLE. THE FINANCIAL PLANNING COMMUNITY HAS FOR YEARS BEEN ALLIES IN THE FIGHT TO RAISE THE STANDARD OF CONDUCT. AND GROUPS LIKE THE CFP BOARD WERE STRONG ALLIES. IN ADDITION TO ROBO. I THINK WE MADE A TACTICAL ERROR BY POINTING TO THE ROBO ADVISORS. I THINK THEY ARE AN IMPORTANT PART OF THE SOLUTION. IT MADE IT VERY EASY. IRJUST SAT IN HEARING IN THE HOUSE FINANCIAL SERVICES COMMITTEE LAST WEEK WHERE ONE OF THE REASONS, I DON’T KNOW ABOUT YOU. MY MOM DOESN’T WANT ROBOT TO GIVE THEM ADVICE AND NEITHER DO I. THE ISSUE HERE IS NOT YOU KNOW ROBO ADVISORS TECHNOLOGY HAS BEEN HARNESSED BY ALL SORT OF ADVISOR TO AUTOMATE PORTION OF THAT THEY DO. SO THAT YOU KNOW MAYBE THE FUTURE IS NOT JUST — MUCH ROBO ADVISORS AS YOU KNOW CYBORG ADVISORS. WHAT YOU SEE IS TECHNOLOGY BEING INCORPORATED INTO PRACTICES THAT ARE — THAT INCLUDE THAT HUMAN CONTACT THAT PEOPLE WANT. THE OTHER THING I THINK WHERE TECHNOLOGY REALLY OFFERED A SOLUTION ON THIS IS PEOPLE SAY WELL, HOW AM I SUPPOSED TO COMPLY WITH BEST INTEREST STANDARD THAT YOU WANT. IN THE WAKE OF THE DOL RULE. WE SAW DOZEN. MAYBE HUNDREDS OF SERVICES ROLL OUT. JOBS CREATED THAT WERE THEN DESTROYED WHEN THE RULE WAS DESTROYED. I DIGRESS. WERE DESIGNED TO AID ON THIS COMPLIANCE SIDE. YOU KNOW NOT JUST ADVISING ITSELF. HOW DO YOU COMPARE 401(K) PLAN MENU TO IRA INVESTMENT AND DETERMINE WHICH WOULD BE THE BEST OPTION FOR THE INVESTOR. HOW DO YOU ANALYZE THAT AND DOCUMENT THE BASIS FOR YOU DECISION. I THINK THERE’S A LOT OF ROLES FOR TECHNOLOGY TO PLAY IN THIS AREA. >>I THINK THERE’S IN MY MIND THERE’S LARGER POINT. I THINK THIS IS ABSOLUTELY RIGHT. IT’S AN IMPORTANT COMPONENT OF SOLUTION. IT’S NOT THE END-ALL AND BE ALL. WHAT IT SAYS TO ME EXEMPLIFIES THE ADAPTABILITY OF THE FINANCIAL SERVICES INDUSTRY. WHAT THAT MEANS IS THAT YOU CAN TRACE THE HISTORY BACK TO THE GREAT DEPRESSION. A PATTERN AND PRACTICE OF REGULATORY REFORM BY SAYING THE SKY WILL FALL OUR INDUSTRY WILL COLLAPSE, AND THE PUBLIC WILL SUFFER IF THE REGULATORY REFORMS GO INTO PLACE. WHAT WE SAW WITH THE ADVENT OF THE DOL RULE, UNFORTUNATELY, FOR SUCH A SHORT PERIOD OF TIME BUT STILL EVEN IN THAT SHORT SPAN OF TIME WE SAW THE LIE BEING PUT TO THESE HORRIFIC CLAIMS THAT THE INDUSTRY COULD NEVER ADAPT. THAT ADVICE WOULD BE TOO EXPENSIVE. ET CETERA, ET CETERA. ROBO ADVISOR, TECHNOLOGY SOLUTIONS OF SEVERAL DIFFERENT VARIETIES WERE PART AND PARCEL OF THAT. IT REALLY IS LARGER POINT THAT ALL THE FEAR MONEYING GERING IS JUST THAT. IT’S IMPORTANT TO BE AWARE THIS UNDER GEDS A LOT OF INDUSTRY RESISTANCE AND IT’S PHONY AT HEART. >>WE HAVE 30 MINUTES. WE CAN OPEN UP TO THE AWED BE — AUDIENCE FOR Q&A. THANK YOU. THANK YOU. I HAVE BEEN A FINANCIAL ADVISOR FOR 20 YEARS. I’VE SEEN A LOT OF — I’VE SEEN 20 YEARS WORTH OF REGULATIONS CHANGE AND I WAS SO EXCITED WITH THE FIDUCIARY RULE BECAUSE I’M IN AN INDUSTRY THAT IS DOMINATED, AVERAGE AGE OF FINANCIAL ADVISOR IS ABOUT 55 OR 56. VARIES AND PREDOMINANTLY WHITE MALES. AND WHEN I’M IN TRAININGS OR JUST OUT AND ABOUT DOING MY FINANCIAL ADVISOR CHECKUPS. THE LANGUAGE OH MY GOD I HAVE TO MEET WITH MY CLIENTS EVERY YEAR. OH, MY GOODNESS, HOW AM I SUPPOSED TO LIVE WITHOUT A 7% COMMISSION THOSE OF US WHO USE THIS FIDUCIARY STANDARD WERE SO EXCITED. AND WE’RE ALSO LETDOWN AS FINANCIAL ADVISORS THAT THE RULE WAS KILLED OR YOU KNOW SHIFTING OVER TO THE FCC LANGUAGE. I WANT TO SAY THANK YOU. KEEP UP THE GOOD WORK. I WAS HOPING THAT A LOT OF THOSE GUYS WOULD JUST GIVE UP AND RETIRE. >>MANY DID. MANY DID. AND THE ONES THAT STUCK IN THERE HAVE THEY ARE RIGHT BACK TO THE SAME BATTLE DAYS. PLEASE THANK YOU. KEEP UP –>>THAT’S AN IMPORTANT POINT THAT AS I SAID IT WASN’T JUST THE ROBO SUPPORTIVE OF THIS RULE. THERE’S A COMMUNITY OF ADVISORS OUT THERE WHO EMBRACE THEIR FISSIONRY OBLIGATIONS, WHO ARGUE FOR A STRONGER INTERPRETATION OF THE ADVISORS ACT FIDUCIARY STANDARD. WHO TAKE SERIOUSLY THEIR OBLIGATION TO AVOID CONFLICTS OF INTEREST TO MANAGE THE REMAINING CONFLICTS OF INTEREST TO THE BEST INTEREST IN THE BEST INTEREST OF THEIR CUSTOMERS. SO WE GREATLY APPRECIATION THOSE OF YOU IN THE PROFESSION WHO LIVE UP TO THAT STANDARD EVERY DAY. >>YOU KNOW, I FEEL FOR YOU. HAVING TO COMPETE IN AN INDUSTRY AGAINST A BUNCH OF CHEATERS. THAT’S WHY IT’S NOT FAIR. AND I THINK THAT’S WHY IT MAKES A LOT OF SENSE THAT PEOPLE WHO ARE TRYING TO DO THE RIGHT THING, YOU ARE DOING THE RIGHT THING. WANT TO HAVE A SET OF RULES SO EVERYONE IS DOING THE RIGHT THING. IT MAKES IT REALLY HARD FOR FINANCIAL ADVISORS WHO ARE GIVING GOOD ADVICE AND THEIR CLIENTS PEST INTEREST AND CHARGING A FAIR PRICE; TO COMPETE AGAINST SOMEONE WHO LYING ABOUT WHAT THEY ARE CHARGING. LYING ABOUT WHAT THE PERSON IS GOING TO PAY. AND GIVING BACK BAD ADVICE. WHEN YOU ARE MAKING STUFF UP. YOU CAN MAKE IT SOUND A LOT SEXIER THAN WHEN YOU TELL THE TRUTH. >>IS THIS ON? >>HELLO. CAN YOU HEAR ME? >>YES. O OH, GREAT. I’M ONE OF THOSE PEOPLE SHE WAS TALKING ABOUT. I’VE BE IN THE BUSINESS FOR 38 YEARS. OF COURSE I STARTED WHEN I WAS 2 YEARS OLD. I WOULD LIKE TO MENTION THAT WHEN I STARTED OUT — [INAUDIBLE]>>AND DECIDED TO GO AS AN INDEPENDENT BROKER. YOU’RE RIGHT ON THAT THE BROKER DEALERS HAD THE CONTEST AND QUOTAS. THEY EVEN WENT TO PROPRIETARY PRODUCTS SO WE COULD HAVE A CHOICE OF GOING OUTSIDE OF METLIGHT OUTSIDE OF EQUITABLE. THEY STILL HAD YOUR BEST COMMISSION ON THE PRODUCTS THAT THEY PUSHED. EN IF IT WAS FOR LUNCH AND LEARN. NOW I WOULD LIKE TO MENTION ALSO THAT PERSPECTIVES ARE VERY DIFFICULT FOR PEOPLE TO UNDERSTAND. AND THAT’S SOMETHING THAT NEED TO BE REWRITTEN. AND ALSO MY QUESTION WHEN YOU HAD MENTIONED THAT PEOPLE STAY WITH THE COMPANY, THEY RETIRED. THAT’S AN ADVANTAGE IN A DISADVANTAGE. ESPECIALLY WITH THE CITY OF DETROIT THAT WENT INTO BANKRUPTCY IN ALL OF # 03-B PLANS WENT DOWN THE TUBES. BUT MY CONCERN IS AND MAYBE YOU CAN HELP ME WITH THIS. THE — I UNDERSTAND THAT IT WOULD HAVE BEEN MUCH MORE ARBITRATION WITH THE DOL AS FAR ASKED AORS WERE CONCERNED THAT WE COULD HAVE TO ENO COVERAGE. I’M WONDERING EXACTLY HOW THAT ARBITRATION THING WOULD WORK. THANK YOU. >>I CAN JUMP IN ON THAT ONE IN THE DOL RULE SIMPLY AFFIRMED THE STANDARD ON ARBITRATION THAT EXISTS UNDER THE SECURITY’S LAW, WHICH WAS THAT THEY PERMITTED AS THE FCC PERMIT BROKERS TO INCLUDE PREDISPUTE BINDING A ARBITRATION CLAUSES IN THEIR CONTRACTS. I THINK THE ARGUMENT THAT ARBITRATION WILL GO UP YOU KNOW THE NUMBER OF CLAIMS WOULD GO UP WAS UNFOUNDED LIKE MANY OF THE CLAIMS. SO FIRST OF ALL, THE PRIMARY CLAIM BROUGHT IN ASHTATION TODAY AGAINST BROKER DEALERS IS VIOLATION OF FIDUCIARY DUTY, EVEN THOUGH THEORETICALLY BROKERS DON’T HAVE FIDUCIARY DUTY. THEY ARE BEING HELD TO THAT STANDARD UNDER COMMON LAW FIGURESY STANDARDS ALREADY. TO THE DEGREE THAT THE DOL RULE WAS SUCCESSFUL IN CAUSING FIRMS TO REIN IN ALL OF THESE TOXICS INCENTIVE THAT ENCOURAGE AND REWARD ADVICE THAT IS NOT IN CUSTOMER’S BEST INTEREST. THERE WOULD BE A LOT FEWER INCENTIVE FOR BAD ADVICE. THERE WOULD BE FEWER OF THE KIND OF PRACTICES THAT LAND PEOPLE IN ASH STRAIGS. I ACTUALLY THINK THE — THERE’S A REASONABLE ARGUMENT. WE WON’T KNOW. BECAUSE WE DON’T HAVE THE CASE HISTORY TO SAY. THERE’S A REASONABLE ARGUMENT THAT IT WOULD — HAD IT BEEN EMBRACED BY INDUSTRY. IT WOULD HAVE DECREASED THEIR LIABILITY EXPOSURE RATHER THAN INCREASED IT. >>YEAH. AND JUST TO BE CLEAR. THE ARGUMENT ABOUT THE FEAR MONGERING ABOUT INCREASED LIABILITY, ARBITRATIONS AND SO FORTH STEM PARTLY FROM WHAT THE DOL DID IN TRYING TO CREATE A REMEDY A MEANINGFUL REMEDY FOR THE IRA OWNERS AND THE IDEA WAS, LOOK, IF YOU ARE AN ADVISOR TO IRA OWNER UNDER THIS RULE AND YOU WANT TO CHARGE COMMISSIONS, YOU MAY. THEN YOU HAVE TO ENTER INTO A CONTRACT WHICH SAYS I’M A FIDUCIARY. I WILL LOOK AFTER YOUR BEST INTEREST. AND IF YOU BREECH THAT CONTRACT, THEN THE IRA ACCOUNT OWNER HAS A RIGHT AS HE OR SHE SHOULD TO HOLD THAT ADVISOR ACCOUNTABLE. THAT IS WHAT IS SPAWNED THIS NOTION THAT IT WILL BE EXPLOSION OF CLAIMS IF YOU WILL. BUT FOR REASONS THAT BARB SAID THAT UNDERLYING PREMISE WAS BOGUS. AND TO THE EXTENT THAT THERE WAS GOING MORE CLAIMS AND LIABILITY IT WAS GO ACTUALLY REFORM PRACTICES AND IT WAS GOING TO MAKE INJURED INVESTORS WHOLE. IT WAS A WIN WIN FROM OUR STANDPOINT. >>>I WANT TO ADDRESS. THE YOU ABOUT ROLLING OVER A 401(K) OR 403-B AND YOU BROUGHT UP THE CITY OF DETROIT. I DON’T THINK THE FEDERAL GOVERNMENT IS GOING BANKRUPT. IF IT DOES WE HAVE BIG PROBLEMS BEYOND RETIREMENT SAVINGS. AND SO I THOUGHT THAT WAS REALLY EXCELLENT EXAMPLE OF A SECRET SHOPPER. BUT IF YOU WANT BROADER STUDY IN 2011 THE GAO DID AN INVESTIGATION WHERE THEY CALLED AROUND AND ASKED FOR ADVICE, AND MOST OF THE CALL CENTERS RECOMMENDED ROLLOVER WITHOUT GETTING ANY SPECIFIC INFORMATION ABOUT THE FEES THEY WERE PAYING. WHERE THE MONEY WAS AT. WHAT THEIR CIRCUMSTANCES WERE. ROUGHLY HALF OF THEM SAID OH, YES YOU CAN ROLL OVER BECAUSE WE HAVE FREE IRA. NO FREES. FREE AND TALKED ABOUT HAD NO YOU KNOW WITHOUT CLEARLY EXPLAINING ANY KIND OF INVESTMENT TRAN ACTION OR OTHER FEES WHICH STILL ALIVE. THEY SIMPLY EMPHASIZE THEIR IRA’S WERE FREE. OR HAD NO FEES WITH THEM MINIMUM BALANCE. >>IT’S THAT KIND OF MISLEADING ADVICE THAT I RUFR TO. IT’S NOT EVERYBODY SHOULD LEAVE THEIR 401(K) WHERE IT IS. THEY SHOULD ROLL OVER MUCH MORE THAN IS NUN’S BEST INTEREST. >>THOSE WANT FLY BY NIGHT OPERATIONS. THOSE WERE THE BIG PROVIDER ENGAGED IN THAT CONDUCT. >>>>SURE. DANA MUIR FROM THE ROSS SCHOOL. IT SEEMS SOME STATES ARE WITH YOU IN BELIEVING THE FCC IS NOT DOING ENOUGH. DO YOU THINK STATES WILL MAKE PROGRESS HERE OR WILL THE FCC RULE PREEMPT THE STATE’S EFFORTS. >>EXCELLENT QUESTION. THERE ARE TWO THINGS THAT HAPPEN READ — RECENTLY IN THE STATE ASSOCIATION IN ASSOCIATION OF STATED REGULATORS. THIS REFLECTS THE BIPARTISAN MAKE UP OF THE STATE GOVERNMENTS. TO FCC ARGUING THAT UNLESS IT STRENGTHENED AND CLARIFIED IT’S PROPOSAL, IT WOULD PERPETUATE THE PROBLEMS THEY SEE EVERY DAY AT THE STATE LEVEL. THEY ARE VERY CONCERNED ABOUT THE INADEQUACIES OF THE FCC PROPOSAL. THERE’S A FEW STATES THAT DECIDED TO STEP IN AND SEE IF THEY CAN ADOPT LAWS AT THE STATE LEVEL THAT WOULD PROVIDE PROTECTIONS FOR — THEIR CITIZENS THEY DON’T BELIEF WOULD BE PROVIDED. NEVADA AHEAD. THERE WAS A LEGISLATIVES SO LUGUES SESSION THERE. NEW JERSEY. THEY HAD HEARING. WE DON’T KNOW WHAT THEY WILL PROPOSE. NEW YORK DID SOMETHING TARGETEDED A INSURANCE. ANNUITIES AND INSURANCE TYPE INVESTMENTS THAT CURRENTLY IN COURT. I THINK THERE ARE TWO THINGS THAT WILL DETERMINE WHETHER WE SEE MORE — AND MARYLAND HAS A LEGISLATIVE PROPOSAL BUT HASN’T BEEN ACTED ON. THERE ARE TWO THINGS I WILL DETERMINE WHETHER WE SEE MORE OF THAT. THE FIRST, WILL THE FCC IMPROVE ITS RULE? BECAUSE IF FCC WHERE TO STEP IN AND FIX SOME OF THESE KEY SHORTCOMINGS, I THINK THE STATE WOULD BE HAPPY TO STEP BACK. AND DEFER TO A STRONG UNIFORM FEDERAL STANDARD. THE OTHER THING, WHOEVER GOES FIRST IS GOING TO GET SUED. THEY WILL FACE EXACTLY THE SAME KIND OF LEGAL CHALLENGE THAT DOL DID. THE LONG QUESTION IN THIS SECURITIES ARENA IS THE NATIONAL SECURITY IMPROVEMENT ACT. WHICH INCLUDES SOME PRESUMPTION OF STATE AUTHORITY BUT IT’S QUITE NARROWLY DRAWN. IT’S MOSTLY TO DEAL WITH THOSE KINDS OF THINGS LIKE CAPITAL STANDARDS, AND WHAT NOT. BETTERLOGICALLY SET BEST SET AS UNIFORM FEDERAL LEVEL. AND SPECIFICALLY AND PRESERVE STATE AUTHORITY TO REGULATE BROKER DEALER CONDUCT. ONE AREA THAT IS PRETEMPTED IS STATE ARE PREEMPTED FROM CREATING BOOKS AND RECORDS REQUIREMENTS THAT ARE NOT REQUIRED UNDER FEDERAL LAW. SO THE INDUSTRY WOULD ARGUE, WILL ARGUE THAT THEY CAN’T — EVEN IF THE STATE DOESN’T EXPLICITLY IMPOSE BOOKS AND RECORDS REQUIREMENTS. AND THEY WON’T. THEY ARE SMART ENOUGH TO AVOID THAT. THE INDUSTRY WILL ARGUE IT’S IMPLIED THAT IN ORDER TO COMPLY WITH THE LAW THEY HAVE TO CREATE THESE BOOKS AND RECORDS. I THINK THERE’S FLAWS IN THAT ARGUMENT. ONE THERE’S FAIRLY EXTENSIVE DOCUMENTATION REQUIREMENT UNDER KNOW YOUR CUSTOMER AND SUITABILITY RULES. THE OTHER IS THERE’S NO END TO THAT ARGUMENT LIKE IF YOU CAN ARGUE THAT ANYTHING THAT YOU MIGHT DO TO COMPLY IS BY DEFINITION REASON TO PREPREEMPT THE LAW. ITS OVERWHELMINGS THE ARGUMENT. THIS HASN’T PREVIOUSLY BEEN LITIGATED. AND I THINK THE DOL HAD A REALLY STRONG DEFENSE AND WE — SO WE’VE SEEN WHAT CAN HAPPEN IN THE COURT SYSTEM. BUT I THINK THOSE WILL — IF A STATE PERSEVERES, GETS CHALLENGED AND WINS A GOOD DECISION IN COURT, THEN I THINK YOU WILL SEE MORE STATES STEP IN, IF THE FCC DOESN’T ADOPT A STRONGER STANDARD. >>THAT’S ABOUT — SPOT ON >>>GOOD MORNING. MY QUESTION IS ABOUT THE REGULATORY FLOOR. SO YOU’VE MENTIONED TECHNOLOGY A BIT AND I THINK TECHNOLOGY INCREASINGLY CREATES MORE COMPLEX TOOLS FOR WEALTH ACCUMULATION. AND PENSIONS 401(K), RETIREMENT PLANNING. ARE SOME OPPORTUNITIES FOR WEALTH COMMUNICATION THAT ARE TOO OFTEN AVAILABLE TO YOU KNOW MOST PEOPLE THAT LIVE IN THE COUNTRY. IT’S A SERVICE THAT’S NOT WIDELY ACCESSIBLE. AND WITH ADDED TECHNOLOGY, IT RELIES ON INSTITUTIONS TO GENERATE THAT WEALTH THAT MOSTLY ENSCONCED TO THE ACCOUNTS OF WHITE WEALTHY INVESTORS AND CAN CONTRIBUTE TO THE RACIAL WEALTHY DIVIDE WE SEE THAT’S EXPANDING. THIS PANEL AND THE PANEL EARLIER YOU KNOW HAVE BEEN TALKING ABOUT THE REGULAR FLOOR. AND I’M INTERESTED FROM YOUR PERSPECTIVES HOW THAT FLOOR CAN REALLY BE CEMENTED. YOU KNOW HOPEFULLY NOT JUST THINKING ABOUT THE BARE MINIMUM. YOU KNOW REALLY LIKE A STEP ABOVE A FLOOR THAT THE REALLY SOLID AND STABLE. AND IS EXPANDED SO THAT MORE PEOPLE ARE STANDING ON IT. >>I WILL JUMP IN FIRST. BEFORE I CAME TO CFA. MANY YEARS AGOIST ON THE BOARD OF THE DENVER FOOD BANK COALITION. THEN I WENT TO CFA TO WORK ON HOW TO MAKE RICH PEOPLE RICHER BY PROTECTING THEM FROM ABUSIVE PRACTICES. BECAUSE WHEN I STARTED IN ’86 THIS WAS NOT AN MIDDLE INCOME ISSUE. WORKING ON INVESTOR PROTECTION ISSUES AT MOST YOUR DEALING WITH ABOUT HALF THE POPULATION. ISN’T THE MEDIAN AMOUNT PEOPLE HAVE SAVED FOR RETIREMENT ZERO. I CAN’T PROTECT SOMEONE WITH NO RETIREMENT SAVING FROM ABUSIVE PRACTICES AND THE RETIREMENT MARKET. I THINK THERE’S A WHOLE SET OF THINGS WE NEED TO BE DOING TO RETHINK THE WAY WE FUND PEOPLE’S RETIREMENT. THAT SHOULDN’T EXPOSE THEM TO THESE ABUSIVE PRACTICES. AND IT’S NOT EL IT’S NOT MY AREA OF EXPERTISE. BUT I THINK IT’S — AND I HAVE LIKE YOU PROBABLY NOTICE. I SPEAK WITH A FAIR AMOUNT OF PASSION. I HAVE DEVOTED 30 YEARS TO IT. IT IS A FAR MORE IMPRESSING PROBLEM TO FIGURE HOW WE LET PEOPLE LIVE DECENT STANDARD LIFE IN RETIREMENT MAKING SURE RICH PEOPLE DON’T GET RIPPED OFF. THIS IS INCREASINGLY MIDDLE CLASS PROBLEM. IT’S NOT A LOW INCOME PROBLEM. IT IS INCREASINGLY A MIDDLE CLASS PROBLEM. BECAUSE THIS THE NOW HOW WE FUND RETIREMENT ACCOUNTS. WE’RE INCREASINGLY SEEING PEOPLE WITH YOU KNOW MUCH MORE MODEST MEANS BEING BROUGHT INTO THIS SYSTEM. I DON’T FEEL LIKE EYE ANSWERED YOUR QUESTION. THAT’S THE PERSPECTIVE THAT I BRING TO THOSE ISSUES. >>I THINK I SHARE A LOT OF THAT PERSPECTIVE. THE REASON I THINK THAT THIS CONFLICTED ADVICE ISSUE HAS BECOME SO SALIENT. THE MIDDLE CLASS RELY ON THEIR RETIREMENT SAVING TO FUND THEIR RETIREMENT. YOU KNOW A MUCH SMALLER PORTION OF MIDDLE CLASS BABY BOOMER WILL BE RELYING ON SOME KIND OF PENSION. INSTEAD WILL RELY ON WHAT THEY SAVED. WE NO LONGER TALK ABOUT TRANSFERS AMONG THE RICH WHEN IT COMES TO CONFLICTED ADVICE BUT TRANSFERS FROM THE MIDDLE CLASS TO THE RICH AND THIS BECOMES A BIGGER I THINK MORE PRESSING SOCIAL PROBLEM. BUT THERE’S ANOTHER SOCIAL PROBLEM WHICH IS WE DO NOT — WE HAVE IN A RETIREMENT SAVING PROGRAM THAT’S DESIGNED TO BOLSTER THE RETIREMENT SAVING OF THE MOST WELL OFF. THAT DOESN’T HAVE TO DO WITH CONFLICTED ADVICE. THAT’S THE TAX PREFERENCES THAT WE HAVE SET UP FOR RETIREMENT SAVINGS. WE KNOW FUND RETIREMENT SAVINGS THROUGH GIVING YOU KNOW ESSENTIALLY A MATCHING GRANT TO PEOPLE WHO SAVE FOR RETIREMENT AND THAT MATCHING GRANT A FUNCTION OF YOUR HIGHEST MARGINAL TAX RATE. IF YOU ARE RICH YOU GET THE BIGGEST GRANT AND IF YOU ARE POOR YOU GET ZERO. THAT’S OUR RETIREMENT SAVING PLAN. THAT’S TERRIBLE. I THINK WE EVEN KNOW NOT ONLY IS TERRIBLE BECAUSE IT’S PUTTING MORE FEDERAL DOLLARS TOWARDS RICH PEOPLE’S RETIREMENTS SAVING BUT IT ALSO ACTUALLY DOESN’T REALLY WORK. IF WE TRY TO SPEND TAX DOLLAR TO INCREASE RETIREMENT SAVING. WE KNOW TAX PREFERRED ACCOUNTS IS LIKE THE LEAST EFFECTIVE WAY WE COULD DO. WE NEED TO BE INCENTIVIZING PEOPLE ON THE MARGIN. WE NEED TO BE INCENT SIENGZ PEOPLE WHO DON’T HAVE RETIREMENT SAVING. WE DON’T NEED TO BE DOING DOLLAR FOR DOLLAR MATCHING OF THE