CFPB to Banks: Just Play Nice In the Sandbox

Roy Oppenheim’s commentary was originally published in US News and World Report’s Home Front Blog and is being redistributed on South Florida Law Blog with their permission

I have come to keep my expectations low every time a new housing fix gets unveiled, that way I am never disappointed.

Whether it’s the national mortgage settlement or the Independent Foreclosure Review, each of these 30,000 foot foreclosure prevention initiatives promise us an end to fraudulent practices and better standards in home mortgage lending.

But most of these programs are like vampires with dentures, they lack real bite. As long as Wall Street and the government resemble a Human Centipede, that will always be the case.

The new mortgage lending rules issued this month by the Consumer Financial Protection Bureau—which will be implemented starting in 2014—look great on paper, but as before these rules lack a thorough enforcement arm. And without one, what is the point of putting new lending policies in place at all?

In employment law, private right of action allows any employee improperly compensated to sue for unpaid overtime and recover attorney’s fees if they win the case. In other words, private right of action means individuals can enforce the law on behalf of the government.

If ever there was an area of consumer protection that screams for a private right of action, it would be any regulation that addresses home mortgage standards. Still, the CFPB admits no such right exists for borrowers in these new regulations.

When it comes to the banks and big business, they still have the dazzling ability to pull a fast one on regulators. Over the past 10 years they have been able to lobby politicians to ensure that the only way certain laws get enforced is through government involvement and government enforcement alone.

That means if Congress doesn’t provide sufficient funding for that enforcement, you could end up with a set of improperly enforced, toothless laws. Banks already thumb their noses at the CFPB, and nothing leads me to believe that will change.

The violations have been rampant, and the regulatory body itself is underfunded and understaffed to handle complaints. Without the money to back them up, these rules will not be properly enforced because the CFPB won’t be able to hire the prosecutors and investigators needed to bring those actions.

To rely solely on government action to keep the banks in line is a flawed strategy. The government should establish a set of rules, but they should also look to those of us on the front lines to keep Wall Street in check.

A private right of action allows free enterprise to help enforce the law within the legal system. It shifts the burden of enforcement from the government to individual lawyers who would then enforce the law based on the existing private right of action. It is, after all, the lawyers in the trenches who brought the robosigning crisis to the government’s front door.

These settlements will ultimately lead to a sliver of relief for homeowners, which is why lawyers should be allowed to bring class actions or individual actions against banks. At the end of the day, the CFPB is just relying on banks to comply, and that hasn’t exactly worked well so far. However well-intentioned their new lending standards are, they are still a tip of the hat to the banks.

Don’t expect banks to ever play nice in the sandbox as long as no one is there to properly call them out.

Real estate attorney Roy Oppenheim left Wall Street for Main Street, founding Oppenheim Law with his wife in 1989 in Fort Lauderdale, Fla. He is vice president of Weston Title and creator of the South Florida Law Blog, named the best business and technology blog by the South Florida Sun-Sentinel. Follow Roy on Twitter at @OpLaw or like Oppenheim Law on Facebook.