VERY RICHEST PEOPLE. THAT’S A DIFFERENT ISSUE THAN CONFLICTED ADVICE BUT VERY MUCH A REAL ONE. >>WE HAVE A SYSTEM. IN A COUNTRY WHERE THE MAJORITY OF PEOPLE CAN’T COME UP WITH $400 TO GET THROUGH AN EMERGENCY. RELIES ON THEM TO TAKE MONEY OUT OF THEIR PAYCHECKS TO FUND THEIR RETIREMENT. HOW EFFECTIVE DO YOU THINK THAT WORKS FOR THAT PORTION OF THE POPULATION? >>I MEAN, YOU KNOW BARB AND BETSEY ARE RIGHT. OUR PROBLEM EXTENDS BEYOND CONFLICTED ADVICE. WE SORT OF AN INSTITUTIONALLY TERRIBLE SYSTEM. ONE KIND OF MODERATING FACT AND IT’S NOT FULLY MODERATING BUT THE FACT FOR A LOT OF MIDDLE CLASS HOUSEHOLDS, YOU KNOW THEIR HOMES PROVIDE YOU KNOW SOME ELEMENT OF RETIREMENT SECURITY AND SO EVEN IF THEY MAY NOT HAVE ASSETS. THEY HAVE THEIR HOUSE. BUT OF COURSE THAT’S CHALLENGES AND RISK AND DIFFERENT POPULATIONS, BUILT EQUITY IF THEIR HOMES AT DIFFERENT RATES OR DEPENDING ON HOW THEY ARE ABLE TO TIME THE CYCLONE YOU KNOW THE AVAILABILITY OF CREDIT IS PRO CYCLICAL. WHO GETS ACCESS DURING BOOM TIMES WHEN RETURNS ARE LOW. IT’S LOW INCOME PEOPLE. WHO SORT OF SLEPT IN. THERE’S A LOT OF CHALLENGES AND PROBLEMED WITH THAT. FOR A LOT OF PEOPLE WHO DON’T HAVE ACCESS TO PENSIONS AND YOU KNOW D.C. PLANS AND OTHER EMPLOYER BASED SAVING THEY HAVE THEIR HOME AND PART OF THE CHALLENGE ANY SORT OF HELPING HOUSEHOLDS BUILD SECURE RETIREMENT IS THAT THE SOLUTION DOESN’T HAVE TO BE REALLY, REALLY MULTIPRONGED. THAT REMINDS ME ABOUT WHAT I THINK IS MOST IRONIC THING ABOUT THE REGULATORY ENVIRONMENT AROUND RETIREMENT NOW WHICH IS THAT AT THE TIME THAT YOU KNOW THE DOL RULE IS BEING VACATED, THE CURRENT ADMINISTRATION ALSO DECIDED TO VACATE THE DOL GUIDANCE WHICH SAID STATE COULD START TO SET UP RETIREMENT PLANS FOR PEOPLE WHO DIDN’T HAVE THEM THROUGH THEIR EMPLOYERS AND THEY DIDN’T NEED TO WORRY ABOUT THE RISK OF FIDUCIARY STANDARD. ALL OF A SUDDEN LIKE THE CURRENT ADMINISTRATION SUPER CONCERNED ABOUT FIDUCIARY STANDARDS IF WE ARE TALKING ABOUT A STATE TRYING TO GET ACCESS TO RETIREMENT SAVING TO POOR PEOPLE. JUST NOT SO KRNED ABOUT PEOPLE GETTING IT THROUGH FINANCIAL ADVISORS. WHY THE APPARENT DIFFERENCE OF OPINION? WELL, BECAUSE A LOT OF YOU KNOW THE FINANCIAL SERVICES INDUSTRY THOUGHT THEY WOULD LOSE OUT TO THE STATE PLANS AND IT WOULD BE THE STATE PLAN WOULD DIVERT PROFITS FROM THE STATE. THE VIEW ON WHERE THE FIDUCIARY DUTIES SEEMS TO BE ALWAYS SIDES WITH IS FINANCIAL SERVICES INDUSTRY GOING TO MAKE MORE MONEY OR LESS MONEY OFF THIS AND GO INTO THE WHATEVER DIRECTION MEANS MORE MONEY FOR FINANCIAL SERVICES. >>TURNS OUT FINANCIAL INCENTIVE MATTER. WHO KNEW? [LAUGHTER]>>I WILL NOW RAISE A SAD TOPIC WHICH IS IRA PROJECT WHICH SOME OF US WORKED ON WHICH IS NOW DEFUNCT. IN FACT I’M READING ABOUT IT. IT LOOKS THOSE WHO AT MIRA ACCOUNT HAVE BEEN ROLLED OVER TO ROTH IRA WITH THE PRIVATE FUND RETIREMENT CLEARINGHOUSE LLC. WHAT DID WE DO WRONG? >>WHAT COULD WE HAVE DONE DIFFERENTLY AND IS THE GOVERNMENT POTENTIALLY THIS NEW ANCHOR BY WHICH WE ARE TRYING TO ENABLE THOSE HALF OF AMERICANS WHO HAVE NO SAVINGS AS A STARTER RETIREMENT PRODUCT. STARTER SAVING PRODUCT. THIS WAS ACTUALLY ONE OF MY BIGGEST CRITISISMS. WE TALK ABOUT RETIREMENT TO PEOPLE WHO HAVE NO CONCEPT THEY WILL EVER REACH RETIREMENT. SHOULD WE HAVE THOUGHT ABOUT RENAMING IT AND CALLING IT SOMETHING DIFFERENT? GENERALLY THE IDEA OF USING THE FEDERAL GOVERNMENT NOT TO MENTION YOUR POINT ABOUT THE AUTO ENROLLMENT PROGRAM AT THE STATE LEVEL BUT USING GOVERNMENT AS NOT ONLY THINKING ABOUT THE TAX CHANGES THAT WOULD BE WARRANTED TO MAKE THIS MORE EQUITABLE. BUT GOVERNMENT AS A WAY TO ANCHOR FACILITY, SAVINGS FOR AT LEAST THE SORT OF MID TO LONGER TERM. >>I MEAN WHAT WE DID WRONG. WE LOST AN ELECTION. BUT BEYOND THAT, I DO THINK THERE’S A FUNDAMENTAL FLAW IN ALL OF THESE APPROACHES TO GO ABOUT WHAT WE WERE TALKING ABOUT BEFORE THAT RELY SO HEAVILY ON PEOPLE COMING UP WITH THE MONEY TO SAVE — COMING UP WITH THE MONEY TO SAVE NOW FOR RETIREMENT THAT THEY CAN’T IMAGINE GETTING TO. AND THERE MAY WELL BE SOME DIFFERENT MESSAGING YOU CAN DO AROUND THAT. THAT HELPS WITH THAT. CFA HAS A PROGRAM THAT WE SPONSOR CALLED AMERICA SAVES. DESIGNED TO GET LOW AND MODERATE INCOME PEOPLE TO SAVE AND BUILD WEALTH. IDENTIFY A GOAL, SET A PLAN. SAVE FOR THAT PLAN. AND A TREMENDOUS AMOUNT OF THOUGHT HAS GONE INTO THE DEVELOPMENT OF MESSAGING IN THAT HOW DO YOU ENCOURAGE PEOPLE TO THAT. I RECOMMEND IT AS IF YOU ARE INTERESTED IN SEEING SORT OF PROGRAM OUT THERE THAT CAN BE EFFECTIVE, BUT I DO THINK THERE’S A FUNDAMENTAL PROBLEM AS LONG AS WE RESTRICT OURSELVES TO THINKING ABOUT THIS IN TERMS OF HOW ARE WE GOING TO HAVE HAVE PEOPLE WHO DON’T HAVE ENOUGH MONEY TO FIX A FLAT TIRE IF THEY GET ONE. START SAVING TOWARD RETIREMENT. IT’S NOT GOING TO WORK. >>IF I COULD PICK UP ON THAT A LITTLE BIT. I THINK WE’VE LEARNED JUST YOU KNOW BASED ON SORT OF BETTER DATA AND MEASUREMENT OVER THE LAST FEW YEARS THAT YOU KNOW PEOPLE HOUSEHOLDS HAVE LOT OF MONTH TO MONTH VOLATILITY. THE STARTER CHALLENGE BEYOND RETIREMENT AND HOW GREAT LIFE WILL BE AND THE GOLDEN YEAR IS MANAGING THROUGH THAT. SORT OF VOLATILITY. TO ME THAT’S LIKE THE BASIC YOU KNOW SORT OF FIRST ORDER OF PROBLEMS. HOW DO YOU HELP HOUSEHOLDS BUDGET SO THAT THEY DON’T HAVE THESE LIKE FINANCIAL EMERGENCIES AND SORT OF HAVE THIS LIQUID SAVING OR BUFFER SAVING THEY CAN TAP INTO FOR EMERGENCIES. AND YOU KNOW, THAT’S SOME COMBINATION OF POLICIES AND BUDGETING TOOLS AND YOU KNOW CERTAINLY THERE’S A RULE FOR TECHNOLOGY. AND STUFF LIKE THAT. BUT I DON’T SEE US REALLY CRACKING LIKE THE RETIREMENT NUT UNTIL WE SORT OF SOLVE THAT BASIC BUDGETING ISSUE. >>I APPLAUDED AMBITIONS ASSOCIATED WITH THAT PROGRAM. BUT I HAD — THE CONCERN IS THAT LOW-INCOME PEOPLE ACTUALLY NEED THE MONEY NOW. AND IF THEY DON’T NEED IT. >>FLEXIBILITY OF 115 AGI. >>RIGHT. >>YES. LOW-INCOME PEOPLE THERE IS THIS WHOLE ISSUE OF TRYING TO GET PEOPLE TO SAVE NOT FOR RETIREMENT BUT FOR THE RAINY DAY WHICH WE KNOW THE COMING. BUT I THINK ABILITY THINKING ABOUT PRODUCTS THAT HELP YOU KNOW LEARN TO BUDGET AND LEARN TO SAVE. IS FIRST PLACE TO GO. THE OTHER THING WE NEED TO RETHINK. WHAT DO WE NEED. WHO NEEDS WHAT TO TOP OFF SOCIAL SECURITY? SOME PEOPLE DON’T NEED A LOT OF ADDITIONAL SAVINGS IN ADDITION TO SOCIAL SECURITY. IF WE HAVE A ROBUST SYSTEM. SOME OF THESE REFORMS HAVE TO BE THOUGHT ABOUT IN TERMS OF THAT BROADER PICTURE OF HOW ARE WE — HOW ARE WE MANAGING RETIREMENT SAVING. HOW MUCH DO WE SPEND. HOW MUCH WILL GO THROUGH TAX PREFERENCES AND HOW MUCH GOES THROUGH SOCIAL SECURITY SPENDING. >>I’M WONDERING WHAT ROLE DO YOU FEEL THE EDUCATIONAL COMMUNITY SHOULD PLAY GOING FORWARD IN FACILITATE FINANCIAL LITERACY IN GENERAL? >>SO THIS ACTUALLY SORT OF — WHEN I RETIRE MY NEW PET PROJECT. THE LEADING CAUSE OF DROPOUTS IN COLORADO WHERE I LIVE. I LIVE IN TOWN WHERE 35% HIGH SCHOOL DROP OUT RATE. STUDENTS CAN’T GETTEN A NONCOLLEGE PREP DIPLOMA WITHOUT PASSING ALLEGEBR AND WE CAN’T TEACH IT SO THEY CAN PASS. FOR A NONCOLLEGE PREP HIGH SCHOOL GRADUATE COULDN’T WE HAVE A BASIC CONSUMER FINANCIAL MATH CLASS TEACHING YOU KNOW MATH CON KREMENTS AROUND PERCENTAGES ON LOANS. I MEAN, SO WHICH ISN’T SO MUCH INVESTMENT CONCEPT BUT THE BASIC CONSUMER LITERACY ISSUE. I THINK AT LEAST AT LEAST IN OUR SCHOOL SYSTEM IN COLORADO AND I’M SURE THERE ARE OTHERS THAT DO A BETTER ELSEWHERE. THERE’S VERY LITTLE THOUGHT GIVEN TO THAT. AND BY THE WAY IT MIGHT HAVE SOME ADDED BENEFITS BECAUSE SOME OF THE WORST VICTIMS IN OUR CURRENT RETIREMENT SYSTEM ARE TEACHERS IN 403-B PLANS HIGH COST ANNUITIES TAKING EXPENSES THAT ARE SO HIGH THEY ARE EATING UP ALL OF THE POTENTIAL RETURNS. SO WE’RE TAKING PEOPLE WHO ARE UNDERPAID, WHO ARE GOING INTO THEIR OWN PRIVATE SAVING TO BUY SCHOOL SUPPLIES FOR CLASSES AND PUT EMTHEM IN THE WORST — THEM IN THE WORST RETIREMENT. >>CAN I ADD ONE THING. THE FINAL SORT OF SEGMENT OF THIS IS INTERESTING ON POLICY QUESTIONS. THAT GO BEYOND JUST THE FIDUCIARY DUTY AND SO FORTH. AND CONSISTENT BETTER MARKET CORE MISSION ONE THING THAT WE — THAT WE SHOULD ALWAYS BARE IN MIND IS, NOTHING IS GOING TO HARM INVESTORS, AMERICANS AT EVERY LEVEL, ESPECIALLY AT THE LOW END AS MUCH AS THE KIND OF ECONOMIC UPHEAVAL THAT CAME ABOUT IN 2008. AND IT’S A SOBER REMINDER THAT ALL OF THESE PROBLEMS YOU KNOW REQUIRE DIFFERENT POLICIES SOLUTIONS BUT YOU CAN’T REALLY MAKE ANY HEADWAY UNLESS YOU ENSURE THE STABILITY, THE FUNDAMENTAL STABILITY OF THE FINANCIAL SYSTEM AND THAT’S WHY WE MUST NOT FORGET THAT LESSON. WHY WE PROTECT INVESTORS WE HAVE TO FIGHT AGAINST DEREGULATION ON THE DODD FRANK REFORMS. THAT’S WHY IT IS SO KEY. >>CAN WE ACKNOWLEDGE OUR PANELIST THANK YOU FOR YOUR TIME. [APPLAUSE] FROM HERE. BEFORE WE WELCOME RICH CORDRAY TO GIVE OUR KEY NOTE LUNCH HALL. GO TO MEDITERRANEAN HALL. GRAB LUNCHES. COME BACK HERE. [INAUDIBLE]>>[INAUDIBLE]. THE CURRENT STRUGGLES OVER MARIJUANA LAWS AND THE UNCERTAINTY THAT CURRENTLY RAIN — RAPES IN THEIR WAKE. MORE EVER IT IS FAR FROM CLEAR TO THIS STATE AND THEY CHOOSE TO START AN EXPERIMENT AND THEY CAN READILY DO SO WITHOUT AND WE HAVE THE SUPREMACY CLAUSE. IT PLAINLY STATES AND THIS IS A QUOTE WITH OMISSIONS TO IMPROVE COMPREHENSION. THE CONSTITUTION AND THE LAWS OF THE UNITED STATES WHICH SHALL BE MADE PURSUE — PURSUE WENT THERE OF SHALL BE THE SUPREME LAW OF THE LAND ANYTHING IN THE CONTRARY NOTWITHSTANDING. 24US — THUS AS I SAID A MOMENT AGO IT IS NOT NECESSARILY TRUE. IN FACT, IT WAS FAR FROM TRUE AT THE TIME HE SAID IT. HE WROTE THOSE WORDS AFTER ALL IN A DESCENDING OPINION AND IN A CASE WHERE — WHERE THE SUPREME COURT HELD TO THE CONTRARY AND IT WAS JOINED BY ONE OTHER MEMBER OF THE COURT. AT THE TIME HE WROTE THE COURT STILL HELD STRONGLY TO THE DOCTRINE AND THE FREEDOM OF CONTRACT IN THE DYE PROCESS CLAUSE TRUMPED — DUE PROCESS CLAUSE TRUMPED ANYTHING TO THE CONTRARY. FOR ALMOST A CENTURY THEY — THE LAW HELD FOR BUSINESSES AND CONSUMERS AT THE STATE LEVEL COULD BE CONTROLLED BY FEDERAL COMMON LAW IN CASES FILED IN FEDERAL COURTS. BOTH APPROACHES WERE ULTIMATELY OVERRULED AND LATER ABANDONED. AT THE TIME THEY WROTE THE HAPPY INCIDENCES WERE DEEPLY CLOUDED BY PREVAILING INTERPRETATIONS BY AMERICAN LAW. IRONICALLY IN FACT, THE COURT IN THAT VERY CASE IN WHICH JUSTICE BRAN — BRANDEIS WROTE REGARDED ITSELF AS INVOAKING THE — ENVOKING THE U.S. COGS AS A MEANS OF SERVING THE INTEREST OF CONSUMERS. THE OKLAHOMA LEGISLATURE PASSED A LAW REGULATING THE COMPANIES THAT COULD MAKE OR SELL ICE. UNDER THE LAW ANY COMPANY HAD TO SEEK A LICENSE TO ENGAGE IN THIS BUSINESS. THE LAW HAD BEEN PASSED THE LARGE ICE COMPANIES EXERTED EFFECTIVE CONTROL OVER THE LEGISLATURE AND THE PRACTICAL TENDENCY WAS TO SHUT OUT NEW ENTERPRISES AND THE MONOPOLY POWER OF THE EXISTING BUSINESSES. AS THE COURT HELD THE LAW WAS NOT PASSED TO PROTECT THE CONSUMER PUBLIC BUT RATHER FOR THE OPPOSITE PURPOSE. JUSTICE BRANDEIS’ POSITION WOULD HAVE ALLOWED IT TO DISSERVE CONSUMERS IN THE NAME OF STATE EXPERIMENTATION. WE NEED TO RECOGNIZE THAT THE FEDERAL AND STATE RELATIONSHIP PRESENTS A NEUTRAL SPECTRUM TO WHICH EITHER SIDE AT ANYTIME LIKELY PURSUING POLICIES THAT EITHER DO OR DO NOT FAVOR THE INTEREST OF CONSUMERS. LET’S GET BACK NOW TO 2019. THERE IS A RETREAT IN PURSUING CONSUMER FINANCIAL PROTECTION AT THE FEDERAL LEVEL, WHAT ARE THE PROSPECTS FOR MAINTAINING THE SAME KIND OF PROTECTIONS FOR CONSUMERS AT THE STATE LEVEL? WE HAVE 50 ADDITIONAL SOURCES OF LAW TO CONTEMPLATE AND 50 SETS OF PUBLIC OFFICIALS WE CAN ENCOURAGE TO FORCE THOSE LAWS VIGOROUSLY. CERTAINLY AT LEAST SOME OF THESE LAWS AND SOME OF THESE OFFICIALS ARE INCLINED TO CARRY FORTH THE BANNER OF CONSUMER PROTECTION EVEN IN CONFLICT WITH VIEWS OF LAW ADHERED TO BY COUNTERPARTS. CAN THE STATES DECIDE TO EXERCISE THE INCIDENT OF FEDERALISM TO STEP INTO THE BREECH AND MAKE UP THE DIFFERENCE? IF THEY DO ARE THEIR ACTIONS CONSTITUTING A COMPLETE RESPONSE? A PARTIAL RESPONSE OR AN INEFFECTIVE RESPONSE TO THE ENVIRONMENT? THE INCIDENTS DEPENDS ON THE LEGAL FRAMEWORK THAT CONTROLS A SPECIFIC AREA OF PUBLIC POLICY INCLUDING ECONOMIC POLICY. AS NOTED EARLIER THE SUPREMACY CLAUSE STIPULATES THAT ANY PROPER FEDERAL LAW IS SUPREME AND CONTROLLING REGARDLESS OF ANYTHING TO THE CONTRARY EMBODIED IN STATE LAW. DOES THAT MEAN ANY STATE LAUPER PER — STATE LAW PURPORTING TO CONSUMERS IS RENDERED INVALID AS CONTRARY TO THE FEDERAL LAW? DOES FEDERAL PRE EMION NEGATE A BROADER PROTECTION FOR CONSUMERS ? PRIOR TO THE DODD FRANK ACT THEY MAY WELL HAVE SAID YES. IT IS BECAUSE OF THE INCONSISTENT RULES FOR INDIVIDUALS AND CORPORATIONS. THAT IS THE DOCTRINE OF CONFLICT PRE EMION THAT THE SUPREME COURT HAS LAID DOWN TO CONTROL. IT HAS BEEN DETERMINED WITH SUCH DIVERSE COMMERCIAL AREAS SUCH AS MEDICAL DEVICES OR CIGARETTE LABELS OR AIR BAGS AND MOTOR VEHICLES AND EVEN MORE PROTECTIVE STATE LAWS THE COURT MAY HOLD THAT PRE EMION NEGATES THE STATE LAWS. THAT WOULD BE TRUE IF THE FEDERAL POLICY SHOULD EXTEND ONLY SO FAR AND NO FARTHER AS PART OF A UNIFORM NATIONAL POLICY ON HOW TO BALANCE THE CONSUMER PROVIDERS. AND IN THE CURRENT ADMINISTRATION THERE IS NO DOUBT THAT SOME NUMBER OF FEDERAL LEGISLATORS AND SOME OTHER FEDERAL FINANCIAL OFFICIALS PREFER THIS. THAT’S A QUOTE. ADVANCING CONSUMER PROTECTIONS. MR. MULVANEY STATED I HAD DONE SO AND HE WOULD NOT DO SO DURING HIS INTERIM TENURE. ON TRADITIONAL THEORIES OF DUAL FEDERALISM, IT WAS UP TO FEDERAL OFFICIALS TO ENFORCE FEDERAL LAW AND STATE OFFICIALS WERE NOR — WERE AUTHORIZED STATE LAW AND NEVER IN BETWEEN SHALT — SHALL MEET. IT WAS THE CONTINUED EFFICACY OF FEDERAL LAW AT LEAST WHILE THE FEDERAL OFFICIALS REMAIN IN POSITION TO IMPOSE THEIR VIEWS. FEDERAL OFFICIALS CAN UNDERMINE THE FORCE OF THE FEDERAL LAWS AND ALSO CLAIM THE STATE LAWS PROTECTING CONSUMERS AND THEN THE RESULT WOULD APPEAR TO BE CHECKMATE. INTERESTINGLY, THEY HAD IMPORTANT CHANGES THAT GOVERNS CONSUMER FINANCIAL PROTECTION. IT IS A PERM PRIVILEGE AND WE SAY A NUMBER OF PEOPLE RESPONSIBLE FOR DRAFTING THE DODD-FRANK ACT AND I WANT TO SAY HOW THANKFUL I AM FOR THE EXCELLENT JOB THEY DID IN DRAFTING THAT STATUTE OUT. PEOPLE GIVE US CREDIT FOR HAVING TO SET UP THE CFPB AND STARTING FROM SCRATCH AND THAT WAS A BIG JOB AND TO CONCEPTUAL — CONCEPT TEWS — CONCEPTUALIZE THAT AND SCOPE OUT THE AUTHORITIES AND HOW IT BO — HOW IT WOULD FIT TOGETHER. AND THEY DID IT VERY WELL. WHEN PEOPLE WOULD ASK ME WHAT OTHER POWERS AND AUTHORITIES WE WERE LACKING, IT WAS LITTLE OR NOTHING THAT WE COULD SAY THAT WE WERE MISSING FROM THAT STATUTE OUT. THE ONE COMPLAINT I DO HAVE IS THE AUTO DEALER CAR DRAFT, BUT THAT WAS THE LEGISLATORS THEMSELVES WHO IMPOSED THAT DUE TO POLITICAL COMPROMISE. WHAT I WANT TO FOCUS ON HERE IS NOT THE DODD-FRANK ACT, BUT DRAFTING AS THE LAW IN THIS BROADER CONTEXT OF FEDERALISM. AGAIN, WHAT ARE THE CHANGES THAT IT MADE IN THE FEDERAL STATE LANDSCAPE THAT THE GOVERNOR CONSUMER PROTECTION? IT IS TO CONCEIVE OF THESE MEASURES AS DEFAULT RULES. ULTIMATELY THE CONTROLLING VIEW ON FEDERAL PRE EM — PRE-EMPTION LIES WITH CONGRESS. THE CONSTITUTION ITSELF DOES NOT DICTATE WHETHER A STATE CAN OR SHOULD RUN TO A FEDERAL LAW. THAT’S A DETERMINATION THAT CONGRESS HAS THE AUTHORITY TO MAKE IN THE FIRST PLACE. THE COURTS MUST CONSTRUE THE CONTENT, BUT IF CONGRESS SPEAKS CLEARLY THAT IS THE END OF THE MATTER. THE DODD-FRANK ACT CHANGED THE RULE ON PRE-EMPTION IN A CRUCIAL WAY. THEY ADDRESS THE LEGISLATE — ELECT TIFF ISSUE — LEGISLATIVE ISSUE OF SOURCES OF LAW AS FOLLOWS: A LITTLE BIT OF BRACKETING HERE TO MAKE IT READABLE. THE CONSUMER FINANCIAL PROTECTION ACT MAY NOT BEACON STREWED AS A NULLING OR EXINVESTMENTING ANY PERSON FROM THE INTERPRETATIONS AND AFFECTING ANY STATE EXCEPT TO THE EXTENT THAT ANY SUCH PROVISIONS OF LAW IS INCONSISTENT WITH THE PROVISIONS OF THIS ACT. THUS FAR THIS IS JUST A RESTATEMENT OF FEDERAL PRE-EMPTION THEORY THAT THEY ARE INCONSISTENT WITH THE FEDERAL LAW. THEY CANNOT BE PURSUED. SUB-SECTION 2 SAYS FOR PURPOSES OF THIS SUBSECTION A STATUTE OUT AND ORDER AND INTERPRETATION IN ANY STATE IS NOT CONSISTENT WITH THE PROVISIONS OF THE A LITTLE IF THE PROTECTION OF STATUTE FORWARDS TO CONSUMERS IS GREATER THAN THE PROTECTION PROVIDED UNDER THIS ACT. THIS IS A TELLTALE PROVISION, AND IT IS NOTABLE BECAUSE IT EFFECTIVELY SPEAKS IN THE LANGUAGE OF RIGHTS. TO EXPLAIN THIS, LET ME MAKE AN ANALOGY TO DOCUMENTS OF STATION CONSTITUTION ALI VENTS — CONSTITUTIONAL EVENTS I USED TO TEACH. IT HAS BEEN LONG ESTABLISHED THAT THE RIGHTS OF THE U.S. CONSTITUTION ARE DISTINCT FROM THE RIGHTS GUARANTEED UNDER STATE CONSTITUTIONS. FOR MORE THAN A CENTURY FEDERAL RIGHTS AGAINST THE STATES AND THE DUE PROCESS CLAUSE OF THE 14th AMENDMENT, THE CON CONCEPTIONULE POINT WAS IRRELEVANT. THERE WAS A RIGHT AGAINST THE STATE GOVERNMENT AND THAT WAS IN THE EARLY 19th CENTURY. THE U.S. CONSTITUTION CONSTRAINED THE FEDERAL GOVERNMENT. STATE CONSTITUTIONS CONSTRAINED THE STATE GOVERNMENT. THEY OPERATE WHOLLY INDEPENDENTLY AND IT WAS A NULL SET. AFTER THE INCORPORATION DOCTRINE WAS ADOPTED IN THE MIDDLE OF THE LAST CENTURY YOU CAN HAVE THE SAME RIGHTS PROTECTED AGAINST OFFICIALS. FREE SPEECH RIGHTS AND RELIGIOUS RIGHTS AND SEARCH AND SEIZURE AND SO ON. UNDER THE FEDERAL AND STATE CONSTITUTIONS. OFTEN THE LANGUAGE IS PRECISELY OR ESSENTIALLY THE SAME. IT HAS BEEN SETTLED FOR MANY DECADES SO THERE WILL BE INDEPENDENT CONSTRUCTION OF THE SAME CONSTITUTIONAL RIGHTS AND WHERE THEY CLASH THE RESOLUTION THAT CLASHES IS GOVERNED BY A ONE-WAY RATION. WHERE FEDERAL RIGHTS ARE INTERPRETED ONE WAY AND STATE RIGHTS ARE INTERPRETED IN ANOTHER WAY, THE STATE RIGHTS CAN PROTECT INDIVIDUALS BEYOND THE SCOPE OF THE FEDERAL RIGHTS, BUT THEY CANNOT OPERATE TO UNDER CUT THE SCOPE OF THE FEDERAL RIGHTS. PUT MORE SIMPLY AS STATED IN THE PANEL THIS MORNING THE FEDERAL CONSTITUTIONAL RIGHTS ARE A FLOOR, BUT NOT A CEILING OF CONSUMER PROTECTION, CONSTITUTIONAL PROTECTION AGAINST THE ACTIONS OF STATE OFFICIALS IN THAT SETTING. FOR EXAMPLE, THAT WOULD BE TRUE EVEN IF STATE LAW CONTAINS UDEF PRACTICES AND FEDERAL LAW HAS SIMILAR PROVISIONS OR ALMOST IDENTICAL PROVISIONS, UNFAIR AND DECEPTIVE AND ABUSIVE. THEY CAN BE DETERMINED DIFFERENTLY AT THE STATE AND FEDERAL LEVEL AND THEY CAN BE MORE PROTECTIVE EVEN THOUGH THE LANGUAGE WAS THE SAME. THAT IS EXACTLY WHAT THIS LANGUAGE IN THE DODD FRANK ACT PROVIDES, YET WITHOUT THE CONFUSION OF HAVING TWO SOVEREIGN GOVERNMENTS. CONSUMER LAW PROTECTS AGAINST PRIVATE INDIVIDUALS AND CORPORATIONS AND NOT GOVERNMENTS. IF THE STATES WISH TO CONFER BROADER FINANCIAL PROTECTIONS AGAINST PRIVATE INDIVIDUALS THEY CAN NOW DO SO BECAUSE OF DODD FRANK. REGARDLESS OF WHETHER THE U.S. CONGRESS OR FEDERAL OFFICIALS HAVE DONE SO. THAT IS THE NEW BASELINE OF FAIRNESS THAT CONGRESS CREATED UNDER FEDERAL LAW IN THIS SPECIAL REALM OF CONSUMER FINANCE. THE DECISION BY STATE OFFICIALS TO CONFER BROADER PROTECTIONS ON CONSUMER AS A MATTER OF STATE LAW IS NOT INCONSISTENT WITH AND NOT CONTRARY TO FEDERAL LAW. MEANING THAT THE DEFAULT RULE IS THAT THERE IS NO CONFLICT PREEMPTION OF STATE LAWS. ONE MIGHT ASK AND MAYBE I WILL ASK THE DRAFTERS WHY SHOULD THIS BE THE IF YOU BASELINE? WHY A ONE-WAY WRATH — WRATCHET? THIS LANGUAGE RE — REFLECTS THE NOTION THAT CONSUMERS DESERVE CERTAIN RIGHTS AND WHERE STATE OFFICIALS RECOGNIZE THOSE RIGHTS THEY SHOULD HAVE THE LATITUDE TO DO SO. MORE CONSUMER PROTECTION IS CONSIDERED A GOOD THING AND THUS IS LEGALLY PERMISSIBLE DESPITE THE TEXT OF THE SUPREMACY CLAUSE. AND SINCE THIS LANGUAGE APPEARS IN STATUTE OUT IN THE DODD-FRANK ACT ITSELF DECLARED BY THE CONGRESS ITSELF IT WOULD SEEK TO CONTROL EFFORTS BY REGULATORS TO ACT TO THE CONTRARY BY TRYING TO PREEMPT STATE LAWS ON THEIR OWN AUTHORITY UNLESS THERE IS COUNTER BAILING STATUTORY LANGUAGE THEY CAN CITE AND SUPPORT. THE SECOND MAJOR CHANGE EMBODY — EMBODIED HAS TO DO WITH EXECUTIVE POWER AND THE ENFORCEMENT OF THE FEDERAL CONSUMER LAWS. SECTION 1042A SAYS, AND I AM PARA– PARAPHRASING, ANY STATE, THE TOLL LEGAL OFFICIAL AND TOP FINANCIAL REGULATOR CAN TAKE ACTION IN A FEDERAL OR STATE VENUE TO ENFORCE THE CONSUMER PROTECTION ACT AGAINST ANYONE WHO VIOLATES THE ACT OR SUCH REGULATIONS AND TO SECURE REMEDIES. THE LONE EXCEPTION IS FOR NATIONALLY CHARTERED BANKS, BUT EVEN THEY CAN BE SUBJECT TO THE STATE’S TOP LEGAL OFFICIAL PROVIDING NOT THE ACT ITSELF, BUT IMPLEMENTING REGULATIONS. THIS AS — THIS WAS THE CONGRESS’ CONSIDERED RESPONSE OR SOMETHING OF A POLITICAL COMPROMISE TO A PRO STATE HOLDING IN THE CUOMO VERSUS CLEARINGHOUSE CASE. THIS SEEMS LIKE A FAIRLY NOVEL FORM OF GOVERNMENT. IT IS NOT UNPRECEDENTED AND IT AUTHORIZES STATE OFFICIALS TO TAKE THE INITIATIVE TO ENFORCE FEDERAL LAW DIRECTLY. WHY WOULD CONGRESS DO THAT? I WOULD SUBMIT IT WAS A FAR-SIDED RESPONSE TO PRECISELY THE SHIFTING OF THE ENVIRONMENT WE NOW HAVE AND THEY MAY BE DISINCLINED TO ENGAGE IN ROBUST ENFORCEMENT OF FEDERAL CONSUMER LAW. THOSE REASONS MAY INCLUDE AN ADHERENCE TO FREE MARKET IDEOLOGY OR AN ANTI-GOVERNMENT BIAS OR A DESIRE TO SUPPORT THE FINANCIAL INDUSTRY OR AGENCY CAPTURE ORIE SOURCE LIMITATIONS — OR RESOURCE LIMITATIONS OR PERHAPS SOME OTHER REASON OR PERHAPS ALL OF THOSE REASONS. WHATEVER THE REASONING MAY BE, THE CONGRESS THAT ENACTED THE DODD FRANK ACT SPOKE TO SAY IT WAS NOT WILLING TO PULL ALL OF THE ENFORCEMENT EGGS IN THE FEDERAL BASKET. IT MADE THE EXPRESS DETERMINATION TO ENFORCE FEDERAL LAW AT LEAST FOR THE MOST PART. THIS IS A DEPARTURE OF STRICT NOTIONS OF DUAL FEDERALISM WHERE FEDERAL OFFICIALS ENFORCE FEDERAL LAW AND STATE OFFICIALS ENFORCE STATE LAW. YET IT SEEMS NATURAL ENOUGH TO ME THAT CONGRESS WOULD WANT TO SEE MORE ROBUST ENFORCEMENT OF THE LAW THAN IT ENACTED. NOT JUST IN THIS AREA, BUT ANY AREA. IT DISRESPECTS CONGRESS WHEN THE EXECUTIVE BRANCH HOLLOWS OUT VALID LAWS ON THE BOOKS THROUGH MERIT INACTION AS THOUGH FEDERAL OFFICIALS HAD NOT TAKEN A CONSTITUTIONAL OATH TO EXECUTE THOSE LAWS. INDEED THIS PROVISION SUGGESTS THAT CONGRESS WAS CONCERNED THAT THE CONSUMER FINANCIAL LAWS WOULD BE SYSTEM PAT PARTICULARLY UNDER — SYSTEMATICALLY UNDER ENFORCED. THEY SOUGHT TO ENGAGE IN GIVING THEM TEETH. PERHAPS ALL FEDERAL LAW IS UNDER ENFORCED. SINCE CROSSING THE LINE IS UP FOR QUESTION, AND ANYBODY WHO HAS DEALT WITH IN HOUSE GOVERNMENT ATTORNEYS KNOW THIS MIND SET. OR BECAUSE LIMITED RESOURCES AND UNLIMITED PROBLEMS SIMPLY LEAD TO A FUTILE GAME OF CATCH UP WHERE THE REGULATORS AND THE LAW ENFORCEMENT OFFICERS NEVER QUITE FEEL THEY ARE WINNING. HOWEVER ALL THAT MAY BE, WHAT WE NOW HAVE IS AN ENHANCED SYSTEM OF FEDERALISM OF CONSUMER PROTECTION UNDER THE DODD-FRANK ACT. THEY HAVE MORE TOOLS AND MORE RESOURCES THAN EVER BEFORE. THIS REFLECTS THE PROTECTION OF CONSUMER RIGHTS IN THE FINANCIAL MARKETPLACE. NOW, ONE OR MORE OF YOU CONSUMER LAW EXPERTS MIGHT WANT TO ASK ME WHAT ABOUT SECTION 1044 OF THE DODD-FRANK ACT? I AM CUTTING YOU OFF. I AM NOT GIVING YOU THE CHANCE. WHICH FURTHER GOVERNS PREEMPTION OF THE OCC UNDER THE NATIONAL BANK ACT AND BY ITSELF CONTAINS NO FEWER THAN SEVEN SUBSECTIONS AND 9 SUB-SUBSECTIONS. THIS IS A POINT I MAY THROW UP MY HANDS AND SAY THESE ARE ISSUES FOR THE COURTS TO DECIDE. INDEED CONGRESS MAY HAVE EXECUTED A CLASSIC PUNT HEREAFTER WHAT I RECALL WAS A FIERCE FIGHT ABOUT WHETHER TO INCORPORATE THE BARNETTE BANK CASE ABOUT WHEN STATE LAWS SUBSTANTIALLY INTERFERE WITH FEDERAL LAW. IT IS A DEBATE IN WHICH WE NAY — WE MAY SAY NOT A SINGLE MEMBER OF CONGRESS UNDERSTOOD WHAT THE FINAL RESTING POINT WAS AND WHAT 1044 WAS FOR NATIONAL BANK PRE EMION. PRE EXCEPTION. I WAIL — I WILL SAY A COUPLE THINGS. FIRST, IT DOES NOT APPLY TO THE NONBEANING — NONBANK COMPANIES, THE THOUSANDS AND THOUSANDS OF COMPANIES WHO WERE UNDER THE DEFAULT RULES LAID OUT EARLIER. IT APPLIES TO NATIONALLY CHARTERED BANKS TO FIND NARROWLY TO EXCLUDE THEIR AFFILIATES AND SUBSIDIARIES WHICH IS NO DOUBT CREATING A BIT OF REORGANIZATION IN SOME OF THOSE ENTITIES. THIRD, PUTTING THE BARNETTE BANK CASE HOLDING UH — ASIDE, THE ONLY OTHER GROUND THAT FINANCIAL LAWS ARE PREEMPTED IS WHERE THEY WOULD, QUOTE, HAVE A DISCRIMINATORY AFFECT ON NATIONAL BANKS IN COMPARISON WITH THE EFFECT OF LAW CHARTERED BY THE STATE. THIS SUBSECTION PRESENTS A BASIS FOR FEDERAL PREEMPTION AND PERHAPS JUDICIAL INTERPRETATION WHICH PREEMPTS THE TEST FROM BARNETTE BANK. ENOUGH OF ALL OF THAT. STEPPING BACK FROM FEDERAL PREEMPTION AND ITS INTRICACIES, THE BOTTOM LINE IS THIS, EVEN IF THE FEDERAL GOVERNMENT IS TEMPORARILY SOUNDING A RETREAT FROM THE BATTLEFIELD, WE CAN SALUTE THE CONGRESS AND THOSE WHO ASSISTED THE CONGRESS FOR ENSURING THAT EVEN IN THE SHIFTING POLICY ENVIRONMENT CONSUMER FINANCIAL PROTECTION REMAINS ALIVE AND WELL IN THE UNITED STATES. IT IS — IT HAS DONE SO BY WHAT WE CALL A FRAMEWORK OF COMPETITIVE FEDERALISTS. COMPETITIVE FEDERALISM EMPOWERS STATES AND OFFICIALS TO EXPAND AND PROTECT THE RIGHTS OF CONSUMERS IN THE FINANCIAL MARKETPLACE BY EXPANDING STATE LAW AND BY ENFORCING FEDERAL LAW. I SEE FACES IN THE CROWD HERE TODAY WHO ARE EAGERLY AND PROUDLY CARRYING THAT MAN — MANTLE. TO THEM I SAY PRESS FORWARD. TEST THE BOUNDARIES. DON’T SHY AWAY FROM SOME OF THE UNCERTAINTIES IN THE LAW. DO WHAT YOU BELIEVE IS RIGHT TO PROTECT CONSUMERS AGAINST FRAUD AND ABUSES. I URGE THE SAME TO FEDERAL COLLEAGUES TO WHATEVER EXTENT YOU ARE PERMITTED TO DO SO. REMEMBER THE WORDS OF PRESIDENT KENNEDY IN HIS 1962 SPEECH TO CONGRESS CALLING FOR A CONSUMER BILL OF RIGHTS. HE SAID THEN, CONSUMERS BY DEFINITION INCLUDE US ALL. THEY ARE THE LARGEST ECONOMIC GROUP IN THE ECONOMY AFFECTING AND AFFECTED BY ALMOST EVERY PUBLIC AND PRIVATE ECONOMIC DECISION. TWO-THIRDS OF ALL SPENDING IN THE ECONOMY IS BY CONSUMERS, BUT THEY ARE THE ONLY IMPORTANT GROUP IN THE ECONOMY WHO ARE NOT EFFECTIVELY ORGANIZED, WHOSE VIEWS ARE OFTEN NOT HEARD. THE SAME IS STILL TRUE TODAY. SO YOU MUST LISTEN FOR THEIR VOICES AND YOU MUST ACT TO PROTECT THEM THROUGH SOUND LAWS THAT ARE VIGOROUSLY ENFORCED. PLEASE KNOW THAT EVERY DAY NOT ONLY I, BUT MILLIONS OF AMERICANS ARE FERVENTLY URGING YOU ON. THANK YOU. [APPLAUSE].>>THERE IS ALWAYS ONE.>>GOOD AFTERNOON. I AM A SCHOOL OFFICIAL HERE. MY QUESTION HAS TO DO WITH FEDERALISM AND MUCH OF WHAT I KNOW ABOUT FEDERALISM IS ON FRAGMENTED DEMOCRACY. ONE OF HER POINTS IN THE BOOK IS THAT FEDERALISM WITH REGARD TO MEDICAID UNDERMINDS PEOPLE’S ECONOMIC LIVES AND POTENTIALLY SUPPRESSES THEIR POLITICAL VOICE. AND SO GIVEN THAT UNDER YOUR LEADERSHIP THEY HAVE BEEN ACTIVE IN SOLICITING CONSUMERS’ VOICE, HOW DO YOU SEE KIND OF THE CONTEXT OF FEDERALISM IN — YOU KNOW, RELATED TO CONSUMERS’ ECONOMIC LIVES AND THEIR VOICE ON ISSUES RELATED TO CONSUMER PROTECTION?>>THIS IS THE POINT I TRIED TO MAKE ABOUT JUSTICE BRANDEIS AND THE CASE THAT FEDERALISM ITSELF IS A FRAMEWORK. IT IS A STRUCTURE. IT IS THEREFORE SORT OF NEUTRAL AS TO WHETHER WE ARE ACHIEVING GOOD OR BAD ENDS. A LOT OF PEOPLE WOULD SAY FEDERALISM IN THE UNITED STATES WAS DETRIMENTAL IN THE SENSE THAT IT WAS HOLDING BACK THE WHOLE CIVIL RIGHTS MOVEMENT IN THIS COUNTRY. THERE IS NO QUESTION THAT THIS WAS TRUE. AND WHAT IT DOES IS IT PRESENTS AND PROVIDES FOR COMPETING SOURCES OF AUTHORITY AND COMPETING SOURCES OF POWER AND POWER CAN BE USED FOR GOOD OR ILL. THE SAME IS TRUE IN CONSUMER PROTECTION AND THE SAME IS TRUE IN EVERY OTHER AREA OF LAW. THE OTHER POINT I WOULD TRY TO MAKE IS FEDERALISM IS ITSELF A CONCEPT THAT HAS VERY COMPLICATED AND DIVERSE APPLICATIONS AND DIFFERENT AREAS OF LAW AND DIFFERENT AREAS OF PRACTICAL EXPERIENCE AND CAN LOOK VERY DIFFERENT FROM ONE PLACE TO ANOTHER DEPENDING ON, AGAIN, VAGUES — SITUATIONS ON THE GROUND AND WHAT THE LEGAL FRAMEWORK IS. IT CAN DIFFER FROM ONE AREA TO ANOTHER. IT IS QUITE FAVORABLE TO PROTECTING RIGHTS IN STATE CONSTITUTIONAL AND IT IS FAVORABLE IN PROTECTING RIGHTS IN THE DODD FRANK ACT AND CONSUMER PROTECTION. IT MAY NOT BE TRUE OF CONSUMER PROTECTION GENERALLY IN THE MORE TANGIBLE REALM. AND CERTAINLY IT IS NOT NECESSARILY TRUE IN OTHER AREAS OF THE LAW SUCH AS YOU MENTIONED. AGAIN, WHERE CONGRESS IS WILLING TO SPEAK UP AND SPEAK CLEARLY AND SAY THAT STATES SHOULD BE ABLE TO GO BEYOND AND BE MORE PROTECTIVE, CONGRESS HAS THE UH — HAS THE ABILITY TO DO SO. IT HAS RARELY DONE SO.>>I WILL MAKE YOU TALK ABOUT SECTION 1044. SO, AND YOU NOTE — NOTED IN DODD FRANK WE TRIED TO OPEN UP SPACE FOR STATES TO ACT WHEN THE FEDERAL GOVERNMENT WAS MISBEHAVING IN SOMEWAY. OR IT WAS NOT ACTING. ONE OF THOSE WAYS WAS BY CHANGING THE RULES OR WHAT WE THOUGHT WAS CHANGING THE RULES FOR PREEMPTION WITH RESPECT TO NATIONAL BANKS. THEY SAY YOU CAN CREATE IF THE FEDERAL GOVERNMENT STEPS IN YOU CAN CREATE A STATE TOWARD THE BOTTOM IN RULES AND PRACTICES. MICHAEL — MIKE CALHOUN WAS TALKING ABOUT THAT IN NORTH CAROLINA AND IN OTHER STATES THAT TRIED TO ACT AGGRESSIVELY IN THIS SPACE. THE PROVISION, AMONG OTHER THINGS REQUIRED FOR OCC TO TAKE A FRESH LOOK AT ITS OWN PREEMPTION DECISIONS AND TO FIGURE OUT WHETHER THEY WERE IN FACT JUSTIFIED UNDER THIS NEW LEGAL STANDARD THE OCC STEPPED IN BEFORE YOUR APPOINTMENT, BEFORE THE CREATION OF THE CFPD ITSELF TO AVOID A PROVISION THEY ARE REQUIRED TO CONSULT WITH. AND BLANKETTLY WE ISSUED THE PREEMPTION ORDERS. I WONDER IF YOU CAN COMMENT ON THAT AND THE AFFECT IT MAY OR MAY NOT HAVE HAD AND YOUR VIEW ON THE STATES CONNECTED IN THIS FIELD.>>YEAH, THE FIRST THING I WOULD SAY IS WHEN THE CFPD WAS PARACHUTED INTO THE EXISTING SYSTEM OF FEDERAL REGULATORS, THERE WAS, ONE, THE OTS MENTIONED INFAMOUSLY BY THE PANEL EARLIER THAT WAS DISTINGUISHED, BUT OTHERWISE YOU ARE STILL IN A COMPLICATED WORLD FOR REGULATORS. AND FOR THE MOST PART I THINK THE OTHER REGULATORS’ NATURAL REACTION WASN’T A UNIVERSAL REACTION. IT WAS TO BE RESENTFUL AND HOSTILE TO THE CFPB AMONG OTHER THINGS BECAUSE THE MERE CREATION WAS NOT SO IMPLICIT AND AN EXPLICIT REBUKE FOR NOT HAVING SUFFICIENTLY ATTENDED TO THESE ISSUES. AND THERE WAS SOME REAR GUARD ACTION AND SOME EFFORTS MADE TO RESIST US UNDER THE LEADERSHIP AT THE TIME. THAT WAS ONE OF THEM, BUT IT WAS NOT THE ONLY ONE. SOON THEREAFTER THEY HAD THE OCCASION TO HAVE A CHANGE OF LEADERSHIP AT THE OCC. TOM CURRY WAS THE NEW COMPTROLLER. AND HE HAD DIFFERENT VIEWS ON THESE ISSUES AND OVER TIME THE COOPERATION INCREASED ENORMOUSLY BETWEEN THE TWO AGENCIES. AND IN OTHER SITUATIONS THEY WERE NOT AS FRAUGHT AND THEY WORKED THEMSELVES OUT OVER TIME AS WELL. IN TERMS OF WHERE WE STAND RIGHT NOW IN TERMS OF NATIONAL PRE EMION OF THE STATES — PREEMPTION OF THE STATES MY GUESS IS AS GOOD AS YOURS OR MAYBE NOT AS GOOD AS YOURS, WHAT THE OCC SAID MAY OR MAY NOT BE ENTIRELY SQUARE WITH THE NEW PROVISIONS OF THE DODD-FRANK ACT. I AM NOT AWARE THEY WERE TESTED IN COURT AND WHETHER THEY WILL BE OR WON’T BE, I COULDN’T SAY. WHAT I WOULD ADD IS I DON’T BELIEVE ANY OF THE PROVISIONS HAD YET BEEN TESTED IN COURT. AND IT IS POSSIBLE THAT WE WILL HAVE SOME PREEMPTION SHAPING UP. THERE IS A PUSH AND PULL HERE WITH THE FEDERAL GOVERNMENT SEEMING TO BE RETREATING IN THIS AREA. THE STATE GOVERNMENT IS HAVING THE OPPORTUNITY TO MOVE IN AND THEY ARE DOING SO AND THEY HAVE ALWAYS BEEN THERE. THEY HAVE REINVYING — RE-ENVIGORATED THAT THERE ARE PREEMPTION BATTLES THAT WILL BE COMING UP AND SOME ARE LOOMING RIGHT NOW. WE WILL SEE WHAT HAPPENS WITH THOSE. IT MATTER EASE ENORMOUSLY THE CONGRESS AND THE JUNCTION TOUR THAT COULD BE IN THIS AREA. WE HAVE LITTLE OR NO LEGISLATION SINCE DODD-FRANK LAID OUT THE DEFAULT RULES AND THEY WOULD HAVE TO BE ADDED BY STATUTE AND I DON’T ANTICIPATE THAT HAPPENING ANYTIME IN THE FORESEEABLE FUTURE. I DON’T KNOW IF I HAD MUCH OF AN ANSWER TO YOUR QUESTION, BUT THAT’S THE BEST I CAN DO.>>DIRECTOR, THANK YOU FOR THAT WONDERFUL TALK. IT REMINDED ME OF BEING BACK IN LAW SCHOOL, ACTUALLY.>>IS THAT A GOOD THING OR BAD THING? [LAUGHTER].>>IF I MAY SHIFT YOU BACK TO TECHNOLOGY WHICH YOU MENTIONED AT THE BEGINNING OF YOUR DISCUSSION, THE EXPLOITATION OF BIG DATA USE AND ARTIFICIAL INTELLIGENCE BY FINANCIAL FIRMS POTENTIALLY CAUSES SEVERAL RISKS TO CONSUMERS AND THEIR PARTICIPATION IN THE FINANCIAL MARKETS. DO YOU HAVE SOME THOUGHTS ABOUT THAT AND IF YOU WERE STILL WITH THE AGENCY WHAT WOULD YOU BE TELLING STAFF TO LOOK INTO?>>YEAH, AND THIS IS NOT JUST IN THE COMPUTER AGE. IT IS ESPECIALLY IN THE COMPUTER AGE. CERTAINLY THE NATURE ABOUT CONSUMERS, INDIVIDUAL CONSUMERS, HAS BEEN PROGRESSING RAPIDLY FOR MANY DECADES, EVEN BEFORE THE COMPUTER AGE. YOU WENT FROM LOCAL CREDIT REPORTING BUREAUS TO A NATIONALIZATION OF THE MARKET PRETTY MUCH COMPLETELY UNSUPERVISED AND UNATTENDED BY ANYONE. IT GREW UP ON ITS OWN IN THE PRIVATE — WITHIN THE PRIVATE SECTOR. AND IT GAVE RISE TO A NUMBER OF PROBLEMS. THIS WAS ALL BEFORE BIG DATA AND ARTIFICIAL INTELLIGENCE. WHEN THE CFAB FIRST CAME INTO ITS AUTHORITY TO SUPERVISE THE CREDIT REPORTING COMPANIES WHO HAVE — THEIR THREE BIGGEST HAVE 200 MILLION FILES ON AMERICANS OF GREATER OR LESSER COMPLETENESS AND ACCURACY FOR THAT POINT, IT WAS QUITE A REMARKABLE EXPERIENCE BECAUSE THEY HAD NO SYSTEM IN PLACE TO MANAGE THEIR OWN COMPLIANCE WITH THE LAW. AND THAT BECAME EVIDENT VERY QUICKLY TO THEM AND TO US. AND IT HAS BEEN A BIG, BIG JOB TO TRY TO SORT OF PUSH THEM INTO A SENSIBLE SHAPE IN TERMS OF BEING ABLE TO MANAGE THEIR OWN PROBATIONS IN A WAY THAT CAN TAKE AN ACCOUNT FOR THEMSELVES AND THE INTEREST OF CONSUMERS. IN TERMS OF BIG DATA AND ARTIFICIAL INTELLIGENCE AND ALL OF THE INFORMATION ABOUT US, IT IS SIMPLISTIC TO SAY IT IS A PLUS AND A MINUS. IT IS GIVING US ACCESS TO CREDIT WE WOULD NOT HAVE HAD IF COMPANIES COULD NOT UNDERSTAND MUCH ABOUT US. IT IS ALSO POTENTIALLY CUTTING OFF ACCESS TO CREDIT AND IN SITUATIONS WHERE IT WOULD NOT SEEM JUSTIFIED. IT IS UH MASSING INFORMATION THAT COULD BE USED FOR OTHER PURPOSES THAT WE MAY OR MAY NOT KNOW OR UNDERSTAND OR INTEND. IT IS A VERY PROMINENT, CONSPICUOUS OF THE OPPORTUNITY AND ALSO THE DANGERS OF THIS MODERN ECONOMY AND MAYBE ONE OF THE MOST CONSPICUOUS EXAMPLES. I DON’T HAVE MUCH MORE TO SAY BEYOND THAT AT THIS POINT.>>HI, MR. CORDRAY. THANK YOU FOR BEING HERE. I APPRECIATE YOUR TIME. I AM A DUAL MBA AND CP STUDENT AND I APPRECIATE YOUR FOCUS ON THE FEDERALISM LENS, BUT I WAS HOPING TO EXPAND AND FOR YOU TO TALK WITH MAYBE ABOUT SOME BEST PRACTICES WE CAN LEARN FROM OTHER SETTINGS AND OTHER INTERNATIONAL FIRMS AND SITUATIONS THAT CAN ADD TO THE PROCESS. I AM PROFESSOR ADRIAN HARRIS’ CLASS ON CYNTAC AND WE ARE TALKING ABOUT HOW LAWS ARE QUITE NEGATIVE. THEY TRY TO RESTRICT AND CREATE BOUNDARIES VERSUS IN EUROPE YOU SEE MORE POSITIVE LEGAL FRAMEWORK. I WAS HOPING YOU COULD TALK ABOUT SOME BEST PRACTICES IN OTHER REGIONS THAT MAYBE WE CAN HAVE ENHANCE THE SITUATION.>>IT IS A GOOD QUESTION AND SOMETHING WE PUZZLE OVER QUITE A LOT WITH THE CONSUMER BUREAU AND I’M SURE THEY STILL DO. THE NATURE OF THE COMPLIANCE WITH THE LAW IS THAT IT IS A NEGATIVE ENTERPRISE. THERE IS A THRESHOLD BELOW YOU CANNOT SINK. IF YOU DO SINK BELOW THAT THRESHOLD YOU HAVE IN VIOLATION OF THE LAW. YOU ARE SUBJECT TO PENALTIES AND ACTIONS. EVERYBODY SHOULD BE, NOT EVERYBODY IS CON SEN SUS, BUT PEOPLE TRY TO RAISE THEMSELVES ABOVE THE LOW THRESHOLD OF COMPLIANCE WITH THE LAW. THERE IS MUCH WE WOULD LIKE TO SEE AND MUCH CONSUMERS WOULD LIKE TO GO ABOVE THE STANDARD. NOTHING IN THE LAW SAYS YOU NEED EXCELLENT OR EVEN DECENT CONSUMER SERVICE. THIS IS HOW THE MARKETPLACE COMPETES COMPANIES AGAINST ONE ANOTHER TO RAISE THEIR GAME ABOVE THE MANDATORY MINUTE YUM AND LEGAL THRESHOLD. ONE OF THE PUZZLES WE WORKED ON AND IS WHAT CAN A FEDERAL AGENCY DO TO GET ABOVE THE BEAR MINIMUM. YOU TRY TO ENCOURAGE THEM TO GET OUT OF THE GREAT. ANY SENSIBLE COMPANY WILL TRY TO PUSH ITSELF ABOVE THE BOTTOM BASELINE. BUT BEYOND THAT AND THIS IS ONE OF THE PURPOSES. WE WERE SUPPOSED TO FOSTER — WORK TO FOSTER INGNAW VAITION — INNOVATION. COMPANIES COMPETE AGAINST EACH OTHER AND IF THEY BUILD A BETTER MOUSETRAP THEY COLLECT MANY OR MOST OF THE CONSUMERS AND GAIN MARKET SHARE? WHAT DO WE HAVE TO DO WITH THAT OTHER THAN TRYING TO STAY OUT OF THE WAY? ONE OF THE THINGS WE RECOGNIZED IS A LACK OF CLARITY ABOUT THE LAW THAT CAN CAUSE PEOPLE TO BE CAUTIOUS ABOUT THINGS THAT ARE ACTUALLY PRO-CONSUMER AND THEY ARE NOT SURE IF IT WILL BE LOOKED UPON AS POTENTIALLY VIOLATING THE LAW AND ANY ISSUE LIKE THAT IS A HARD ISSUE. IT IS OFTEN A COMPLICATED ISSUE AND YOU WANT TO BE CAUTIOUS. YOU DON’T WANT TO BLESS SOMETHING AND THEN FIND YOU MISSED SOMETHING SIGNIFICANT ABOUT IT AND IT IS ACTUALLY HARMING CONSUMERS. THEN AGAIN THERE IS A TENDENCY TO NOT WANT TO GIVE GUIDANCE AND THAT’S NOT HELPFUL EITHER. IT IS SOMETHING WE STRUGGLE WITH. AND WE WERE VERY INTERESTED AND REMAIN INTERESTED IN SEEING WHAT HAPPENS OVERSEAS ON THIS. THE UK HAS THE FINANCIAL SANDBOX AND WE WERE DOING WORK ON THIS, BUT THEY HAVE GONE INTO THIS IN A BIG WAY. NO QUESTION IN MY MIND THAT IN LONDON THEY SEE THIS AS AN EFFORT TOWARD ECONOMIC DEVELOPMENT. THEY ARE TRYING TO BRING MORE SYNTAC TO ENGLAND. YOU CAN LURE PEOPLE BI-LOORING YOUR STANDARDS OR YOU CAN LURE PEOPLE BY PROVIDING THEM WITH BETTER SERVICE YOURSELF. THERE IS SOME OF BOTH GOING ON AROUND THE WORLD. I AM CONCERNED ABOUT WHAT THE CFPD IS PROPOSING. IT IS NOT CLEAR TO ME THAT IT WILL BE SUFFICIENTLY APPRECIATIVE OF THE RISK TO CONSUMERS IN THE SEGMENT. IT IS A DIFFICULT CHICKEN AND EGG PROBLEM OF HOW MUCH EMPHASIS DO YOU PUT ON EITHER SIDE OF THE EQUATION. AND, AGAIN, AS A FACTUAL MATTER ARE YOU GETTING IT RIGHT OR WRONG? I DON’T HAVE ANSWERS TO THE FINANCIAL SANDBOX OTHER THAN TO SAY I AM A LITTLE CONCERNED ABOUT AN APPROACH THAT SAYS COMPANIES CAN DO WHATEVER THEY WANT BECAUSE THEY HAVE THE LABEL SYNTEC. IN MY MIND THAT’S NOT THE RIGHT ANSWER, AND I THINK WE DON’T KNOW EXACTLY WHAT RISKS THAT WILL CREATE, BUT THEY WILL BE SIGNIFICANT. AND I HAVE MY DOUBTS AS TO WHETHER THAT WILL BE A LEGALLY PERMISSIBLE RESULT IF THAT IS THE RESULT PEOPLE ARE SEEKING TO REACH.>>I NOTICED THAT BAYER CORPORATION IS HAVING A PROBLEM WITH THE WEED KILLER AND THE LAWSUITS THAT WILL RESULT FROM THAT. YOU GET THESE HUGE SETTLEMENTS OF $79 MILLION OR MORE HOW DO YOU SEE YOURSELF AS FAR AS IMPACT IS CONCERNED, VIS-A-VIS, THE LEGAL SYSTEM. IT OFFERS REMEDY FOR BEING PREYED UPON ORCASSING BAD — OR CAUSING BAD THINGS TO HAPPEN.>>IT IS A GOOD QUESTION AND IT GETS INTO A DIFFICULT AREA WHICH IS SOME STATUTE OUTS HAVE PRIVATE RIGHTS OF ACTION AND PRIVATE LIABILITY THAT CAN BE IMPOSED IN LAW — LAWSUITS, IE CITIZENS DIRECTLY. SOME DO NOT. IF YOU ARE AN ENFORCERS — ENFORCER, ENFORCING YOUR LAW SHOULD YOU TAKE A PRIVATE ACCOUNT? SHOULD IT AFFECT WHAT YOU DO? I DON’T THINK IT SHOULD. I SAW OURSELVES AS NEITHER BACKING AWAY FROM SEEKING A REMEDY OR A RELIEF IN LIGHT OF POTENTIAL PENDING PRIVATE ACTIONS AND NOR DO I SEE IT FACILITY — FACILITATING AND THEY FOUND A VIOLATION OF LAW AND THAT COULD PROVIDE A BASIS FOR FOLLOW ON PRIVATE LAWSUITS. THE QUESTION IS WHAT IS THE TOTAL ENFORCEMENT IN THE SYSTEM AND NOT JUST THE ENFORCEMENT AND NOT JUST THE FEDERAL REGULATED AND FED — FEDERAL REGULATED AND THE STATES TOGETHER, BUT INCLUDING PRIVATE LIABILITY WHERE DO YOU COME OUT? ONE OF THE INTERESTING ASPECTS HAS BEEN THE WHOLE WELLS FARGO MESS. WE STARTED WITH AN ENFORCEMENT ACTION IN WHICH WE FIXED A DIFFICULT PROBLEM BECAUSE THERE WAS NOT A GREAT DEAL OF FINANCIAL HARM TO CONSUMERS, BUT THERE WAS OUTRAGEOUS CONDUCT BY THE BANK. SO WE ENDED UP IMPOSING A HIGH PENALTY RELATIVE TO THE COMPENSATORY DAMAGES IN THE CASE. ONE THAT WOULD BE CONSTITUTIONALLY SUSPECT IF YOU APPLIED THE PUNITIVE DAMAGE CONSTITUTIONAL ALLAH TO THIS. CASH CASH CONSTITUTIONAL LAW TO THIS. BUT THE FOLLOW-UP FROM WELLS FARGO FROM THAT WHOLE MESS HAS BEEN ENORMOUS. I DON’T EVEN KNOW WHAT LEVEL AND THERE HAVE BEEN OTHER CONDUCT THAT VIOLATED THE LAW THAT SOME OF IT WAS TURNED UP BY INVESTIGATIONS ON GOING AT THE TIME. SOME OF IT LIKELY HAS BEEN TURNED UP BY THE REMARKABLE AMOUNT OF ATTENTION PAID TO WELLS FARGO IN THE WAKE OF ALL OF THAT ENFORCEMENT ACTION. AND WHERE IT ALL WILL END IS HARD TO SAY. IT IS A GOOD QUESTION. IT IS A HARD QUESTION. I THINK WHAT WE SIMPLY TRY TO DO IS TAKE EACH MATTER BEFORE US ON ITS MERITS AND ADDRESS IT AND LIKEN THE FACTS AND LAW WE HAVE. OTHERWISE WE TROUBLE OURSELVES TOO MUCH WITH WHAT ELSE IS GOING ON. WE DID TRY TO WORK TOGETHER WITH OTHERS SO THAT WE COULD CREATE A COHERENT PACKAGE OF ENFORCEMENT. WE WORK CONSTANTLY WITH THE STATES AND WE WOULD STRATEGIZE TOGETHER EVEN IF WE WEREN’T ACTING TOGETHER IN THE LITIGATION AND TRY TO STRATEGIZE TOGETHER ABOUT WHAT WE WERE DOING AND WHY. I THINK THAT CAN BE HELPFUL. THERE IS NO DOUBT A FAIR AMOUNT OF UNCOORDINATION IN OUR SYSTEM IF YOU LOOK AT THE TOTAL LAW ENFORCEMENT AS A WHOLE INCLUDING PRIVATE ACTIONS WHICH THE GOVERNMENT CAN’T CONTROL AND CONGRESS DECIDING TO ALLOW OR NOT ALLOW AND THE STIPULATIONS WE WILL SEE.>>TO SHIFT GEARS A LITTLE BIT, WE MOVE TO INVESTMENTS AND RETIREMENT — SURE, A QUESTION THAT FOCUSES ON THE INVESTMENT SIDE OF CONSUMER PROTECTION AND SAVINGS SIDE RATHER THAN LENDING PRACTICES. ONE OF THE HOPEFUL SIGNS IN THE FINANCIAL MARKET THE PAST FEW YEARS HAS BEEN THE MESSAGE THAT THE MOST IMPORTANT THING IS TO KEEP FEES LOW AND UNDERSTAND THAT FEW PEOPLE CAN BEAT THE MARKET. THAT MESSAGE HAS GONE OUT TO AN EVER INCREASING NUMBER AND A RACE TO THE BOTTOM OF FEES. WHAT CAN BE DONE FROM A REGULATORY POINT OF VIEW TO STRIP THE MYSTIQUE FROM THE SWOLLEN PART OF THE INVESTMENT BUSINESS WHICH MAY BE MUCH OF IT. FOR EXAMPLE, IF THE FIDUCIARY DUTY RULE IS REVIVED, WOULD IT BE DANGEROUS FOR A FINANCIAL ADVISER TO RECOMMEND ANY MUTUAL FUND OTHER — FUND? MAY IT BE DANGEROUS FOR A RETIREMENT PLAN TO EVER HAVE A FUND THAT HAD MORE THAN A 25% ANNUAL FEE? HOW COULD WHAT I HOPE IS A HOPEFUL USE OF THE MARKET AND OF KNOWLEDGE BE HARNESSED OR BE ENCOURAGED SO THAT PART OF THE FINANCIAL MARKET IS.>>THAT IS PROBABLY FOR THE LAST PANEL AND NOT SO MUCH FOR ME, BUT LET ME SAY A COUPLE OF THINGS. FIRST OF ALL YOU USED THE PHRASE “RACE TO THE BOTTOM” IN AN UNUSUAL WAY BECAUSE YOU WERE TALKING ABOUT WHAT YOU THOUGHT WAS A GOOD OUTCOME OF LOWER FEES. USUALLY WE SAY RACE TO THE BOTTOM AND IT IS TOWARD CONDUCT THAT VIOLATES THE LAW AND EXPLOITS CONSUMERS. IT IS A RACE TO THE TOP YOU ARE GETTING IN TERMS OF FEES AND SERVICES. IN TERMS OF WHETHER THIS COULD DISINCENTI VIES INVESTMENT ADVISERS TO CHARGE FEES, CERTAINLY COULD. I DON’T REALLY HAVE ANYTHING INSIGHTFUL FOR YOU. ANY KIND OF REGULATION CAN HAVE INTENDED AND UNINTENDED CONSEQUENCES. WE DON’T KNOW WHAT THE UNINTENDED CONSEQUENCES ARE. BY DEFINITION WE DON’T KNOW. AND WE HAVE TO BE READY TO UNDERSTAND AND COMPREHEND AND MAKE ADJUSTMENTS FROM SOMETHING WE VERY MUCH IS PART OF OUR MISSION AT THE BUREAU. [INAUDIBLE]. THE MARKETS ARE COMPLICATED AND SO WE MONITORED THAT RELIGIOUSLY. AND SEVERAL TIMES WE ENDED UP ADJUSTING THE RULES AND PEOPLE COULD HAVE GONE ON AND DONE OTHER THINGS, BUT WE THOUGHT THAT WAS IMPORTANT TO DO. I GUESS I AM JUST GOING TO LEAVE IT. I AM NOT AN EXPERT ON THE INVESTOR MARKET, BUT I WAS A FAN OF THE FIDUCIARY RULE AND SAD TO SEE IT SET ASIDE AT THIS POINT, BUT THESE THINGS WILL COME AND GO. THERE WILL BE FURTHER THINGS ON THIS ISSUE. THE ARBITRATION RULE THAT WAS OVERTURNED BY CONGRESS, THERE WILL COME A TIME WHEN CONGRESS WILL LEGISLATE ON THAT ISSUE. THAT WILL BE MY GUESS ON THAT.>>THANK YOU. THANK YOU AGAIN FOR COMING AND THE COOL PRESENTATION. MY QUESTION IS BASED ON YOUR EXPERIENCE AS A REGULATOR AS USED IN A COURT OF LAW OF DISCRETION TO ACT FOR CONSUMER PROTECTION OVER THE COMPARATIVE EFFICACY OF BROADER STANDARDS AND CONTENT SPECIFIC RULES, WHICH WORKS WHEN? DO YOU WANT TO SAY ABILITY REPAY OR 25% OF YOUR AFTER INCOME ET CETERA, ET CETERA. WHAT IS YOUR EXPERIENCE WITH THAT?>>THAT’S ONE OF THE PERPETUAL ISSUES IN REGULATION. I REMEMBER WHEN I FIRST MET WITH THE NEW COMPTROLLER, TOM CURRY, HE GAVE ME A CERTIFICATE THAT I KEPT IN MY OFFICE WHICH WAS THE VERY FIRST SET OF STANDARDS THE FIRST COMPTROLLER LAID DOWN AT NATIONAL BANKS AND IT WAS ON ONE RATHER LARGE, BUT ONE SHEET OF PAPER AND IT WAS VERY GENERAL RULES. YOU SHOULD DO THIS. YOU SHOULD CONSIDER THAT. IT IS VERY MUCH ALONG THE LINES AND YOU SHOULD NOT CHARGE UNREASONABLE FEES. THE DOWNSIDE OF THAT REGULATION IS THAT IT LEADS IT TO SOMEONE ELSE TO FILL IN A LOT OF DETAILS. IT COULD BE AN EXAM — AN EXAMINER. IT CAN BE A COURT IF THERE IS A COURT CASE OVER IT. IT CAN BE PEOPLE AT THE BANK MAKING THEIR OWN JUDGMENTS WHICH BY CONTROL THEY WILL BE THERE A LONGTIME WITHOUT INTENTION FROM REGULATORS. WE FOUND AND MAYBE IT WAS DUE TO THE FACT THAT WE WERE CONSIDERED AN AGGRESSIVE REGULATOR. PEOPLE WANTED VERY, VERY SPECIFIC RULES FROM US. THEY WANTED SPECIFICITY OF THE DETAILED ISSUES. THEY WANTED TO KNOW EXACTLY WHAT THEY WERE GOING TO DO. AND FOR LARGE FINANCIAL COMPANIES THAT WANT TO REMAIN COMPLIANT, THE MORE EXACT THEY CAN HAVE, THEY CAN OUGHT MATE ALL OF THAT AND THEY CAN FEEL SURE THEY DON’T HAVE A PROBLEM. THEY DON’T WANT A DISCRETION BEING EXERCISED. I THOUGHT IT WAS IRONIC, THEY MAY FIND SOME FAVORABLE TO THEM. IF THEY ARE NOT SURE YOU ARE FAVORABLE TO THEM THEY DON’T WANT THE DISCRETION. AND IN THE END YOU HAVE THESE LONG, DENSE P — VERY SPECIFIC FINANCIAL REGULATIONS. I REMEMBER SENATOR ANGUS KING AND ONE OF MY INTERVIEWS WHEN I WAS TRYING TO GET CONFIRMED, WE HAD THE STATE COME IN AND DUMB ON THE PEOPLE SEVERAL BIG CONSUMER FINANCE REGULATIONS. IF — IT WAS PILED SO HIGH YOU COULD SEE OVER THE TOP. HE WAS MAKING HIS POINT. INDUSTRY OFTEN WANTS THAT AND ASKS FOR THAT AND IS HAPPY TO HAVE IT. BIG COMPANIES CAN OUGHT MATE THEIR COMPLIANCE AND SMALL COMPANIES HAVE A HARD TIME WAITING FOR IT. IT IS WITHIN THE INDUSTRY ITSELF. BUT I WOULD SAY THAT WHERE WE WERE SURE OF OURSELF WE WERE HAPPY TO PROVIDE SPECIFICITY. OFTEN YOU ARE NOT ENTIRELY SURE OF YOURSELF SO YOU DON’T WANT TO SET THAT FOOT — AS IS SAID UMPIRES ARE OFTEN IN ERROR AND NEVER IN DOUBT. YOU DON’T WANT TO BE THAT TYPE OF REGULATOR EITHER. IT IS A VERY FACT SPECIFIC ISSUE, AND SOMETHING THAT CAN GENERALIZE WITHOUT. I WILL GIVE ONE MORE ANALOGY. DEBT COLLECTION IS AN UNUSUAL MARKETPLACE BECAUSE OF THE FEDERAL LEVEL. THERE WAS A STATUTE OUT PASSED IN 1977 THAT PROVIDES FAIR DEBT COLLECTION PRACTICES ACT. AND IT NEVER PROVIDED AUTHORITY FOR ANYBODY TO WRITE ANY REGULATIONS UNTIL DODD FRANK. WHAT THAT HAS MEANT IS FOR 40 YEARS WHAT WAS SAID IN THAT STATUTE OUT IS THAT SOME LEVEL OF GENERAL TEE HAS BEEN INTERPRETED BY COURTS IN PRIVATE LITIGATIONS AGAIN AND AGAIN AND AGAIN. THE ONLY GUIDANCE COMPANIES HAVE IS TO WHAT THEY SHOULD DO ON A LOT OF THESE VERY TRICKY, PHYSICAL — PARTICULAR ISSUES IS WHAT THE COURTS HAVE TOLD THEM. THE TROUBLE IS A LOT OF COURTS HAVE SAID VERY DIFFERENT THINGS ON THE SAME ISSUES. SO THEY HAVE NO GOOD GUIDANCE OTHER THAN MAKING A JUDGMENT WHICH IS NOT MADE IN UNIFORM FASHION WITHIN THE INDUSTRY. THEY ACTUALLY HAVE BEEN BEGGING THE BUREAU FOR SEVERAL YEARS NOW TO FORMULATE AND ADOPT RULES SO THEY CAN HAVE MORE CERTAINTY AND LET ALONE HAVE A CLEARER RULE ON THE SUBJECT RATHER THAN MURKY AND CONFLICTING RULES. THERE IS A PLACE FOR REGULATION AND INDUSTRY KNOWS THAT. ONCE THEY GET USED TO IT AND THE RULES ARE SENSIBLE ENOUGH IT TENDS TO BE A GOOD MARKETPLACE. I THINK THE MORTGAGE AND CREDIT CARD MARKETS WILL BE GOOD MARKETPLACES IN THE LAST SEN YEARS AND THEY WERE NOT BEFORE, NO QUESTION ABOUT IT. UNTIL WE FIND THE NEXT PROBLEM OR MELT DOWN WHICH I DON’T KNOW WHAT IT IS RIGHT NOW, BUT WE WILL SEE. [APPLAUSE].>>WE ARE GOING TO GO TO OUR PANEL.>>THANKS FOR HANGING IN THERE WITH US. I AM ADRIAN HARRIS — ADRIENNE HARRIS AND ASSISTANT TO PRESIDENT OBAMA AT THE ECONOMIC COUNCIL. I WILL MODERATE OUR DISTINGUISHED PANEL HERE TODAY. I KNOW EACH PRESENTER HAS A BIT OF A PRESENTATION AND THEN WE WILL MOVE INTO THE DISCUSSION. WHY DON’T WE GO DOWN THE LINE QUICKLY AND DO INTRODUCTIONS AND THEN MOVE THROUGH EACH OF THE PRESENTATIONS?>>SURE.>>GOOD MORNING, GOOD AFTERNOON. I AM MELISSA KOIDE. I RUN FINREG LAB.>>I AM LISA SERVON PROFESSOR AND CHAIR OF THE CITY AND REGIONAL PLANNING DEPARTMENT AT THE UNIVERSITY OF PENNSYLVANIA.>>I AM WILLY ELLIOTT, UNIVERSITY OF MICHIGAN AND A PROFESSOR HERE. THANK YOU.>>OKAY. I’M GOING TO MOIKS — MIX IT UP. I AM STANDING UP AND WAKE EVERYBODY UP. HOLD ON THOUGH. LET ME GET MYSELF ORGANIZED. SO I AM SAD NICK SMITH IS NOT HERE BECAUSE I AM GOING TO ALSO CLAIM THAT MICHAEL BARR GAVE ME MY FIRST JOB TOO, KIND OF SORT OF IF YOU DON’T COUNT THE YOGURT SHOP AND THE HOSPITAL AND X RAY DEPARTMENT IN COLLEGE. NOW YOU CAN GUESS HOW OLD IS MICHAEL IN LIGHT NICK SMITH GAVE HIM HIS FIRST JOB AND YOU CAN BE MY FIRST JOB. LIKE YOU HEARD, I AM MELISSA KOIDE AND PROBABLY THE ONLY START UP IN THE ROOM. WE ARE SOMEWHAT OF A DIFFERENT TYPE OF START UP. WE ARE A NONPROFIT RESEARCH ORGANIZATION, AND I MENTIONED MICHAEL BARR BECAUSE I WORKED FOR THE U.S. TREASURY DEPARTMENT TWICE. I WAS A STAFFER IN THE CLINTON ADMINISTRATION AND MORE RECENTLY I WAS THE DEPUTY ASSISTANT SECRETARY FOR CONSUMER POLICY IN THE OBAMA ADMINISTRATION. A LOT OF WHAT YOU ARE GONNA HEAR ME TALK ABOUT REALLY HARKINS BACK TO WHAT WE WANTED TO UNDERSTAND, BUT WE WERE INSUFFICIENTLY ABLE TO UNDERSTAND WHEN IT COMES TO, AND I USE THIS WITH INTENTION, WHEN IT COMES TO THE ROLE OF DATA AND TECHNOLOGY IN THE FINANCIAL SYSTEM, AND IN PARTICULAR IN THE RETAIL FINANCIAL SERVICES SECTOR. I USE THE WORD DATA AND TECHNOLOGY AS OPPOSED TO FIN TECH. FIN TECH IS A NEBULOUS TERM AND IT RAISES QUESTIONS BANK VERSUS NONBANK. AND I THINK IN PART WHAT WE ALL DESPERATELY NEED IS MORE FACT-BASED INSIGHT ABOUT THE FOUNDATIONAL ISSUES WHEN IT COMES TO DATA USE IN FINANCIAL SERVICES AND ALSO NEW TECHNOLOGY BEING DEPLOYED IN THE FINANCIAL SYSTEM AND IN FINANCIAL SERVICES. AND SO THAT IS WHAT HAS LEAD ME TO STAND UP FINREG LAB WHICH IS A NONPROFIT ORGANIZATION. LET ME USE MY SLIDES TO BE MY GUIDE AND LET ME FIGURE OUT HOW TO USE THIS AND PUT GLASSES ON. I FEEL LIKE I AM PUTTING ON MY HELMET HERE. SO OUR PURPOSE AT FINREGLAB AND WE ARE A YEAR AND A HALF OLD NOW IS REALLY IF YOU THINK ABOUT AND ASSESS WHAT ARE THE POTENTIAL WAYS DATA AND TECHNOLOGY CAN BE HARNESSED FOR GOOD AND IN PARTICULAR HOW DATA AND TECHNOLOGY CAN BE UTILIZED TO EXPAND FINANCIAL ACCESS AND INCLUSION. WE HAVE BEEN VERY FOCUSED IN THE U.S., BUT WE ARE THINKING ABOUT THESE ISSUES IN A GLOBAL CONTEXT. HOW CAN WE HELP TO GENERATE FACT-BASED INSIGHTS THAT WILL ULTIMATELY INFORM PUBLIC POLICY BECAUSE, AGAIN, GIVEN THE FOUR AND A HALF YEARS I WAS MOST RECENTLY A A TREASURY AND EVEN TO SOME EXTENT IN THE PRIOR PERIOD, WITHOUT HAVING A DEEP SORT OF EMPIRICAL ASSESSMENT ABOUT WHAT THE TRADEOFFS ARE, BOTH WHAT THE BENEFITS MAY BE AND ALSO WHAT THE POTENTIAL RISKS AND MAJOR CONSIDERATIONS ARE, IT IS REALLY HARD AND BEING CANDID, IT IS HARD FOR REGULATORS TO HAVE A LEVEL OF CONFIDENCE. AND FRANKLY AT SOME LEVEL TO EVEN TAKE ON A LEVEL OF RESPONSIBILITY TO THEN THINK ABOUT HOW DO WE EVOLVE OUR GUIDANCES AND OUR REGULATIONS AND EVEN OUR LAWS? WE REALLY NEED TO UNDERSTAND AS POLICY MAKERS, IMPLICATIONS BETTER AS WE THINK ABOUT THE NEED TO INVOLVE PUBLIC POLICY. AND HOPEFULLY WITH THE INSIGHTS THAT WE ARE GENERATING DIRECTLY AT FINREG LAB, BUT WE ARE ALSO TRYING TO FOSTER AND BRING IN FROM OTHER RESEARCHERS AND ACADEMIC INSTITUTIONS TO POLICY MAKERS ESPECIALLY AT THE FEDERAL LEVEL. IT WILL HELP TO INFORM NOT ONLY PUBLIC POLICY, BUT THE BROADER FINANCIAL MARKETPLACE. FRANKLY THE MARKETPLACE IS LOOKING FOR SOME SENSE OF WHAT MAY BE THE RULES OF THE ROAD AND WHERE ARE THE RISKY AREAS AND HOW DOES IT TAKE ADVANTAGE OF THE TECHNOLOGY AND DATA TO EXTEND PRODUCTS AND SERVICES AND ADVICE AND NEW CHANNELS TO CONSUMERS AND SMALL BUSINESSES AND COMMUNITIES. SO WHAT IS THE STATE THAT WE ARE IN RIGHT NOW? YOU HEARD A LITTLE OF THIS EARLIER AND IT REALLY IS A REALLY SET OF CRITICAL ANCHOR POINTS THAT WE HAVE TO THINK ABOUT. THIS IS SOMEWHAT OF AN OUTDATED METHOD OF ASSESSING OUTDATED PRODUCTS AND SERVICES. WON’T GO INTO IT IN TOO MUCH DETAIL, BUT IT CALIBRATES OUR UNDERSTANDING OF WHO REALLY IS STRUGGLING AND WHO IS NOT CONNECTED TO SAFE AND SECURE FINANCIAL PRODUCTS AND SERVICES. WE HAVE 33.5 MILLION HOUSEHOLDS WHO ARE BY FDIC DEFINITION UNDER BANKED. YOU HEARD THE STATISTICS EARLIER. WE HAVE A LOT OF PEOPLE IN THIS COUNTRY WHO ARE LIVING IN POVERTY. IT IS HARD TO BELIEVE. 40MILLION HOUSEHOLDS, AMERICANS ARE LIVING IN A STATE OF POVERTY. 60% OF AMERICANS WHO STRUGGLE WITH AN ANNUAL FINANCIAL EMERGENCY, COVERING THOSE EXPENSES, AND 34% OF AMERICANS WHO EXPERIENCE ANNUAL INCOME VOLATILE TEE. WHICH FRANKLY ALL OF US IN THE ROOM GET THAT AND KNOW THAT AND HAVE THOSE EXPERIENCES OURSELVES. THAT’S ACTUALLY A RELATIVELY LOW PERCENTAGE. AND THEN WE THINK ABOUT GLOBALLY THOSE WHO ARE DISCONNECTED FROM SAFE PRODUCTS AND SERVICES. 1.7BILLION PEOPLE ARE UNDER SERVED ANNUALLY — I’M SORRY. THEY ARE NOT CONNECTED TO A FORMAL FINANCIAL SYSTEM ACROSS THE GLOBE. FOUR OF THE FIVE STATISTICS OR THREE OF THE FIVE ARE THINGS THAT FALL OUTSIDE THE FINANCIAL SYSTEM. THESE ARE MATTERS OF INCOME. THESE ARE MATTERS OF WEALTH. THESE ARE MATTERS OF INEQUALITY OF INCOME AND WEALTH. AND THOSE THINGS HAVE TO BE THOUGHT ABOUT IN MANY DIFFERENT WAYS BY SOCIETY AND BY POLICY MAKERS. BUT A LOT OF THESE DATA POINTS ARE IMPORTANT AND THEY COME BACK TO HOW IMPORTANT BEING TIED TO GOOD FINANCIAL PRODUCTS AND SERVICES ARE AND THAT’S WHERE I THINK MANY OF US BOTH REALIZE THIS TIDAL WAVE OF TECHNOLOGY AND THE POTENTIAL OF DATA AND WHAT IT MAY MEAN FOR HELPING TO DRIVE LOWER COST ACCESS, LOWER COST — LOWER COSTS ASSOCIATED WITH ACTUALLY BUILDING AND PROVIDING PRODUCTS TO ESPECIALLY LOW AND MODERATE INCOME CONSUMERS AND MAY OFFER A POTENTIAL BENEFIT. IT MAY IMPROVE AND OPEN UP CHANNELS AND MOBILE DEVICES AND ONLINE ACCESS AND LOWER COSTS, PERSONALIZED, TIMELY INFORMATION THAT IS REALLY ABOUT WHAT THAT INDIVIDUAL OR WHAT THAT HOME REALLY NEEDS BOTH IN THE IMMEDIATE FINANCIAL NEEDS, BUT ALSO IN THEIR MIDAND LONGER TERM FINANCIAL GOALS AND ASPIRATIONS FOR THEMSELVES AND FOR THEIR FAMILIES. I THINK THAT’S WHY A LOT OF US GET QUITE EXCITED ABOUT TRYING TO UNDERSTAND WHAT DOES TECH AND DATA MEAN IN THE FINANCIAL SYSTEM? HOW ARE WE THINKING ABOUT INVOLVING POLICY SO THAT IT REALLY IS FINANCIAL SERVICES SUPPORTING DIGNITY AND NOT TAKING THAT AWAY. WE ALSO KNOW THE RISK. THE BIG RISK THAT MANY OF US ARE VERY AFRAID OF ARE THE REALITIES THAT THIS TECHNOLOGY AND THIS DATA MAY EXACERBATE ESPECIALLY IN THIS COUNTRY THE GENERATIONS OF RACIAL AND INCOME AND ECONOMIC INEQUALITY THAT EXISTS. AND REALLY PRESSING FOR ALL OF THIS IS TO UNDERSTAND HOW DOES THAT TECHNOLOGY WORK? WHAT DOES THE DATA DO WHEN USED IN THE FINANCIAL SYSTEM AND HOW DO WE MAKE SURE WE DON’T EXACERBATE RED LINING INSTANCES THAT HAVE HAPPENED FOR GENERATIONS? SO LOTS OF PRESSING QUESTIONS AND WE HERE ARE NOT GOING TO ANSWER AWFUL THESE. BUT YOUNG WE QUITE TALKED ABOUT THEM IN A TANGIBLE WAY YET, BUT WHAT ARE SOME OF THE ISSUES AND WHAT ARE SOME OF THE OPPORTUNITIES? CLEARLY ANXIETY AND CONCERN ABOUT RED LINING AND DISCRIMINATION BEING PERPETUATED WITH DATA AND TECHNOLOGY IS TOP OF ALL OF OUR LISTS. NOT UNDERSTANDING HOW THESE NEW ALGORITHMS AND THESE MACHINE-LEARNING ALGORITHMS SPIT OUTOUT — SPIT OUT OUTPUT AND IT IS ULTIMATELY WHAT DECIDES A CREDIT DECISION, FOR INSTANCE. THAT’S ANOTHER CONCERN THAT A LOT OF US HAVE. BUT THEN THERE ARE ALSO POSITIVES AND POTENTIALS. I ELUDED TO THIS A MINUTE AGO. CONSUMER FINANCIAL DATA. IS THERE A WAY THAT WE CONSUMERS COULD BE ACCESSING OUR FINANCIAL INFORMATION AND TAKING ADVANTAGE OF A TECHNOLOGY TOOL THAT IS HELPING US INDIVIDUAL LIES WHAT OUR GOALS ARE AND WHAT OUR NEEDS ARE? IT RAISES QUESTIONS, WELL WHAT ARE THE BUSINESS MODELS UNDER THOSE PERSONAL FINANCIAL MANAGEMENT TOOLS AND ARE THE INCENTIVES ALIGNED OR NOT ALIGNED WITH THAT INDIVIDUAL NEED AND ASPIRATION? ONE OF THE QUESTIONS, AND THIS IS THE ONE THAT WE HAVE TAKEN ON AT FINREGLAB RIGHT NOW AND THAT’S THE QUESTION OF COULD WE BRING IN DATA INTO CREDIT UNDERWRITING METHODS — TRADITIONAL CREDIT UNDERWRITING METHODS AND WOULD NEW DATA HELP A LENDER BETTER CREDIT RISK ASSESS A CONSUMER OR A SMALL BUSINESS? WOULD THE INCLUSION OF NEW DATA POTENTIALLY HELP A LENDER DO THIS IN A WAY THAT A SOUTHBOUND RAT, MORE ACCURATE THAN WHAT THEY WOULD SEE WITH A TRADITIONAL FICO SCORE OR CREDIT HISTORY DATA? AND WOULD IT ENABLE THE LENDER TO DO SOMETHING THAT IS A MORE PRUDENT DECISION AND IS IT MORE PRUDENT FOR THE CONSUMER THEN IN TERMS OF WHAT THE CREDIT IS THAT THEY MIGHT GET? I WILL TALK ABOUT THAT IN A FEW MINUTES AND LOTS OF OTHER TOPICS. NEW TECHNIQUES ON PRIVACY SORT OF ALLOWING CONDITIONING ABOUT WHO YOU SHARE YOUR DATA WITH. ARE THERE WAYS THAT CAN BE USED TO GET AFTER SOME OF THE NEEDS THAT WE HAVE AROUND KNOWING WHO IS IN OUR FINANCIAL SYSTEM OR KNOW YOUR CUSTOMER TYPES OF REQUIREMENTS. THE LIST GOES ON. I MEAN WE CAN ALL SIT AND COME UP WITH MANY, MANY MORE. WE STEP BACK AND TRY TO THINK ABOUT WHERE DOES THIS POTENTIAL FOR BIG CHANGE REALLY SIT? THESE ARE THE MASTER CATEGORIES THAT WE HAVE IDENTIFIED AND WHERE WE WANT TO SPEND OUR TIME. WE ARE DIGGING INTO THE ISSUES OF DATA AND UNDERWRITING, BUT THERE ARE CLEARLY OTHER APPLICATIONS TOO. I JUST SPOKE ABOUT A A FEW OF THEM, SO I AM NOT GOING TO SPEND A LOT OF TIME ON THIS PAGE. LOTS OF POTENTIAL USES FOR DATA AND TECHNOLOGY FROM SOLVING IS SOMEBODY WHO THEY SAY THEY ARE UNDER KNOW YOUR CUSTOMER OBLIGATIONS, ARE THERE MORE EFFICIENT WAYS OF KNOWING WHO ARE THE BAD GUYS IN OUR FINANCIAL SYSTEM AND ROOTING THEM OUT. HOW IS TECHNOLOGY HELPING TO LOWER THE COST OF PRODUCTS THAT HAVE BEEN DELIVERED THROUGH A MOBILE DEVICE, AND IS THE INFORMATION GENERATED THROUGH THE MOBILE DEVICE POTENTIALLY A WAY TO HELPING THAT CONSUMER BETTER MANAGE THEIR FINANCES? THE LIST GOES ON AND ON. BUT, IN ORDER FOR THOSE BIG OPPORTUNITIES TO REALLY BE SORTED AND FOR GUIDE RAILS TO BE WRITTEN, WE HAVE TO COME BACK TO THE POLICIES THE LAWS VEE IN PLACE RIGHT NOW. AND I JUST LISTED A FEW, BUT MANY OF THESE ARE LAWS THAT WE ARE QUITE FOCUSED ON IN THIS WORK WE ARE DOING LOOKING AT UNDERWRITING. I THINK WHAT IS IMPORTANT TO REALIZE HERE, ALL OF THESE LAWS, MANY DATE BACK TO THE 1970s. IN FACT, 1970, WHEN I WAS BORN, AND EVEN MORE RECENTLY 1999 WHEN IT WAS PASSED NONE OF THESE HAVE BEEN WRITTEN IN THE PAST 10 YEARS. NONE OF THEM CONTEMPLATED THE WORLD WE ARE LIVING IN NOW WITH THE UBIQUITOUS AMOUNT OF DATA USED OR NOT USED FOR LOTS OF DECISIONS IN OUR LIVES, AND SO HOW THEN ARE THESE LAWS AND REGULATIONS GOING TO BE UPDATED? THAT’S WHERE WE LIKE TO THINK WE CAN OFFER A LITTLE HELP. WHAT DO WE DO? FIRST AND FOREMOST WE TALK TO POLICY MAKERS AND WE TALK TO REGULATORS AND WE REALLY TRY TO HONE IN ON WHAT ARE THE TOP OF MIND ISSUES WHERE WE AS AN INDEPENDENT ORGANIZATION CAN GO OUT AND BUILD A TIMELY RESEARCH PROJECT OR EVEN IDEALLY AN EXPERIMENT WHERE WE CAN ASSESS SOME OF THESE VERY TOPICAL AND TIMELY MATTERS THAT REGULATORS ARE SEEKING INFORMATION ON. WE THEN COLLABORATE WITH OTHERS. WE LEVERAGE EXTER NATIONAL PARTNERS AND ACADEMIC INSTITUTIONS AND FINANCIAL MOD — MODELING SHOPS THAT DO THE ANALYSIS AS VENDORS TO FINREGLAB AND LEVERAGING OTHER PARTNERSHIPS WITH EVEN CONSULTANTS WHERE WE HAVE A DEEP BREDth OF LEGAL EXPERTS, LAWYERS AND OTHERS WHO ARE COMING ON BOARD AND HELPING AS WE ARE PROBING BOTH THE SPHERE — THE EXPERIMENT SIDE OF THE RESEARCH WE BUILD, BUT THE POLICY AND THE LEGAL ANALYSIS WORK WE ARE DOING. AND THEN WE SHARE THE FACTS AND THE INSIGHTS. LET ME HOP TO THE NEXT ONE. THIS REFLECTS IT A LITTLE MORE. PART OF THE AMBITION AND PART OF WHAT WE HAVE BEEN DOING ALONGSIDE BUILDING AN EXPERIMENT INCURS AND YOU PICKED THIS UP IN A ROOM, POLICY DOES NOT HAPPEN IN A VACUUM AND THERE ARE A LOT OF STAKEHOLDERS THAT HAVE TO BE ENGAGED IN THE CONSIDERATION AND IN THE PROCESS. AND IN LIGHT OF THAT, WE RUN POLICY-WORKING GROUPS BASED ON THE PARTICULAR AREA OF RESEARCH THAT WE ARE UNDERTAKING. WE THEN BUILD 30 TO 60 PEOPLE WORKING GROUPS — ACTUALLY THOSE ARE THREE WORKING GROUPS, BUT TO DEEP DIVE ASSESS WHAT THE CURRENT LAWS SAY ABOUT THAT PARTICULAR DECK ENOLOGY OR DATA USE — TECHNOLOGY OR DATA USE. WHAT ARE THE POTENTIAL WAYS THE LAWS OR THE POLICIES OF THE REGULATIONS COULD BE EVOLVED, MINDFUL OF THE CONSIDERATIONS AND THE TRADEOFFS AND THE RISKS TO CONSUMERS AND THE BEN — BENEFITS TO THE INDUSTRY? WE PRODUCE REPORTS THAT REFLECT THE INPUT THAT CAME THROUGH THE WORKING GROUP PROCESSES ALONG WITH THE EXPERIMENT INSIGHTS. AND NOW I WILL TALK CONCRETELY ABOUT OUR EXAMINATION OF CASH FLOW DATA AND UNDERWRITING. SO HERE IN THE U.S. WE KNOW THAT THERE ARE ABOUT 45 MILLION INDIVIDUALS WHO LACK A SUFFICIENT CREDIT HISTORY TO SCORE THEM UNDER TRADITIONAL UNDERWRITING MEANINGS. THIS IS HISTORY THAT GENERATES THE FICA — FICO SCORE. THEY HAVE STEEP CREDIT AND PAYING HIGH COSTS TO ACCESS OF CREDIT AS A SOLE PROPRIETOR. AND SO ONE OF THE THEORIES GOING AND ONE OF THE AREAS OF STRONG INTEREST AMONG REGULATORS IS THE QUESTION OF ARE THERE OTHER TYPES OF DATA THAT FEELS FRANKLY SAFE BECAUSE THEY ARE FINANCIAL IN NATURE, BUT THAT ACTUALLY COULD HELP LENDERS PRUDENTLY CREDIT RISK ASSESS THESE 45 MILLION INDIVIDUAL AND 23 MILLION SELF-PROPRIETORS. THAT INTEREST HAS ULTIMATELY LANDED ON THE FOCUS OF LOOKING AT CASH FLOW DATA. AND THAT MEANS LOOKING AT WHAT IS THE INFORMATION IN AN INDIVIDUAL OR IN A SMALL BUSINESS’ BANK ACCOUNT. WHAT ARE THE TRANSACTION ACTIVITIES? IMPORTANTLY IT COULD MEAN A LOT OF OTHER THINGS TOO. THERE IS A LOT OF INFORMATION AS IF I OF US WHO PULL OUR BANK ACCOUNT UP, WHO IS THE MERCHANT AND WHERE IS THE MONEY GOING? WHAT ARE THE DATES IT WAS SENT? SOMETIMES IT IS TIME STAMPED. THERE IS SAW LOT OF INFORMATION IN THE BANK ACCOUNT PICTURE. WHAT REGULATORS AND WE AND OTHERS IN THE BROADER FINANCIAL STAKEHOLDER SECTOR WANT TO KNOW IS DOES THE INFORMATION THAT COMES IN AND OUT OF A BANK ACCOUNT, THE TRANSACTION DATA INFORMATION, IS THAT A WAY TO BETTER ASSESS THESE INDIVIDUAL NEEDS TO ACCESS CREDIT. WHAT WE HAVE DONE IS SOUGHT ABOUT AN EXPERIMENT THAT SEEKS TO ANSWER THAT QUESTION. WE HAVE BEEN ABLE TO GET LOAN LEVEL DATA FROM TWO, THREE, FOUR, FIVE LENDERS. WE HAVE AN ADDITIONAL LENDER AND THESE ARE SMALL LENDERS. THEY ARE A CREDIT CARD PROVIDER AND INSTALLMENT LOANS AND IT IS A PROVIDER OF AN OVER DRAFT PRODUCT AND THEY ARE USING CASH FLOW INFORMATION IN ORDER TO CREDIT RISK ASSESS AND EXTEND THE CREDIT. IT IS CERTAIN NONCREDIT PRODUCTS TO CONSUMERS AND SMALL BUSINESSES. WE ARE SETTING OUT TO ANSWER QUESTIONS. FIRST AND FOREMOST, DOES THE DATA ALLOW THE LENDER TO EXTEND CREDIT TO THOSE BORROWERS? AND WE HAVE PERFORMANCE DATA THAT WE CAN ASSESS HOW ACCURATE WAS THE PREDICTION ACCORDING TO THE CASH FLOW DATA. WE ARE COMPARING THAT TO CONSUMERS WHO ARE NOT IN TOUCH WITH CASH FLOW. THE SECOND QUESTION IS, DOES THAT — DOT BORROWERS PERFORM BETTER WITH THE CASH FLOW UNDERWRITING? AND THEN THE THIRD IMPORTANT QUESTION FROM A POLICY STANDPOINT IS DO WE SEE DIFFERENCES BETWEEN PROTECTED AND NONPROTECTED CLASSES? DO WE SEE INDICATIONS OF THE IMPACT RISK? I DON’T WANT TO GET AHEAD OF MY SKIS. I WILL USE THIS TO WET YOUR APPETITE. WE WILL ACTUALLY BE RELEASING THE FINDINGS OF THIS RESEARCH IN MAY. IT IS COMING TO HURRICANE WHAT — IT IS COMING TO LEARN WHAT WE LEARN. AND SO THEN A PART OF THE PROCESS OF THE POLICY ISSUES. WHAT WE CAN DO IS CONVENE 60 PEOPLE IN YEUN AND THERE ARE POLICY MAKERS WHO ARE SITTING AT THE TABLE WITH US AND THE LARGE BANKS AND THE NONBANK LENDERS. WE NEED TO DEEP DIVE AND THINK ABOUT AND ASSESS AND CONSIDER THE OPTIONS IN TERMS OF EVOLVING THOSE LAWS AND THE POLICIES. AND NOT SURPRISING THE CREDIT INFORMATION ECOSYSTEM, WE ARE NOW TALKING ABOUT A VERY DIFFERENT FLOW OF A VERY DIFFERENT TYPE OF DATA FOR UNDERWRITING. WE ARE TALKING ABOUT CASH FLOW DATA FROM A BANK ACCOUNT FLOWING TO WHAT WE CALL AN END USER WHICH ARE THE LENDERS. IT IS FLOWING THROUGH THESE INTERMEDIARIES. THIS IS NOT SOMETHING SOME WOULD ARGUE WAS CONTEMPLATED UNDER THE FAIR CREDIT REPORTING ACT. THESE ARE THE ECOSYSTEM QUESTIONS WE ARE DIGGING DEEP INTO FAIR AND INCLUSIVE ACCESS IS AROUND FAIR CREDIT LENDING. IT WAS AN ENGAGING CONVERSATION WITH BANKS AND WITH ACADEMICS AS WE WERE THINKING ABOUT HOW IS FAIRNESS DEFINED? WHAT ARE THE EXPECTATIONS? IF YOU DO SEE DIFFERENCES BETWEEN PROTECTED CLASS AND NONPROTECTED CLASS, ONE OF THE TOPICS THAT WE SPENT A FAIR BIT OF TIME TALKING ABOUT IS WHAT IF WE SEE RESULTS WHERE HISPANIC FEMALES HAD BEEN ASSESSED AT SAY 50% UNDER FICO, BUT YET WITH THE CASH FLOW DATA WE ARE NOW SEEING MORE — OR HISPANIC FEMALES BEING ASSESSED AT A GREATER RATE OF THE 70%. BUT IN COMPARISON TO WHITE MEN , WHERE IT IS 70% — [NO AUDIO]. WHEN WE ARE TALKING ABOUT A NONCREDIT-REPORTING AGENCY SYSTEM AND CONSUMERS ARE HAVING DATA PULLED FROM THEIR BANK ACCOUNT AND MOVING THROUGH A THIRD PARTY TO AN END USER AND OF COURSE ISSUES AROUND WHO IS IN THAT RESPONSIBILITY WHEN THAT DATA IS FLOWING. MORE ON THAT ONE TOO. SO I AM HAPPY TO SHARE THIS DECK. IT HAS SOME OF THE POIGNANT QUESTIONS WE ARE DIGGING INTO IN EACH OF THE WORKING GROUPS. I THINK THE REAL NOTE IS WE WILL BE RELEASING THE REPORT IN MAY. WE ARE LOOKING FOR PEAKED BACK. WE — FOR FEEDBACK. WE ARE LOOKING FOR CONVERSATION. WE ARE HOPING THE RESEARCH FINDINGS COMBINED WITH THE DEEP DIVE POLICY ISSUES WILL HELP TO FURTHER THE CONVERSATION AS WE THINK ABOUT HOW WE ARE MAKING SURE THE POLICY — IS THE STATE OF TECHNOLOGY AND DATA AND FINANCIAL SERVICES EVOLVED? WE ARE REALLY THOUGHTFULLY CONSIDERING HOW WE ARE BALANCING THE TRADEOFF. ALL RIGHT. AND HERE IS THE TEAM. I WANT TO POINT OUT BECAUSE MANY OF YOU KNOW SOME OF THE PEOPLE IN THIS TEAM. IT IS QUITE EXEATING. EXCITING. WE HAVE KELLY COCHRAN WHO JOINED US AS OUR DEPUTY A MONTH AGO. WAYNE FULL WHO COMES WITH A BACKGROUND OF LINCOLN LABS. STEVEN WHO WAS WORKING FOR FSCARD WHICH IS A CREDIT CARD PRODUCT THAT WAS SPECIFICALLY AIMED AT LOW AND MODERATE INCOMED HOUSEHOLDS. IT IS A GREAT TEAM AND A GREAT BOARD AND I LOOK FORWARD TO HEARING YOUR QUESTIONS. [APPLAUSE].>>WE WILL GO THROUGH EACH OF THE PRESENTATIONS AND THEN COME BACK FOR Q AND A.>>HI, EVERYONE. GOOD AFTERNOON. MY NAME IS LISA SERVON AND I TEACH AT THE UNIVERSITY OF PENNSYLVANIA, AND I HAVE BEEN DOING WORK ON CONSUMER FINANCIAL SERVICES FOR ABOUT SEVEN YEARS. WHEN I THOUGHT ABOUT COMING TODAY I REALLY WAS THINKING ABOUT THE TITLE OF THE CONFERENCE WHICH IS CONSUMER PROTECTION IN THE AGE OF UNCERTAINTY. I THINK A LOT OF THE PANELISTS TODAY AND THE SPEAKERS HAVE REALLY BEEN TALKING ABOUT THE PROTECTION PIECE OF CONSUMER PROTECTION, THE LAWS, THE REGULATIONS, THE WAYS IN WHICH WE PROTECT CONSUMERS. AND SO I REALLY WANT TO FOCUS ON THE CONSUMER PIECE WITH A LITTLE PERSONAL FAITH OF THE PEOPLE WE ARE TALKING ABOUT AND THE UNCERTAINTY PIECE. AND WHEN I WAS THINKING ABOUT THIS I REALLY THOUGHT, WELL, THERE ARE A FEW KINDS OF UNCERTAINTY THAT ARE IMPORTANT IN THE CONVERSATIONS WE ARE HAVING. ONE IS THIS UNCERTAINTY IN THE POLITICAL ENVIRONMENT. IT IT HAS REALLY CHANGED THE CONTEXT IN WHICH CONSUMERS ARE BOWING PROTECTED AND THE WAY WE ARE THINKING ABOUT CONSUMER PROTECTION. THE SECOND WHICH IS THE ONE I WANT TO SPEND MORE TIME TALKING ABOUT IS FINANCIAL UNCERTAINTY. SO IN TERMS OF FINANCIAL UNCERTAINTY I WANT TO TALK ABOUT HOW IT HAS BECOME INCREASINGLY WIDESPREAD. IT IS SO WE HAVE MORE AND MORE FAMILIES WHO FEEL AS THOUGH THEY ARE LIVING IN FINANCIALLY PRECARIOUS SITUATIONS. AND THAT IS CHANGING. WE KNOW FROM RESEARCH THAT 40% OF AMERICANS COULD NOT COME UP WITH $400 IN THE EVENT OF AN EMERGENCY. THAT MEANS THAT IT IS NOT JUST THAT THEY HAVE — THEY DON’T HAVE $400 IN THEIR BANK ACCOUNT, BUT THERE IS NO ONE THEY COULD EVEN ASK FOR. THEY DON’T HAVE A CREDIT CARD THEY COULD CHARGE $400 ON. IMAGINE THE KINDS OF THINGS THAT HAPPEN TO US ON A REGULAR BASIS, AN APPLIANCE BREAKS DOWN, CLASSIC EXAMPLE, A CAR BREAKS DOWN, A MEDICAL EMERGENCY. 75% OF AMERICANS ARE LIVING PAYCHECK TO PAYCHECK. SO WHEN WE THINK ABOUT AND AS MELISSA TALKED ABOUT SOME OF THESE LAWS NOT CHANGING SINCE THE 1970s, THE WORLD IN WHICH PEOPLE ARE EARNING AN INCOME AND TRYING TO MAKE ENDS MEET HAS CHANGED A LOT. THE FINANCIAL SITUATION, THE FINANCIAL TOOLS THEY HAVE TO MANAGE THAT AND THE POLICY SITUATION HAVEN’T REALLY CHANGED TO ACCOMMODATE THOSE — THIS CHANGE. THERE ARE REALLY THREE KEY TRENDS THAT ARE DRIVING THIS WIDESPREAD FINANCIAL UNCERTAINTY. THE FIRST IS DECLINING WAGES. SINCE THE 1970s WAGES HAVE BEEN GOING DOWN FOR PEOPLE. THE SECOND IS INCREASED INCOME VOLATILE TEE. IT IS DEFINED AS SHIFT OF MORE THAN 25% IN SOMEONE’S INCOME FROM ONE YEAR TO THE NEXT. BECAUSE OF THAT, PEOPLE ARE MUCH LESS ABLE THAN THEY USED TO BE TO BE ABLE TO FIGURE OUT HOW MUCH MONEY IS COMING INTO THE HOUSEHOLD FROM WEEK TO WEEK OR MONTH TO MONTH. A LOT OF THIS IS BECAUSE THERE IS LESS ATTACHMENT BETWEEN EMPLOYERS AND EMPLOYEES BECAUSE PEOPLE HAVE SHIFTED FROM FULL TIME TO PART-TIME JOBS, AND THAT MANY OF THESE JOBS ARE SCHEDULED AND ARE IN AN ON DEMAND WAY. PEOPLE DON’T KNOW IF THEY ARE WORKING AT AN HOURLY JOB WHETHER THEY WILL BE SCHEDULED FOR 10 HOURS A WEEK OR 40 HOURS A WEEK. INCOME VOLATILE TEE HAS DOUBLED OVER THE LAST 30 YEARS. IT HAS CREATED HUGE CHANGE. AND THE THIRD CHANGE IS THE RETRACTION OF THE PUBLIC AND PRIVATE SAFETY NET. SO WE KNOW THE SOCIAL WELFARE SITUATION, THE SOCIAL WELFARE SYSTEM IS MUCH MORE FRAYED THAN IT USED TO BE. AND EVEN IF YOU DO HAVE A GOOD, STABLE JOB, IT IS VERY LIKELY YOUR COST FOR HEALTH INSURANCE HAS GONE UP, RETIRE MEANT PLAN IS MUCH LESS SECURE AND MUCH MORE DEFINED BY WHAT YOU CONTRIBUTE THAN WHAT YOU WILL GET BACK FROM THAT EMPLOYER. SO ALL OF THESE THINGS HAVE COMBINED TO CREATE A SITUATION IN WHICH PEOPLE HAVE A VERY HARD TIME FEND — SPENDING, PLANNING, SAVING AND FIGURING OUT HOW THEY WILL MANAGE THEIR FINANCIAL LIVES. I WANTED TO REALLY UNDERSTAND HOW THOSE SITUATIONS WERE AFFECTING CONSUMERS ON THE GROUND, AND I WANTED TO KNOW WITH THE THREE FRIENDS IN THIS INCREASING FINANCIAL INSTABILITY, I SAW THE DATA THAT SHOWED THAT MANY MORE PEOPLE WERE USING ALTERNATIVE FINANCIAL SERVICES LIKE CHECK CASHERS, PAY DAY LENDERS, PAWNBROKERS, ET CETERA. IN ORDER TO UNDERSTAND THAT IN A DIFFERENT WAY I GOT A JOB AS A TELLER. I WORKED FOR FOUR MONTHS AT A CHECK CASHER IN THE SOUTH BRONX IN NEW YORK. I ALSO WORKED AS A PAY DAY LENDER AND LOAN COLLECTOR IN OAKLAND, CALIFORNIA. I ALSO STAFFED A HOTLINE CALLED THE PREDATORY HEALTH HOTLINE RUN BY A LAW CENTER TO TALK WITH PEOPLE ABOUT HOW THEY WERE HAVING DIFFICULTY PAYING BACK THOSE PAY DAY LOANS. LOANS THAT WERE MADE IT THEM EVEN THAT WERE ILLEGAL. ONE OF THE THINGS COMING OUT OF THAT RESEARCH THAT WAS MOST SURPRISING TO ME, AND THIS IS PARTICULARLY TRUE FOR THE PEOPLE WHO HAD TAKEN OUT SMALL DOLLAR CREDIT WAS HOW MANY OF THOSE PEOPLE HAD ATTRIBUTES OF MIDDLE CLASS AMERICANS. I THINK WHEN WE THINK OF THE GROUP WE ARE PROTECTING FROM THE PRACTICES AND WHETHER THEY WERE MAINSTREAM OR ALTERNATIVE FINANCIAL INSTITUTIONS WE OFTEN THINK OF LOW AND MODERATE INCOME PEOPLE AND WE THINK OF PEOPLE OF COLOR AND HISTORICALLY DISADVANTAGED NEIGHBORHOODS, AND THAT’S TRUE. THE SURPRISING THING TO ME WAS HOW MANY OF THESE PEOPLE WERE PEOPLE WHO OWNED THEIR HOMES, HAD COLLEGE EDUCATIONS AND WERE MAKING MORE THAN $50,000 OR $60,000 A YEAR. THAT GROUP, THOSE THREE ATTRIBUTES I JUST DESCRIBED IS THE FASTEST GROWING GROUP OF PAY DAY LOAN USERS. THAT’S BECAUSE OF THE INCREASE IN FINANCIAL INSTABILITY AND THE LACK OF GOOD OPTIONS FOR PEOPLE WHO FIND THEMSELVES IF THOSE EMERGENCIES THAT ARE BECOMING INCREASINGLY COMMON. I WANT TO TELL YOU JUST TWO STORIES FROM THE PEOPLE — THE HUNDREDS OF PEOPLE I HAVE INTERVIEWED. WHAT I DID WAS I WORKED BEHIND THE COUNTERS OF THESE STORES. I TOOK THE CALLS ON A HOTLINE FOR A MONTH, AND THEN I CAME OUT FROM BEHIND THE COUNTER AND INTERVIEWED HUNDREDS OF PEOPLE WHO WERE THE CUSTOMERS OF THESE BUSINESSES, BOTH THE TWO I WORKED WITH AND OTHERS AROUND THE COUNTRY. I WILL JUST TALK ABOUT TWO OF THESE THEMES THAT RELATE BACK TO THE TREND I TALKED ABOUT. ONE IS LOW WAGES AND UNPREDICTABLE INCOME. THE OTHER HAD TO DO WITH MEDICAL EXPENSES WHICH IS A HUGE DRIVER OF BANKRUPTCY AND SMALL DOLLAR CREDITS USAGE. FOR THE STORY I WILL TELL YOU ABOUT TODAY, TWO OF THEM, WE INTERVIEWED PEOPLE AT THREE POINTS IN TIME. WE FIRST GOT A HUGE DATA SET FROM A SUB PRIME CREDIT BUREAU CALLED CLARITY SERVICES WHICH HAS A CONTRACT WITH A LOT OF THESE SMALL DOLLAR CREDIT USERS. WHAT HAPPENED WAS WHEN YOU APPLY FOR A PAY DAY LOAN, THAT LENDER WOULD CHECK IN WITH THIS SUB PRIME CREDIT BUREAU AND FIND OUT IF YOU WERE CREDIT WORTHY. I DIDN’T KNOW BEFORE I DID THE RESEARCH THAT THE SECOND TIER CREDIT BUREAU EVEN EXISTED. WE GOT THE DATA FROM CLARITY AND CLEANED THE DATA AND ADMINISTERED A SURVEY AND THEN WE ASKED PEOPLE ON THE SURVEY IF THEY WOULD BE WILLING TO BE INTERVIEWED. WE INTERVIEWED PEOPLE IN THREE DIFFERENT STATES, CALIFORNIA, TEXAS AND FLORIDA BECAUSE THEY HAVE VERY DIFFERENT REGULATORY ENVIRONMENTS AND WE WANTED TO SEE THE DIFFERENCE AND WE INTERVIEWED THEM IN THREE POINTS OF TIME. GROUND 0, A YEAR LATER, AND A YEAR AFTER THAT. FOR A NUMBER OF THOSE PEOPLE WHO AGREED TO BE INTERVIEWED THEY AGREED TO GIVE US ACCESS TO THEIR PERSONAL DATA. I WILL NOT SHOW THIS BECAUSE I DON’T HAVE ENOUGH TIME TODAY, BUT I CAN SEND YOU A PAPER IF YOU ARE INTERESTED THAT CREATES A TIME LINE AND MAPS THAT CONSUMER DATA TOGETHER WITH THE KIND OF EVENTS THAT PEOPLE SAID WERE HAPPENING IN THEIR LIVES THAT WERE DRIVING THE USE OF THIS CREDIT. LET ME TELL YOU ABOUT ANNA FIRST. ANNA LIVES IN CENTRAL FLORIDA. SHE WORKS FOR A MAJOR HOTEL CHAIN THAT ALSO TELL — SELLS TIME SHARE PROPERTIES. SHE IS A PRIMARY BREAD WINNER IN HER FAMILY. SHE IS MARRIED. SHE HAS A COUPLE OF CHILDREN. HER HUSBAND WORKS IN AND OUT OF CONSTRUCTION, BUT HE IS THE PRIMARY CAREGIVER FOR THE FAMILY. ANNA’S SALARY WORKS IN A WAY THAT SHE GETS A BASE SALARY, AND SHE GETS A COMMISSION BASED ON HOW MANY PROPERTIES SHE SELLS. FOR HERSHEY CAL — FOR HER, SHE MANAGED — SHE FIGURES OUT THE COMMISSION SHE GOT WAS ALWAYS ENOUGH TO PAY THE RENT. EVERYTHING ELSE SHE MADE AND HER HUSBAND IN AND OUT OF CONSTRUCTION PAID FOR EVERYTHING ELSE. THE FOOD, THE LIGHTS, THE PHONE BILLS, ET CETERA. WHAT HAPPENED WAS ON A PARTICULAR DAY AFTER ANNA HAD BEEN WORKING THERE FOR FIVE YEARS, THE COMPANY DECIDED TO CHANGE THE COMMISSION FORMULA. HER INCOME DROPPED PRECIPITOUSLY. THIS IS INTERESTING, RIGHT? HERE IS SOMEBODY WITH A STABLE JOB. A LOT OF HER SITUATION STAYS THE SAME, BUT HER INCOME CHANGES DRAMATICALLY FROM A STABLE SITUATION TO AN INCOME SHOCK WHERE HER INCOME IS UNSTABLE. THAT DRIVES HER TO START USING PAY DAY LOANS WHICH SHE HAS A HARD TIME PAYING BACK BECAUSE HER INCOME IS NEVER GOING UP WITH THE COSTS SHE IS OCCURRING. EVENTUALLY BY THE TIME WE INTERVIEWED HER THE THIRD TIME HER HUSBAND HAD GOTTEN A FULL TIME JOB BECAUSE HE NEEDED TO TO STABILIZE THE FAMILY’S INCOME. HOWEVER, WHEN WE ASKED ANNA HOW SHE WAS FEELING AND HOW SHE HAD MANAGED TO GET OUT OF DEBT BECAUSE SHE WAS NO LONGER USING THESE LOANS SHE TOLD US THAT SHE CASHED OUT HER RETIREMENT ACCOUNT IN ORDER TO PAYOFF THE DEBT AND START WITH A CLEAN SLATE. SO I INTERVIEWED A LOT OF PEOPLE WHO WERE MAKING ONE EXPENSES DECISION TO TAKE OUT LOANS LIKE THIS WHICH THEY DIDN’T REALLY WANT TO DO, AND THEN SOMETIMES TRADING THAT OFF FOR ANOTHER DECISION, BUT ALSO GOING TO AFFECT HER NEGATIVELY OVER THE LONG RUN WHICH WAS CASHING OUT HER ENTIRE RETIREMENT PLAN. SOMETIMES WHEN YOU LOOK AT THE DATA OF PAY DAY LENDING USE OR SMALL CREDIT WE MAY THINK OF IT AS A GOOD OUTCOME, BUT OFTENTIMES WE ARE MAKING OTHER BAD DECISIONS AT THE SAME TIME. NOT A GREAT STORY. THE SECOND STORY IS PAULA’S STORY AND MEDICAL DEBT. WE HEARD STORY AFTER STORY AFTER STORY ABOUT PEEM WHO COULD NOT — PEOPLE WHO COULD NOT MANAGE MEDICAL EXPENSES. WHEN WE TALK HEALTH CARE AND WHO HAS INSURANCE AND WHO DOESN’T HAVE INSURANCE, MANY PEOPLE HAD INSURANCE AND STILL COULDN’T MANAGE. PAULA HAS WORKED FOR THE SAME TELECOMMUNICATIONS COMPANY FOR 20 YEARS. SHE AND HER HUSBAND WORK FULL TIME. WHEN WE ASKED HOW SHE THOUGHT HER SALARY WAS SHE SAID WE MAKE DECENT MONEY. IT SHOWS WHERE TO — THEY CHOSE TO LIVE OUTSIDE DALLAS BECAUSE IT HAD A GOOD SCHOOL SYSTEM. HER YOUNGEST SON HAS A MEDICAL CONDITION THAT REQUIRES ON GOING MEDICAL ATTENTION. I THINK I JUST DID THAT. THERE WE GO. SOME PROVIDERS DON’T TAKE HER INSURANCE. YOU ARE IN A SITUATION WHERE A LOT OF PROVIDERS AND SOME ARE REALLY WORKING AND HER SON IS STABLE. WHILE SOME OF THOSE — SHE WORKED FOR THE SAME COMPANY, BUT THE PROVIDERS HAVE GONE FROM TAKING HER INSURANCE TO NOT TAKING HER INSURANCE. SHE DOESN’T WANT TO SWITCH BECAUSE HER SON’S CONDITION IS STABLE USING THE PROVIDERS SHE USES. SHE HAS TO PAY UP FRONT EVEN THOUGH SOME OF THESE EXPENSES ARE COVERED SHE HAS TO PAY UP FRONT FOR MANY OF THE COSTS, AND THEN IT TAKES A LONGTIME TO GET REIMBURSED. THIS IS ANOTHER SUB CATEGORY OF PROBLEMS THAT MANY PEOPLE EXPERIENCE AS A MISMATCH BETWEEN THEIR INCOME AND THEIR EXPENSES. HAVING EXPENSES AND WHEN THOSE EXPENSES WOULD GET REIMBURSED. MEANWHILE THERE WERE BUDGET CUTS IN THE PUBLIC SCHOOL DISTRICT THAT CHANGED THE ABILITY OF THE SCHOOL DISTRICT TO ACCOMMODATE HER SON’S CONDITION. HER FAMILY THEN MOVED HER SON TO A PRIVATE SCHOOL WHICH ADDS TO THEIR EXPENSE. AT THE SAME TIME AS ALL OF THIS IS HAPPENING THE EMPLOYER PROVIDED HEALTH INSURANCE THAT SHE AND HER HUSBAND GET CHANGES DRAMATICALLY SO THAT THEIR COSTS ARE INCREASING, BUT INCOME IS NOT. WHAT USED TO BE A SMALL DEDUCTIBLE IS NOW $2800 THAT THEY HAVE TO COVER EVERY YEAR BEFORE THEY CAN START TO GET THINGS COVERED. AND SO WHAT I WANT TO KIND OF PULL OUT FROM THOSE TWO EXAMPLES IS THAT THESE ARE TWO VERY COMMON KINDS OF SITUATIONS PEOPLE ARE FINDING THEMSELVES IN WHEN YOU THINK BACK TO THE INCOME VOLATILE TEE ISSUES. SOMETIMES THEY ARE INVISIBLE, BUT THEY ARE HAPPENING TO MIDDLE CLASS FAMILIES. TO WRAP UP I WOULD SAY WHAT WE NEED NOW IS A CONSUMER FINANCIAL SERVICES SYSTEM THAT ENSURES ACCESS TO SAFE AND AFFORDABLE FINANCIAL SERVICES FOR ALL-AMERICANS AND HAVE THE HONOR OF CONSUMER ADVISORY BOARD WHEN RICH CORDRAY WAS DIRECTOR. I AM SADDENED BY THE DIRECTION THAT AGENCY HAS TAKEN IN TERMS OF ITS LEADERSHIP. WE NEED A REGULATORY ENVIRONMENT THAT TRULY PROTECTS CONSUMERS. I ALSO THINK WHENEVER WE ARE HAVING THE DISCUSSIONS LIKE WE ARE HAVING HERE TODAY AND TOMORROW, WE ALSO NEED TO THINK ABOUT THE MACRO TRENDS THAT ENABLE PEOPLE TO ATTAIN FINANCIAL HEALTH. WE NEED TO BE FOCUSED ON CONSUMER PROTECTIONS AND THE REGULATORY ENVIRONMENT. WE ALSO NEED TO BE THINKING ABOUT LIVING WAGES AND A SUPPORTIVE SAFETY NET FOR WHEN WORK DOESN’T WORK. THANK YOU. [APPLAUSE].>>I AM GOING TO DO MORE OF A CONVERSATIONAL PIECE, I THINK. MAYBE I AM TIRED. I DON’T KNOW. I THINK THIS IS A GOOD WHERE I AM COMING IN ON THIS CONVERSATION. I AM ACTUALLY REWRITING MY THOUGHTS IN MY MIND NOW. I WILL GIVE UH COPY — YOU A COPY OF MY TALK SO YOU CAN POST IT WITH MORE DETAIL, BUT I AM KIND OF GOING TO TALK ABOUT — I CAN SEE MY OBJECTIVE — TWO OBJECTIVES. ONE IS GOING TO START WHERE YOU LEFT OFF AND TALK ABOUT WHY ASSETS ARE IMPORTANT IN THINKING ABOUT PROTECTION. IT IS NOT JUST ABOUT REGULATIONS, BUT HAVING PEOPLE IN A POSITION THAT THEY DON’T HAVE TO RELY ON IT IN THE FIRST PLACE. THEN I WILL QUICKLY TALK ABOUT A BASKET OF TOOLS THAT MAYBE WE CAN USE TO LEAD THE CONVERSATION ON HOW WE MAY BUILD AS — ASSETS FOR PEOPLE SO WE CAN HAVE RESERVES FOR — WHEN THINGS COME UP AND THEY CAN PLAN THEIR LIVES OUT. THE FIRST THING IS AND I WISH I HAD IT READY, BUT WE ARE DOING A PAPER ON WHITE WEALTH AND EQUALITY. OFTEN TIMES IN OUR CONVERSATIONS WE TALK ABOUT THE BLACK-WHITE GAP. IT MAKES US THINK WEALTH AND EQUALITY IS A BLACK PROBLEM OR LIMITED TO CERTAIN SEGMENTS OF PEOPLE OR GROUP. IT IS AN AMERICAN PROBLEM, RIGHT? I MEAN, THERE ARE TONS OF WHITE HOUSE HOLDS WHO LACK WEALTH, AND AS I SAY WE WILL PUT A PAPER OUT NEXT WEEK ON THAT TOPIC. I WAS DOING A BOOK AND LOOKING FOR DATA, BUT THERE ISN’T DATA THAT LOOKS SPECIFICALLY AT — OR VERY LITTLE DATA. I COULDN’T FIND ANY. MAYBE YOU CAN. IT SPECIFICALLY LOOKS WITHIN HOUSEHOLDS OF WHITE FAMILY’S DEBT — NOT DEBT, BUT ASSETS, WEALTH ACCUMULATION. THAT IS IMPORTANT TO UNDERSTAND. ASSETS ARE IMPORTANT, AND THAT IS AN AMERICAN PROBLEM. HOPEFULLY WE CAN GET SOME UNITED EFFORTS IN TRYING TO CREATE POLICIES AROUND THINGS LIKE REDISTRIBUTING WEALTH, WEALTH TRANSFER, THINGS THAT HAVE BEEN VERY UNAMERICAN TO TALK ABOUT, BUT YET FIT WITHIN OUR SYSTEM OF BELIEFS, I BELIEVE, AROUND EFFORT AND ABILITY LEADING TO DESIRED OUTCOMES. IF YOU DON’T HAVE THE NECESSARY ASSETS IN YOUR PORTFOLIO IN A CAPITALIST SOCIETY, YOU REALLY CAN’T ACHIEVE THE SAME WITH YOUR EFFORT AND ABILITY. WE HAVE SEEN THAT IN THE NEWSPAPER WITH THE COLLEGES. THAT’S A REALLY UNIQUE — I SAY UNIQUE — BUT FLAMBOYANT WAY OF LOOKING AT IT, BUT IT HAPPENS ALL ALONG THE SYSTEM. LET ME JUMP INTO THE SOLUTION. ASSETS ARE IMPORTANT AND OFTEN TIMES WE FOCUS ON INCOME — EVEN LOW INCOME PEOPLE FOCUS ON INCOME AND NOT ON THEIR WEALTH. IT DOESN’T ALLOW THEM TO BE ABLE TO WEATHER THE STORMS. IT HAS HELPED US CREATE A SYSTEM IN WHICH WE ONLY THINK ABOUT PEOPLE’S SURVIVAL. DO THEY HAVE ENOUGH TO MAKE IT THROUGH THE DAY? THAT’S NOT REALLY ALLOWING THEM TO THRIVE AND TO TAKE PART IN THE AMERICAN DREAM. AND SO WE HAVE TO DO SOMETHING WITH WEALTH AND EQUALITY. THEN IT IS A BIGGER PROBLEM AS WE INNOVATE AND SO MUCH IS AUTOMATED AND WAGES ARE STAGNANT AND THERE IS GLOBAL COMPETITION THAT PEOPLE CAN’T RELY ON THEIR INCOME. THEY HAVE TO HAVE ACCESS TO ASSETS. WHAT I WILL TALK ABOUT TODAY ARE A PACKAGE OF TOOLS. ONE IS A CHILDREN’S SAVINGS ACCOUNT. WHAT IS A CHILDREN’S SAVINGS ACCOUNT? I WILL KEEP IT SIMPLE. IT IS PROVIDING A CHILD, A FAMILY, A HOUSEHOLD WITH A SAVINGS ACCOUNT. OFTENTIMES THESE CHILDREN SAVINGS ACCOUNTS ARE ADMINISTERED THROUGH THE 529 PROGRAM, IF YOU HAVE HEARD OF IT. IT IS A STATE COLLEGE SAVINGS PLAN. THEY HAVE BEEN THOUGHT OF AS OR MORE RECENTLY FOCUSED ON PROVIDING COLLEGE ACCESS, RIGHT, A WAY TO GO TO COLLEGE. IT IS REALLY MEANT TO BE FOR OVERALL ECONOMIC DEVELOPMENT THROUGHOUT THE CHILD’S LIFETIME. SO WHILE WE FOCUSED VERY MUCH ON PAYING FOR COLLEGE, WE CAN THINK ABOUT THEM AS WAYS OF BUILDING ASSETS NOT ONLY FOR COLLEGE, BUT BUYING A HOME, A BUSINESS, OR OTHER THINGS THROUGHOUT THEIR LIFE SPAN. BUT RIGHT NOW BECAUSE OF THE POLICY INTEREST IS REALLY AROUND COLLEGE, IT WILL FOCUS MORE ON COLLEGE ENROLLMENT. AND NOT ONLY DO THEY GET A BANK ACCOUNT, BUT IECIALLY THEY GET A ONE TO ONE MATCH. SOMETIMES IT IS A HIGHER MATCH LIKE A 5-1 MATCH. EVERY DOLLAR YOU PUT IN ANOTHER DOLLAR IS PUT IN AND THERE ARE INCENTIVES. THESE PROGRAMS ARE STREAM LINED IN THE BEGINNING AND IT IS ABOUT HAVING AN ACCOUNT AND HAVING A MATCH AND HAVING AN INITIAL DEPOSIT. THE INITIAL DEPOSIT CAN RANGE FROM $5 TO $1,000 IN THOSE ACCOUNTS. THEY TYPICALLY START AT BIRTH. SOME START AT KINDERGARTEN AS WELL. THERE ARE SOME THAT START EVEN LATER IN LIFE, LIKE EIGHTH GRADE OR SO. BUT THE PLAN IS REALLY FOR THEM TO BE EARLY ON SO THAT PEOPLE CAN ACCUMULATE WEALTH OVER TIME. AND SO EVEN WHEN THEY ARE SAVING SMALL AMOUNTS OF MONEY, YOU SAVE SMALL AMOUNTS OF MONEY OVER A LONG AMOUNT OF TIME IN AN INVESTMENT ACCOUNT IT CAN BE QUITE A BIT OF MONEY IN THE END. THERE IS A GOOD BODY OF RESEARCH DEVELOPING AROUND THIS — AND WHEN I SAY THAT WHAT DO I MEAN? ARE THERE QUESTIONS THAT HAVEN’T BEEN ANSWERED? SURE. THERE ARE QUESTIONS THAT NEED TO BE ANSWERED, BUT THERE ARE RANDOMIZED CONTROL TRIALS IN EXISTENCE. ONE IS IN OKLAHOMA AND IT HAS BEEN GOING ON. THE KIDS ARE JUST STARTING TO HIT AND THE FIRST STARTED WITH BIRTH. WE WILL START TO GET SOME DATA. IT IS IMPORTANT TO UNDERSTAND THAT WHEN WE THINK ABOUT THESE SAVINGS ACCOUNTS WE INITIALLY THINK ABOUT HOW DO WE ACCUMULATE ASSETS AND THAT’S WHAT I STARTED TO TALK ABOUT, BUT WE FOUND THERE IS A LOT OF INDIRECT EFFECTS AND WHAT DO I MEAN BY THAT? THEY FOUND IT IMPROVES KIDS’ SOCIAL AND EMOTIONAL DEVELOPMENT AT AGE FOUR. IT IMPROVING — IT IMPROVES PARENTS’ EXPECTATION OF PARENTS FOR KIDS TO GO TO COLLEGE. IT CHANGES THE WAY YOU THINK ABOUT THEIR FUTURE. WE THINK — THIS IS ONE OF THE REASONS I THINK THAT IT MAY BE A GOOD TOOL FOR A WEALTH TRANSFER IN THE FUTURE. NOT ONLY BECAUSE OF THE ABILITY TO ACCUMULATE ASSETS, BUT IT WORKS WELL WITH EXISTING SYSTEMS. SO A HEAD START PROGRAM AND OUR OBJECTIVE THERE AND IN OUR SOCIAL AND EMOTIONAL DEVELOPMENT PROGRAMS, IT WORKS IN CONJUNCTION WITH ALL OF THESE THINGS AND SO I THINK IT CAN BE MORE IMPORTANT THAN GIVING PEOPLE CASH. SECONDLY PEOPLE CAN ADD MONEY TO THE ACCOUNT. WE HAVE TALKED ABOUT INDIVIDUAL FAMILIES STAYING IN THESE ACCOUNTS, BUT YOU CAN THINK ABOUT THIRD PARTIES PUTTING MONEY INTO THESE ACCOUNTS. LIKE WITH INITIAL DEPOSITS A LOT OF TIMES THOSE COME FROM FOUNDATIONS AND SOMETIMES THEY COME FROM CITY FUNDING AND SOMETIMES IT IS STATE FUNDING. THERE IS A PLETHORA OF WAYS PEOPLE CAN CHANNEL MONEY INTO THE ACCOUNT. THE INNOVATIONS IS WHERE EMPLOYERS THINK ABOUT THE ACCOUNT. WE SHOULDN’T THINK ABOUT IT AS AN INDIVIDUAL SAVINGS ON THEIR OWN BECAUSE WHAT YOUR RESEARCH TELLS US AND WHAT WE KNOW IS THAT LOW INCOME PEOPLE HAVE SMALL AMOUNTS OF MONEY TO SAVE. AT THE END OF THE DAY THEY ARE NOT GOING SAVE THEIR WAY OUT OF POVERTY. I DON’T WANT TO IMPLY TO YOU THAT THESE SAVINGS ACCOUNTS ARE A WAY FOR INDIVIDUALS BY THEMSELVES TO GET THEMSELVES OUT OF POVERTY, BUT THEY ARE A VEHICLE FOR US TO PHYSICAL OUT OTHER WAYS TO GET MONEY INTO THESE ACCOUNTS AND AT THE SAME TIME THEY THEMSELVES HAVE THE ABILITY TO CONTRIBUTE TO THAT AND WE THINK IT IS IMPORTANT IN AND OF ITSELF. ONE OF OUR TOPICS FOR THE — YOU CAN HIT ME WITH TIME. I WANT TO MAKE SURE I GET TO THE CONTRACT. WHAT WE FIND WITH THE SAVINGS ACCOUNTS IS THE BEST WAY TO DO THEM IS HAVING THEM AUTOMATICALLY ENROLLED IN THE PROGRAM. THIS IS NOT NOVEL BECAUSE WE DID 401K’S AND OTHER AREAS OF ECONOMICS, BUT WHAT WE FOUND AND TESTING IT IS THAT AUTOMATIC ENROLLMENT IS THE BEST WAY. THAT WAY YOU CAN GET EVERYBODY IN. WE THOUGHT THE INITIAL DAYS OF A CHILDREN’S ACCOUNT, OH EVERYBODY WILL TAKE ADVANTAGE OF IT. THERE ARE ALL KINDS OF REASONS PEOPLE DON’T TAKE ADVANTAGE OF IT. IF YOU PUT THEM IN IT, IT WON’T LEAVE. OR VERY FEW, LESS THAN 1%. MAYBE ONE OR TWO FAMILIES BECAUSE OF RELIGIOUS REASONS HAVE LEFT THESE PROGRAMS OF AUTOMATIC ENROLLMENT. IN THE STATE OF MAINE EVERY KID GETS $500 AT BIRTH INTO THEIR ACCOUNT AND THERE ARE 80,000 KIDS AT THIS POINT AND $50 BILLION THEY HAVE PUT IN AND ANOTHER $68 MILLION THEY HAVE SAVED INTO THIS ACCOUNT. SO OVER THE LAST SEVEN TO EIGHT YEARS. THEY START OFF WITH ABOUT 40% OF PEOPLE TAKING UP THE PROGRAM. AFTER 2014 RETROACTIVELY THEYED AD — THEY ADDED THE PEOPLE IN AND THEN THEY GAVE EVERYBODY THE ACTS. AND NOW 99.9% OF THE PEOPLE HAVE AN ACCOUNT WITH $500 IN MAINE. SO WHEN WE THINK ABOUT INCLUSION WE DO HAVE TO THINK ABOUT HOW DO WE GET EVERYBODY IN? THERE ARE MANY REASONS WHY LOW INCOME FAMILIES IN PARTICULAR, BUT MANY OTHER FAMILIES WILL NOT START UP THESE TYPES OF ACCOUNTS. TYPICALLY A WAY THESE PROGRAMS WORK IS — WHICH IS A POLICY THING. SOMETIMES THEY LOOK AND SAY THIS IS THE WAY IT IS HAPPENING. REALLY IT IS THE CAUSE OF POLICY AND WE CAN CHANGE THE POLICY. THE WAY IT WORKS IS WITH THESE ACCOUNTS THE FAMILIES IF THEY WANT TO SAVE THEIR OWN MONEY HAVE TO OPEN UP AN ADDITIONAL ACCOUNT. THEY OPEN UP AN ACCOUNT THAT THE PHON DARKS THE CITY, THE — THAT THE FOUNDATION, THE CITY, THE STATE OWNS. THE FAMILIES MAY WANT TO SAVE AND THEY HAVE TO OPEN UP ANOTHER ACCOUNT. IT IS THE SAME ACT — ACCOUNT, BUT IT IS ANOTHER ACCOUNT IN THE ACCOUNT. IT IS IN THEIR NAME AT THE BANK OR CREDIT UNION IN THEIR OWN NAME. FIVE MINUTES. I WILL DO IT. I HAVE SOME OTHER PIECES I WANT TO ADD. WHAT WE HAVE FOUND IS LOW INCOME PEOPLE CAN AND DO SAVE AND THERE HAVE BEEN SOME CONTROL TRIALS NOT IN THE CSA WORLD, BUT IN THE WORLD THAT SHOWS THAT IS THE CASE. THEY SAY IT IS LESS FREQUENT. THE SAVINGS MAY BE SPORADIC. AND ALSO THERE IS A NUMBER WHO DON’T SAVE. IT IS AN INTERESTING QUESTION. I THINK THE PROBLEM WITH MANY ASSET BUILDING PROGRAMS IS THAT THEY RELY ON PEOPLE’S CURRENT INCOME. THEIR INCOME IS NOT GOOD. A LOT OF THESE THINGS ARE DEVELOPED BECAUSE PEOPLE DON’T HAVE VERY MUCH MONEY. YOU ASK THEM TO TAKE OUT OF THAT MONEY AND SAVE. THERE ARE PROBLEMS IN THAT. ONE OF THE INNOVATIONS WE ARE STARTING TO LOOK AT ARE REWARDS CARDS. WHAT ARE REWARDS CARDS? I WISH I HAD MY KEY CHAIN. IF YOU HAVE A KEY CHAIN YOU PROBABLY HAVE A LOYALTY CARD. YOU GO TO THE STORE AND YOU GET A REBATE TO YOUR ACCOUNT. EVERY TIME THEY SAVE IT IS 1% TO 4%. EVERY TIME THEY PURCHASE AN ITEM AT THE STORE, FOOD STAMPS OR HOWEVER ELSE THEY PURCHASED IT THEY GET A REBATE THAT GOES TO THEIR SAVINGS ACCOUNT. I WOULD ARGUE THAT THE INTENT IS NOT TO BUILD HUGE AMOUNTS OF ASSETS IN A SHORT PERIOD OF TIME, BUT OVER TIME IT GETS $100 IN THEIR ACCOUNT PER YEAR. SO OVER A NUMBER OF YEARS IT CAN BE A SUBSTANTIAL AMOUNT OF MONEY. AND WE DO HAVE SOME RANDOMIZED CONTROL TRIALS WE ARE DOING AROUND THE REWARDS PROGRAM. WE CERTAINLY WANT TO SEE MORE, BUT THE EARLY RESULTS ARE STRONG. WHERE THEY ARE STRONGEST IS ENGAGEMENT. THE INTERESTING THING IS WHEN WE THINK ABOUT LOW INCOME PEOPLE WE HAVE A NARRATIVE IN SOCIETY THAT THEY HAVE CONFLICTING VALUES. SO THEY MIGHT NOT BE FUTURE ORIENTED OR THEY DON’T WANT TO SAVE OR THESE KINDS OF THINGS. IT IS NOT THAT THEY DON’T WANT TO SAVE REALLY, BUT THEY DON’T HAVE THE MONEY TO SAVE. THERE ARE TRADEOFFS THAT MOST PEOPLE ARE ASKED TO MAKE. DO I EAT TODAY? DO I NOT EAT TODAY? DO I PAY WITH MONEY FROM MY KIDS’ COLLEGE INITIATION? THESE ARE HARD TRADEOFFS THAT MOST PEOPLE WILL NOT MAKE. MOST OF US WHO HAVE MONEY SAVE BECAUSE WE HAVE 401K PLANS. IT IS EASY. IT IS NOT WHETHER WE WILL GO ON VACATION OR NOT. WE ARE PUTTING AWAY EXTRA MONEY. THAT’S NOT THE CASE FOR THEM. ONE OF THE GREAT THINGS WE SEE ABOUT THE REWARDS CARDS IS IT INCREASES ENGAGEMENT IN THE ACCOUNTS. THESE PEOPLE WANT TO SAVE FOR THEIR FAMILIES AND FOR THEIR KIDS. WE CAN PROVIDE THEM WITH THE KINDS OF MEANS THAT WORK FOR THEM AND WE WILL MAKE DECISIONS TO DO THAT. HOPEFULLY THEY ARE MAKING DECISIONS FOR THEIR KIDS AND THEIR BEST INTEREST. IT IS THE FACT THEY HAVE LITTLE MONEY. IF YOU GIVE THEM AVENUES TO DO THAT THEY WILL DO THAT. SOME PROGRAMS HAVE INCENTIVES WHERE IF YOU DO CERTAIN THINGS THEY WILL PUT MONEY IN YOUR ACCOUNT FOR DOING IT. THESE LOW INCOME FAMILIES DO THEM AT EQUAL OR HIGHER RATE, SAVING WITH A REWARD CARD PROGRAM. AND SO IT IS NOT A MATTER OF A VALUE SYSTEM. IT IS A MATTER OF PROVIDING THEM WITH THE KINDS OF TOOLS THAT WILL WORK IN THEIR ENVIRONMENT IN THEIR WORLD, WITH THEIR INCOME. BEYOND THAT I THINK WE SHOULD THINK ABOUT — SO THAT TO ME IS A WAY OF REALLY HELPING FAMILIES BE ENGAGED AND THERE IS EVIDENCE TO SHOW THAT THERE ARE IMPORTANT REASONS WHY WE WANT PEOPLE TO HAVE THE OPPORTUNITY TO BE ENGAGED BECAUSE IT INCREASES OTHER EFFECTS, RIGHT? WE ARE NOT JUST TRYING TO GIVE THEM MONEY. WE WANT TO CREATE A WHOLE NUMBER OF OTHER EFFECTS. AND SO BY ALLOWING THEM THE OPPORTUNITY TO PARTICIPATE IN SAVING FOR THEIR KID TO GO TO COLLEGE HELPS IMPROVE EXPECTATIONS TO OTHER THINGS THAT IS MORE SO THAN HANDING OUT MONEY, PER SAY. YOU STILL HAVE TO GIVE THEM MONEY. AT THE END OF THE DAY THEY HAVE TO PAY FOR THE ASSET WHETHER IT IS A BUSINESS, A HOME OR THE EMERGENCY. I DON’T WANT ANYONE TO GET FIXATED ON FINANCIAL EDUCATION. FINANCIAL EDUCATION WITHOUT MONEY, I DON’T KNOW WHAT IT DOES FOR YOU, RIGHT? OR IF YOU HAVE AN ACCOUNT AND DON’T PROVIDE WAYS TO GET MONEY IT WON’T HAVE THE FULL SENSE. WE NEED TO BE CONSCIENTIOUS OF THAT. HOPEFULLY WE CAN HAVE QUESTIONS AND ANSWERS AND TALK ABOUT RESEARCH AND WHATEVER ELSE. SOME OTHER WAYS — SO WHILE THESE REWARDS CARDS GIVE FAMILIES A WAY TO CONTRIBUTE TO THEIR KIDS AND THEY FEEL LIKE THEY ARE PARTAKING IN IT WHICH IS IMPORTANT TO THE WHOLE VALUE SYSTEM, THEY ARE NOT ENOUGH. I RECOGNIZE THAT. EVEN THOUGH THEY CAN PRODUCE MANY EFFECTS THAT ARE IMPORTANT AND WE SPEND LOTS OF MONEY ON IN OTHER WAYS, ADDITIONAL WAYS TO THINK ABOUT IT, ONE WAY IS AN EARLY REWARD SCHOLARSHIP. WHAT IS THAT? WHAT THAT IS THE COLLEGE BOARD, IF YOU ARE FAMILIAR WITH IT ON THINK TANK IN DC, THEY DO A LOT OF WORK ON COLLEGE TRENDS. ANYHOW THEY SUGGESTED TAKING A PIECE OF THE PELL GRANT, 5% OR 10% AND PUTTING IT INTO THE ACCOUNT AT FIFTH GRADE, START PUTTING IT THEN INTO A CHILD’S SAVINGS ACCOUNT AS A WAY TO BUILDING ASSETS TO AN ACCOUNT. WHAT THAT DOES IS — WE THINK WE FULLY UNDERSTAND. IT EMPOWERS KIDS. I AM A HIGH SCHOOL DROP — DROPOUT WHO WAS HOMELESS FOR PERIODS OF TIME, AND I CAN TELL YOU I DIDN’T THINK ABOUT 18 THE SAME WAY THE MOST OF THE REST OF YOU DID. EVEN NOW I STILL DON’T — I GRADUATED WITH MY PHD IN THREE YEARS AND NOT BECAUSE I WAS PROFESSIONALLY SMART, BUT BECAUSE I ALWAYS FELT LIKE SOMETHING WAS GOING TO HAPPEN BECAUSE THAT WAS MY LIFE EXPERIENCE. I FELT LIKE I HAVE TO GET OUT BEFORE THINGS FALL APART ON ME. I WANT YOU TO UNDERSTAND THAT GIVING PEOPLE WHO GROW UP WITH ASSETS, YOU SAY JUST BORROW THE MONEY. WE CRITICIZE, BUT PEOPLE SHOULDN’T GROW UP WITH THE SENSE OF — IT GIVES YOU SOMETHING AND IT ALLOWS TO YOU NAVIGATE YOUR SURROUNDINGS AND YOUR WORLD IN A DIFFERENT WAY. IT IS NOT JUST ABOUT PROVIDING THEM ASSETS ON THE FAR END, BUT IT IS ABOUT PROVIDING THE ASSETS THAT THEY GROW UP WITH, WHAT EVERYBODY ELSE GROWS UP WITH SO THEY CAN THINK ABOUT THEIR FUTURES IN AN EXTENDED TIME PERIOD AND PLANNING FOR IT. WE HAVEN’T EVEN BEGUN TO STUDY THOSE TYPES OF BARGAINING POWER ISSUES THAT GROWING UP WITH ASSETS CREATES. SO BY TAKING A SCHOLARSHIP AND A WHOLE MIND-SET — THE CHALLENGE IS TO CONVERT THE MIND-SET. PUT MONEY ON THE BACK END IS HOW WE PERCEIVE WHAT PEOPLE WILL DO WITH THE MONEY. GIVING THEM ON THE FRONT END IN AN ACCOUNT IT IS PROTECTED. SO THEY CAN’T USE IT FOR OTHER THINGS ANYHOW, BUT YOU ALLOW THEM TO GROW UP WITH THAT ASSET. EARLY AWARD SCHOLARSHIPS IS ONE WAY. NOT ONLY THE FEDERAL SCHOLARSHIPS, BUT THINKING ABOUT YOUR FOUNDATION, RIGHT? THE LOCAL PLACES THAT CAN DO THAT. P CARDS, WHAT ARE P CARDS? IT IS LIKE A REWARDS CARD FOR A COMPANY. YOU HAVE A PURCHASING CARD HERE AT THE SCHOOL. THEY ARE THINKING ABOUT HOW THEY MAY LEVERAGE THEIR P CARD. THERE ARE FEES THAT CREDIT CARD COMPANIES CHARGE YOU AND FINANCIAL SYSTEMS CHARGE YOU. PART OF THE FEE IS TAKING THE BANK INSTITUTION AND THEY AGREE TO PUT AND GIVE BACK A PORTION OF THAT FEE AND PUT IT INTO AN ACCOUNT FOR KIDS. LIKE IN LONG BEACH, CALIFORNIA THEY HAVE TAKEN A PIECE OF THEIR PROCUREMENT, AND THIS IS A PILOT THAT STARTS IN THE FALL, SO I DON’T HAVE THE DATA FROM IT YET, BUT THEY CAN ESTIMATE ACCURATELY BECAUSE THEY CAN BASE IT ON LAST YEAR’S EXPENDITURES AND THEY WILL SAY WE WILL HAVE $15 MILLION A YEAR FROM USING A P CARD. YOU PUT THAT INTO THE CHILDREN’S SAVINGS ACCOUNTS TO HELP BUILD ASSETS. I THINK THESE KINDS OF THINGS — AND I DON’T CARE IF YOU DECIDE ON P CARDS OR WHATEVER ELSE. IT IS IMPORTANT THAT WE JUST ARE THINKING ABOUT WHAT ARE WAYS TO HELP LOW INCOME FAMILIES BUILD MONEY IN THESE ASSETS AND INTO THESE SAVINGS ACCOUNTS AND HELP THEM BUILD FOR THE FUTURE. I KNOW I AM OUT OF TIME. DON’T THINK ABOUT IT AS WE HAVE TO DO REWARDS CARDS. WE HAVE TO DO P CARDS. THINK ABOUT HOW CAN WE INNOVATE? A LOT OF YOU ARE BRIGHT AND YOUNG AND YOU CAN FIND WAYS TO INNOVATE AND HELP LOW INCOME PEOPLE BUILD ASSETS BECAUSE ASSETS ARE TREMENDOUSLY IMPORTANT TO HAVE A STABLE LIFE.>>THANK YOU. [APPLAUSE].>>I ACTUALLY WANTED TO SAY EACH OF YOU TOUCHED ON THIS THEME. WE SEE THE IMPACT OF WEALTH AND EQUALITY AND INCOME AND EQUALITY ON POOR COMMUNITIES AND COMMUNITIES OF COLOR, BUT IT IS A MUCH WIDER SPREAD ISSUE THAN THAT. SO I AM WONDERING FOR THIS ROOM OF COMMUNITY ADVOCATES AND POLICY MAKERS, HOW WE THINK ABOUT THIS DISCUSSION, RIGHT? THERE IS OBVIOUSLY GROUPS OF PEOPLE WHO ARE DISPROPORTIONATELY AFFECTED BY THE PAY GAP AND THERE ARE OTHER INEQUITIES. PEOPLE WITH ETHNIC NAMES ON THE SAME RESUME AND THE WHITE NAME MORE LIKELY TO GET THE JOB. WE THINK ABOUT A FORMERLY INCOURSE — FORMERLY INCOURSE RATED PERSON WHO IS WHITE WILL HAVE A BETTER CHANCE OF GETTING A JOB THAN A PERSON OF COLOR. AS YOU ARE FRAMING THE CONVERSATION WITH POLICY MAKERS YOU THINK ABOUT THE RESEARCH, HOW DO YOU NAVIGATE THIS TENSION BETWEEN FOCUS ON THOSE WHAT WE KNOW ARE DISPROPORTIONATELY AFFECTED AND NOT JUST FOR FINANCIAL REASONS, BUT STRUCTURAL REASONS, AND MAKING THESE SET OF ISSUES MORE BROADLY APPEALING AND MORE BROADLY IMPORTANT TO THE GROUP OF STAKEHOLDERS?>>THE FIRST THING THAT COMES TO MY MIND IS WHEN YOU SAY MORE BROADLY APPEALING, I AM ASSUMING YOU ARE MEANING TO THE BROADER –>>IT IS TO PEOPLE — IT IS REALLY HARD TO UNFORTUNATE — UNFORTUNATELY IT IS HARD TO PASS LAWS THAT TARGET A PARTICULAR DISADVANTAGED GROUP. WE SEE A LOT OF PUSH BACK AGAINST AFFIRMATIVE ACTION. WE KNOW THAT. AND SO ONE OF THE THINGS I THINK OF IN AN ANSWER TO THAT QUESTION IS THE POLITICAL THEORISTS WHO TALK ABOUT TARGETING AND IT IS THE IDEA THAT IF YOU MAKE GOOD POLICY THAT IT WILL PROTECT EVERYONE LIKE THEY DO. IN TERMS OF THIS CONVERSATION IT WILL DISPROPORTIONATELY HELP THOSE PEOPLE WHO ARE SUFFERING DISPROPORTIONATELY. IT ISN’T TO SAY WE SHOULDN’T HAVE CONVERSATION ABOUT TARGETING OR FOCUSING ON PARTICULAR GROUPS. I THINK RECOGNIZING THAT BLACK AND LATINO FAMILIES LOST MUCH MORE IN TERMS OF THEIR ASSETS. WE KEEP MEANING TO TELL THAT STORY, BUT STRATEGICALLY I OFTEN THINK THAT WE MIGHT GET FARTHER IF WE PUSH FORWARD THOSE UNIVERSAL POLICIES THAT WILL HELP EVERYONE. LIKE A CHILD’S SAVINGS ACCOUNT, THEY WILL HELP — SOME PEOPLE WILL SAY WHY ARE YOU GOING TO START THAT SAVINGS ACCOUNT FOR SOMEBODY WHO IS ALREADY WEALTHY? BECAUSE THAT’S WHAT YOU NEED TO DO TO GET THE LEGISLATION PASSED. THOSE ACCOUNTS WILL DISPROPORTIONATELY AFFECT THE KIDS WHO WOULDN’T HAVE A SAVINGS WHEN THEY GRADUATED FROM HIGH SCHOOL.>>I WOULD JUMP IN ON THAT. AND SO THIS IS MAYBE — SO MICHAEL, HE WOULD TALK ABOUT AND I THINK IT IS RELEVANT AND IMPORTANT AND UNIVERSAL. I THINK IT IS IMPORTANT TO GET EVERYBODY’S ACCOUNT. YOU CAN PUMP RESOURCES. WHEN EVERYBODY HAS AN ACCOUNT YOU CAN PUMP RESOURCES IN A VARIETY OF WAYS. I ALSO THINK THAT WE LIVE IN A MOMENT THAT IS DIFFERENT, THANK GOD AND IT IS SCARY IN SOMEWAYS, BUT WE CAN SEE THE OPPORTUNITY TO TALK ABOUT FREE COLLEGE AND OTHER THINGS. WE DO NEED TO CHANGE OUR FRAME OF THOUGHT. HIGHWAY CAN THEY EVER SO MUCH — HOW CAN THEY EVER SOLVE WEALTH AND EQUALITY BY GIVING EVERYBODY THE SAME THING. EVEN — I DON’T KNOW THE NAMES. ANYHOW, TALKING ABOUT REPARATIONS. IF EVERYBODY HAS AN ACCOUNT WE CAN PUMP MONEY IN, BUT WE HAVE TO THINK ABOUT — HERE IS THE BEST EXAMPLE. IF WE ARE ALL SICK AND HAVE THE FLU, RIGHT, NOW THERE IS NOTHING WORSE THAN THE FLU. YOU WILL DIE WITHOUT A VACCINATION. I HAVE IT AND YOU HAVE IT. I HAVE IT WORSE, BUT IN EITHER CASE WE ARE BOTH GONNA DIE. I NEED A BIGGER DOUGHS OF — DOSE OF IT THAN YOU DO, BUT WE BOTH NEED THE VACCINE. WE HAVE A COMMON INTEREST IN THAT VACCINE BEING MADE EITHER WAY BECAUSE WE WILL BOTH DIE WITHOUT IT EVEN IF I NEED MORE. AND REALLY THAT’S KIND OF THE CASE WITH WEALTH. THAT’S WHY WE GET THIS WHITE WEALTH PAPER COMING OUT. YOU KNOW WHAT, THIS CAN FIX US ALL. WE ALL NEED THIS. EVEN IF SOMEONE ELSE NEEDS A BIGGER DOSE, YOU NEED A DOSE TOO. AND SO WE HAVE A COLLECTIVE INTEREST IN DEVELOPING POLICIES LIKE THAT. I DO THINK THAT’S THE BIGGEST CHALLENGE, RIGHT? HOW DO WE BEGIN TO HAVE — IT IS NOT JUST TAKING A POSITION OF WELL WE CAN’T GET THIS PASSED. WHAT DO WE NEED TO DO TO GET IT DONE AND HOW DO RECHANGE THE NARRATIVE TO MAKE IT HAPPEN? YOU CAN’T JUST TELL PEOPLE TO FORGET THEIR VALUES. HOW DID THE WEALTH TRANSFER WITHIN AMERICAN VALUES SO THAT YOU AND I AND ALL OF US CAN GRAB UH HOLD OF US — GRAB UH HOLD AND MOVE IT FORWARD.>>I THINK PART OF THE CHALLENGE IS THE SYSTEM ISSUE STILL AND THIS IS WHERE DATA MAY ACTUALLY HELP TO OVERCOME IT. WE THINK ABOUT THE 45 MILLION PEOPLE WHO DON’T HAVE A CREDIT HISTORY OR THEY MAY NOT HAVE A CREDIT HISTORY BECAUSE THERE WAS NO COSINER OR AN ABILITY TO GET CREDIT WHEN THEY WERE YOUNGER. LOTS OF FACTORS ARE IN THAT MASSIVE NUMBER OF PEOPLE, BUT YET THE ABILITY TO GET CREDIT IS PREDICATED ON HAVING A HISTORY AT SOME LEVEL. SO THINK ABOUT ACCESS TO THE FINANCIAL SYSTEM AND THE WAY PEOPLE ARE IDENTIFYING TO GET INTO THE FINANCIAL SYSTEM. IT IS A VERY SIMPLE WAY THAT IS YOUR BANK YOU MAY BE APPROACHING TO OPEN ACCOUNT ACCOUNT WITH. ARE YOU IN THE CREDIT BUREAU? OR MAYBE YOU ARE IN THE CREDIT BUREAU, BUT YOUR ADDRESS CHANGED A LOT BECAUSE YOU MOVED MORE AND THAT IS SOMETHING THAT IS MORE COMMON AMONG LOWER INCOME INDIVIDUALS AND FAMILIES. AND SO THEN YOU ARE RED FLAGGED. I TEND TO THINK ABOUT PART OF WHAT WE ARE TRYING TO SORT OUT IS WHERE CAN MORE NUANCED INFORMATION IN THE DIFFERENT APPLICATIONS POTENTIALLY OVERCOME WHAT OUR PROCESSES AND SYSTEMS TENDED TO EXACERBATE AND WHAT ARE THE DIFFERENCES THAT DIVIDE US BY INCOME OR BY ETHNICITY RATES.>>ANY QUESTIONS ?>>WAKE UP, EVERYBODY. COME ON.>>HI, EVERYBODY. THANK YOU FOR BEING HERE. MY NAME IS JESSICA. OKAY, SEVERAL OF YOU ELUDED TO BEHAVIORAL ECONOMICS IN DECISION MAKING. CAN YOU ALL ELABORATE A LITTLE ON THAT? YOU TALKED ABOUT THE OPT IN VERSUS OPT OUT AND THAT DIFFERENTIAL PERCENTAGE. I WOULD BE CURIOUS TO HEAR YOUR THOUGHTS ON YOUR WORK.>>SURE. I THINK ONE OF THE WAYS I CAN SEE THAT PLAYING OUT IN THE — IN TERMS OF THE BEHAVIOR THAT I SAW IN TERMS OF PEOPLE MAKING THEIR DECISIONS, I THINK WHEN PEOPLE ARE USING EXPENSES, ALTERNATIVE FINANCIAL SERVICES THERE IS A PERCEPTION THAT THEY DON’T UNDERSTAND THAT THE COST — HOW HIGH THE COSTS ARE AND IF THEY KNEW BETTER THEY WOULD MAKE OTHER CHOICES. IN MANY CASES I WOULD USE A BANK OR A CHECK CASHER. WHEN I WAS TRYING TO THINK ABOUT HOW TO EXPLAIN WHAT PEOPLE DID, IN MANY CASES IT WAS RATIONAL BEHAVIOR. THAT’S NOT BEHAVIOR ECONOMICS. IT IS ACTUALLY CHEAPER TO DO THAT THAN TO DO WHAT I WOULD DO. IN OTHER CASES I FELT LIKE THE SCARCITY THEORY THAT WAS PUT FORTH BY ELDERS ACTUALLY HELPED TO EXPLAIN. AND THAT IDEA IS REALLY THAT PEOPLE WHEN THEY ARE IN A SCARCITY MIND-SET AND WHEN THEY HAVE A PROBLEM WHICH IS LIKE WHAT YOU WERE TALKING ABOUT IN TERMS OF MAKING A CHOICE BETWEEN BUYING GROCERIES AND SAVING OR PAYING THE REPRESENT OR DOING SOMETHING ELSE. IT CREATES A PRESSURE ON THAT DECISION MAKING MOMENT IN WHICH THEY ARE DECIDING WHAT WILL RELIEVE THE PRESSURE IN THE SHORT-TERM WITHOUT THINKING AS MUCH BECAUSE THEY DON’T HAVE — IT IS ACTUALLY SOMETHING PSYCHOLOGICAL THAT IS HAPPENING THAT MAKES THE DECISION TO RELIEVE THE PRESSURE IN THE MOMENT MAKE MORE SENSE. I HAVE A FEW THINGS AND I THINK IT IS AN INTERESTING QUESTION AND ONE I GRAPPLE WITH. IT IS A THEORY OF SAVING AND IN BEHAVIORAL APPROACHES. I WOULD SAY THIS WITH REGARD TO 2 THINGS. ONE IS I THINK MOST OF OUR MAINSTREAM INSTITUTIONS WORK. WE HAVE SEEN THEM WORK EVERY DAY FOR UPPER INCOME TEAMS. FAMILIES. SO I THINK WHEN WE TALK ABOUT GETTING EVERYBODY INCLUDED THAT’S AN INCOMPLETE QUESTION BECAUSE IT IS NOT JUST ABOUT GETTING THEM INCLUDED, BUT THEN GIVING THEM THE MEANS TO BE ABLE TO USE THOSE INSTITUTIONS EFFECTIVELY, RIGHT? SO DON’T JUST GIVE ME A BANK ACCOUNT, BUT GIVE ME MONEY I CAN USE IT IN WAYS THAT ARE PRODUCTIVE. THE TENSION OF BEHAVIORAL — THOUGH I RESPECT AND APPRECIATE IT, BUT ARE THESE THINGS ABOUT ONE CHANGING THEIR BEHAVIOR? ON SOME LEVEL THEY ARE. ARE THEY ABOUT INSTITUTIONS? I TEND TO BELIEVE IT IS ABOUT GIVING THEM ACCESS TO THE INSTITUTION AND NOT THE BEHAVIOR. AT THE SAME TIME — ONE MORE QUICK EXAMPLE AND I WILL BE QUIET. MICHAEL WOULD TALK ABOUT LIKE SAVINGS ACCOUNTS BEING AN INSTITUTIONAL SOLUTION. HOWEVER, THE REALITY IS WE CAN’T MAKE PEOPLE SAVE THEIR CHECKS. THERE IS STILL A CERTAIN AMOUNT OF BEHAVIOR THAT HAS TO TAKE PLACE. I THINK BEHAVIOR ECONOMICS HAS A LOT TO OFFER EVEN IN THESE KINDS OF MODELS. AT SOME LEVEL THERE IS A BEHAVIOR THAT WE HAVE TO TAKE PLACE AND THEY CAN — THEY ARE KIND OF — FOR ME THEY ARE ON A SECOND TIER INSTEAD OF THE FRONTIER. OFTEN TIMES YOU SAY DO THE BEHAVIORAL THING. TEACH THEM FINANCIAL EDUCATION OR WHATEVER ELSE. THAT IN AND OF ITSELF IS NOT SUFFICIENT, BUT IT IS NOT AN EITHER-OR ARGUMENT. THINGS LIKE MENTAL ACCOUNTS WE ARE THINKING ABOUT THOSE THINGS AND IT IS REALLY ENLIGHTENING ON HOW PEOPLE’S STRUCTURE AND USE THEIR MONEY. WE STILL HAVE THIS PROBLEM WHERE PEOPLE DON’T HAVE MONEY AND WE HAVE A PROBLEM THAT THERE ISN’T ACCESS TO INSTITUTIONS. WE HAVE TO SOLVE THOSE PROBLEMS AND THE BEHAVIOR CAN COME ALONG WITH THAT. I DON’T KNOW IF THAT IS HELPFUL.>>HI, I AM DAN AND I AM A RETIREE, BUT I HAVE 30 YEARS OF CORPORATE FINANCE EXPERIENCE AND WORKED EXTENSIVELY IN CAPITAL MARKETS. THANK YOU VERY MUCH FOR YOUR TALK HERE, BUT PROFESSOR ELLIOTT, I HAVE TO SAY I AM DISAPPOINTED. I THANK YOU FOR YOUR TALK, BUT I AM DISAPPOINTED. WE ARE NOT ADDRESSING WHAT THE REAL ISSUE IS HERE, AND THIS IS COMING FROM MY OWN EXPERIENCE IS THAT MODERN FINANCE IS PARASIT — PARASITIC. THIS SAVINGS PLAN WHAT WOULD PREVENT AN ERNEST YOUNG PERSON AND NOW HE HAS A SAVINGS ACCOUNT SO HE WILL GO TO A FOR PROFIT SCHOOL AND GET SOME KIND OF A CRAPPY DEGREE AND SUCK HIS SAVINGS AWAY AND NOW HE HAS NOTHING. WHAT WE HAVE SEEN IS SINCE THE LATE 70s WITH THE ADVENT OF DEREGULATION AND ADVANCES IN MICROECONOMICS AND THE BLACK MARKET AND WITH THE ADVANCE OF PC’S FINANCES TOOK OFF AND WHAT HAPPENED? WELL GLOBAL ECONOMIC GROWTH WENT DOWN. THE IMS AND THEY RECOGNIZED THAT FINANCE WAS TOO BIG. EVEN THE CHIEF ECONOMISTS LIKE THE BANK OF ENGLAND IS RECOGNIZING THAT FINANCE PROVIDES NO VALUE. MAYBE WHAT WE NEED IS FINANCIAL REPRESSION. I KNOW THIS IS QUICK TOED — QUICK FODDER. MAYBE WHAT WE NEED IS A CHANGE IN THE BANKRUPTCY LAW. BANKRUPTCY LAWS CHANGED IN 2005 IN FAVOR OF THE CREDITORS AND MAYBE THAT NEEDS TO CHANGE. MAYBE WE NEED A FINANCIAL TRANSACTION TAX. MAYBE WE NEED MASSIVE INCREASE IN CAPITAL TO THE BANKS. THAT’S WHAT NEEDS TO BE ADDRESSED. I’M SORRY, BUT THAT’S MY THOUGHT.>>I APPRECIATE THAT. I WOULD SAY THAT — I WOULD CALL THAT TINKERING AROUND. I WOULD RATHER NOT GO TO BANKRUPTCY. YOU NEED BANKRUPTCY LAWS. I THINK YOU NEED A CHANGE. EVEN SOMETHING AROUND COLLEGE DEBT, ALL OF THAT STUFF AROUND BANK — BANKRUPTCY NEEDS TO BE CHANGED. I AM NOT ARGUING THAT. BUT IT WOULD BE NICE AND I AM SOMEONE WHO HAS GONE BANKRUPT BEFORE TO NOT GO BANKRUPT. REGARDLESS OF THE LAWS AND HAVE THE POSITION OF GROWING UP IN A FAMILY WITH WEALTH, AND I DON’T THINK WE SHOULD THINK ABOUT THESE EXCLUSIVELY FOR COLLEGE AND THEY SHOULD BE AS — REALLY IT IS A PLATFORM FOR ADDITIONAL ASSETS. IT DOESN’T MEAN WE DON’T NEED TO ADDRESS FINANCIAL REGULATIONS AND THINGS THAT WILL MAKE A GOOD SYSTEM SO THAT WHEN THEY GET THE MONEY IT IS NOT ALL TAKEN FROM THEM THROUGH CORRUPT LAWS, RIGHT? FAVORRISM AND INSTITUTIONALISM. YOU DON’T WANT TO ARGUE THE TWO. THEY ARE BOTH NEEDED AND IN THIS CASE NEEDED.>>THANK YOU, EVERYBODY. MY NAME IS EMILA. PROFESSOR ELLIOTT, I HAVE A VERY SPECIFIC QUESTION FOR YOU AND THEN I HAVE A BROADER QUESTION FOR THE WHOLE PANEL. I AM INTERESTED IN HEARING SOME OF THE NUTS AND BOLTS OF THE ROYALTY CARD. YOU KNOW, IT DOESN’T SOUND LIKE IT IS A CREDIT CARD, BUT IF IT WASN’T, HOW DID YOU GET DIFFERENT BUSINESSES TO AGREE TOEN GIG IN THIS, AND — TOEN GAGE IN THIS AND HOW DID YOU BUILD THE INFRASTRUCTURE? AND THEN TAKING IT BROADLY TO THE PANEL, A LOT OF WHAT WE ARE TALKING ABOUT ON THIS FINANCIAL INCLUSION PANEL IS HOW PEOPLE ARE BEING EXCLUDED OR NOT EQUAL TO OTHER INSTITUTIONS THAT EXIST. AND I AM CURIOUS TO HERE Y’ALL’S THOUGHTS ON USING DIFFERENT INSTITUTIONS AND PROGRAMS AND PARTNERSHIPS, AND I AM WONDERING IF YOU DID WITH THE LOYALTY CARD TO TRY TO CAPTURE DIFFERENT SEGMENTS OF THE POPULATION TO PULL THEM IN TO THESE SYSTEMS THAT DO EXIST. AND HOW CAN WE BE USING THESE PARTNERSHIPS AND ENGAGEMENTS TO BE ULTIMATELY BUILDING MORE INCLUSION?>>I WILL SIMPLY SAY THAT THE NUTS AND BOLTS WE CAN DISCUSS AFTERWARDS IN A GROUP THAT CREATED THE REWARDS CARD. IT IS NOT A CREDIT CARD, AND THAT MAKES IT DISTINCT. LET’S TALK ABOUT THAT AFTERWARDS.>>I WILL JUST TALK ABOUT ONE EXAMPLE FROM MY OWN RESEARCH IN TERMS OF THINKING ABOUT OTHER INSTITUTIONS AND HOW TO PULL PEOPLE IN. EVERYTHING WE TALKED ABOUT TODAY HAS BEEN EITHER MAINSTREAM OR ALTERNATIVE FINANCIAL SERVICES. THERE IS A WHOLE OTHER SEGMENT OF THE CONSUMER FINANCIAL SERVICES SYSTEM WHICH IS INFORMAL FINANCIAL SERVICES THAT WERE USED IN THE COMMUNITIES WHERE I WORKED. ONE OF THE MECHANISMS SOME OF YOU PROBABLY KNOW WHICH IS ROTATING SAVINGS AND CREDIT ASSOCIATIONS. ANYBODY NOT KNOW WHAT THOSE ARE? A COUPLE OF YOU. I WILL BE VERY QUICK. LET’S SAY A GROUP OF 10 PEOPLE DECIDE TO SAVE TOGETHER. MELISSA IS THE BANKER. 10 OF US GIVE MELISSA $100 THIS WEEK. THAT’S THE BEAUTY. YOU ARE MESSING UP MY EXAMPLE. MELISSA IS THE BANKER AND SHE WILL KEEP THE THOUSAND DOLLARS SHE COLLECTED. SHE PUT IN $100 TOO. THE NEXT WEEK I GET THE POT OF A THOUSAND DOLLARS AND THE NEXT WEEK BILLY GETS — WILLY GETS THE POT AND IT IS A FREE NO COST SMALL BORROWER LOAN FOR MELISSA AND ME, THE PEOPLE AT THE FRONT OF THE LINE AND IT FORCES SAVINGS AT THE END OF THE LINE. THOSE WORK INCREDIBLY WELL IN A LOT OF COMMUNITIES. THERE ARE PEOPLE WHO ARE UPPER MIDDLE CLASS DOING THEM FOR GENERATIONS AND THEY CONTINUE TO PARTICIPATE IN THEM BECAUSE FOR LOTS OF REASONS. THERE ARE PROBLEMS, RIGHT? ONE PROBLEM IS THAT MELISSA COULD RUN AWAY WITH THE MONEY. I COULD RUN AWAY WITH THE MONEY AND DISAPPEAR AND THEN IT IS HARD TO HOLD ME ACCOUNTABLE BECAUSE THERE IS NO PAPER. ALSO, MY CREDIT SCORE IS NOT GETTING BUILT BY PAYING INTO THAT EVEN THOUGH I HAVE BEEN DOING FOR 20 YEARS. THERE IS A PROGRAM IN AN AREA CALLED THE MISSION ASSET FUND. MAYBE YOU HAVE HEARD OF THEM. MISSION ASSET FUND TOOK THIS IDEA THAT IS HAPPENING INFORMALLY AND FORMALIZED IT. WHAT THEY ARE DOING IS CREATING THESE LENDING CIRCLES AND MAKING SURE THAT IF SOMEBODY DOESN’T PAY BACK THERE IS INSURANCE IN THE REPORTING TO CREDIT BUREAUS AND TRYING TO MOVE PEOPLE INTO BANKS WHEN THEY ARE STABLE ENOUGH TO DO THAT. I THINK THERE ARE LOTS OF EXAMPLES LIKE THAT. THE REASON I LIKE THAT ONE IS INSTEAD OF TRYING TO CHANGE PEOPLE’S BEHAVIOR, IT WAS BUILDING ON SOMETHING PEOPLE WERE ALREADY DOING AND SAYING HOW CAN WE MAKE THIS MORE ROBUST.>>WHAT I WILL ADD IS THINKING ABOUT ESPECIALLY FOR THE LOWER INCOME PEOPLE AND HOUSEHOLDS WHO ARE RECEIVING FEDERAL BENEFITS OR STATE ASSISTANCE AND THEN THERE IS THE ANNUAL TAX REFUND MOMENT WHERE SOME OF US IN GOVERNMENT AND AT THE FEDERAL LEVEL HAVE SOUGHT TO LEVERAGE THOSE MONEY TRANSFER PAYMENTS. IT IS AN OPPORTUNITY TO DRY SAVINGS ACTIVITY AND THE PRODUCT I WAS TALKING ABOUT EARLIER. I HAVEN’T KEPT UP WITH AS MUCH. THERE ARE CHALLENGES WITH THESE THINGS. I THINK WHEN YOU NEED TO PUSH YOURSELF TO THINK ABOUT WHY SOME OF THESE EFFORTS WORK WELL. SOME OF IT IS ON THE REALITY OF THE HOUSEHOLD AND WHAT THEY ARE DEALING WITH BECAUSE I DON’T THINK WE HAVE HAD THE LEVEL OF RESEARCH. RACHEL SCHNEIDER FOR INSTANCE. I AM NOT SURE WHO IS THINKING ABOUT HOW WE CALIBRATE THE LEARNINGS INTO THEN THINKING ABOUT THOSE SIGNIFICANT INNINGS — INSTITUTIONS WHO ARE ON A ROUTINE BI-WEEKLY BASIS. DISTRIBUTING MONEY, DISTRIBUTING BENEFITS AND TRYING TO THINK ABOUT HOW TO LEVERAGE THE MONEY MOMENTS. IT IS EITHER AROUND TRYING TO FACILITATE EVEN EMERGENCY SAVINGS AND ACCUMULATIONS OR FINANCIAL MANAGEMENT TYPES OF TOOLS. I DO KNOW THAT THERE HAS BEEN MORE EFFORT RECENTLY AT THE STATE LEVEL THINKING ABOUT STATE BENEFITS. THERE ARE SOME INTERESTING, DARE I SAY, COMPANIES TRYING TO BUILD AND OPERATING THAT WAY. MORE TO THINK ABOUT.>>BUT PARTNERSHIP ESPECIALLY WITH FOUNDATIONAL INSTITUTIONS THAT ARE CREDIBLE AND TRUSTED LIKE AN IMPORTANT POTENTIAL LEVER TO DO THINGS AT SCALE.>>DO WE HAVE TIME FOR ONE MORE?>>SO MY QUESTION WOULD BE THE STRUCTURE OF ALL OF IT — WE STARTED TO GET TO THAT IN THESE QUESTIONS, BUT IS SOMETHING LIKE POSTAL BANKING OR PARTNERSHIPS WITH — AND HOW DO YOU GET THESE ACCOUNTS, GET SOMEBODY TO MANAGE THE ACCOUNTS? ONE OF THE GOALS IS TO MAKE SURE MORE AND MORE PEOPLE HAVE ACCESS TO A FINANCIAL ACCOUNT. I COME FROM TECHNOLOGY LAW WHERE ALL OF THESE PEOPLE ARE PROMISING SO MANY THINGS OUTSIDE OF SYNTEC, BUT WHEN I WORK DAY-TO-DAY THEY SAY IT WILL CHANGE MOBILITY, BUT YOU HAVE TO USE A CREDIT CARD TO USE UBER AND THEY SYSTEMS FOR UBER AND THERE IS ADVANCED TECHNOLOGY THAT IS SUPPOSED TO IMPROVE EVERYONE’S LIVES. WHEN THEY SAY THEY WILL IMPROVE LOW INCOME’S LIVES THEY FORGET THAT WHEN YOU DON’T HAVE ACCESS TO BANKING AND A CREDIT CARD AND DEBIT CARD, YOU ARE NOT — THEY ARE AT A HUGE DISADVANTAGE. I AM WONDERING IF POSTAL BANKING AN OPTION. IS IT EASIER TO HAVE A GLOBAL BANK TO WORK WITH THESE PEOPLE?>>ACTUALLY THE PANEL — [INAUDIBLE] WE WE HAVE AN EXPERT IN THE AUDIENCE, TERRY FREEMONT TO TALK ABOUT POSTAL BANKING.>>TERRY? WE WERE TALKING ABOUT POSTAL BANKING AND SOMEBODY IS LOOKING AT THE 529 PLATFORM. EVERY STATE HAS ONE OF THOSE. AND SO IT IS ALREADY IF PLACE AND THERE NEEDS TO BE POLICY TWEAKS IN THEM. RIGHT NOW THEY FAVOR HIGHER INCOME FAMILIES. IF YOU TACK A PORTION ON IT CAN BE USED MORE LIVELY. BUT THERE ARE OTHER SYSTEMS WE CAN THINK ABOUT. ONCE YOU DO AUTOMATIC ENROLLMENT AND YOU PUT EVERYBODY IN THEY ARE BANKED, RIGHT? AND THEN YOU MIGHT CHANGE THE FLEXIBILITY NOT ONLY USED FOR COLLEGE, BUT OTHER ASSETS AND THINGS LIKE THAT. THE SYSTEM IS IN PLACE AND NOW IT IS A MATTER OF GETTING EVERYBODY HOOKED UP TO IT, RIGHT?>>I THINK TOO ONE OTHER THING I WOULD SAY, I SAID SOMETHING AT THE BEGINNING OF MY REMARKS ABOUT HOW WE HAVEN’T REALLY ALTERED THE BANKING OR THE KIND OF FINANCIAL SERVICES SYSTEM TO MEET THE REALITIES OF WORK. ONE OF THE THINGS THAT WAS IMPORTANT TO THE PEOPLE I WAITED ON WAS TO GET THEIR CASH AS QUICKLY AS POSSIBLE. THE FACT THAT YOU HAVE PEOPLE LIVING — MANY MORE PEOPLE LIVING CLOSE TO THE EDGE AND THEY WOULD — MANY OF THEM HAD ACCOUNTS. THEY CAME TO THE CHECK CASHING STORE AND THEY HAD A BANK ACCOUNT. IF THEY DEPOSITED THEIR CHECK IN THE BANK ACCOUNT THEY WOULDN’T GET IT FOR THREE OR FOUR DAYS. IN THE MEANTIME THEY RISKED HAVING LATE FEES ON A LOT OF THINGS IF THEY COULDN’T PAY THOSE THINGS. IT WAS ACTUALLY WORTH IT TO PAY THE ALMOST 2% OF THE FACE VALUE OF THE CHECK TO CASH IT TO DO THOSE OTHER THINGS. THERE ARE INTERESTING TECHNOLOGY RIPPLES IN SAN FRANCISCO, EVEN WATCHING IT — WATCHING TECHNOLOGY THAT WILL ALLOW PAYMENTS, ANY KIND OF VALUE TO BE TRANSER IFED — TRANSFERRED IMMEDIATELY AND WITHOUT COST. I DO THINK SOME OF THOSE THINGS AND BANKS CAN TAKE UP TO A DAY TO PUT CASH INTO YOUR ACCOUNT AND MAKE IT AVAILABLE. YOU SHOW UP WITH A PILE OF CASH AND IT WON’T BE IMMEDIATELY AVAILABLE. THAT’S CRAZY. HERE IS A ROLE FOR POLICY WHERE YOU CAN REQUIRE BANKS TO SHORTEN THAT WINDOW AND WE HAVEN’T DONE THAT. I DON’T KNOW THAT IT NEEDS TO BE AN ENTIRELY DIFFERENT INSTITUTION, BUT THERE ARE WAY IS — WAYS WE CAN IMPLEMENT TO MAKE THE INSTITUTION WORK BETTER AND REDUCE SOME OF THE BARRIERS. [APPLAUSE].>>WITH THAT WE ARE GOING CALL IT A WRAP FOR TODAY. IF THE SPEAKERS COULD HANG AROUND SO WE CAN TALK A LITTLE BIT. FOR THE REST OF YOU, PLEASE COME BACK TOMORROW. WE WILL START AT BREAKFAST AGAIN, 8:30. A GOOD BREAKFAST. 9:00, THE FEDERAL TRADE COMMISSIONER CHOPRA.

One comment on “Consumer Protection in an Age of Uncertainty”

  1. acw2115 says:

    13:00 to skip all the initial waiting

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