Beginnings of Dodd-Frank rollback will put more pressure and responsibility on Denver consumers

“You saw the movie ‘The Big Short?’ We lived that with our clients.”

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President Donald Trump has begun the process of eliminating — or at least changing — legislation designed to protect consumers in the wake of the 2008 financial crisis. In addition to increasing oversight on and regulation of large banks, the Dodd-Frank Wall Street Reform and Consumer Protection Act established the Consumer Financial Protection Bureau, which has attempted to curb predatory consumer lending of all kinds.

And Chad M. Gentry, executive director of Colorado financial coaching nonprofit Mpowered, said that particularly in an overheated real estate market like Denver’s, there’s going to be a tendency toward predatory lending.

Mpowered offers financial coaching throughout the Denver metro area and helps operate the City of Denver’s 11 Financial Empowerment Centers, which offer one-on-one financial consulting. In the days before Dodd-Frank, Gentry said, Mpowered customers would be making $30,000 or $40,000 and come in approved for a $400,000 home loan and, although they were educated people, they hadn’t admitted to themselves that the math just didn’t work out.

“You saw the movie ‘The Big Short?’ We lived that with our clients,” he said.

He said that more than anything, the president’s moves are a reminder that consumers have to self-educate.

“It’s unreasonable for the banks to have all the burden,” he said. “Consumers have to come in with their eyes open.”

CFPB rules enabled by Dodd-Frank required lenders to offer consumers slightly fewer bad options: Credit card bills came with more information about what paying the minimum every month really means (it means you’re going to be paying forever), mortgage lenders had to scale back what they offered clients, credit card companies had to stay a little farther away from college campuses.

But Gentry said that people are at risk of making plenty of bad financial decisions even with Dodd-Frank.

“We saw a dramatic decrease in students with credit card debt,” he said. “That helped with preventing a younger generation from jumping right into that. Unfortunately, they fell into heavy student loans instead.”

He doesn’t think that Denverites would see any major on-the-ground impact from the Trump administration chipping away at the legislation, at least for now, because it’s already tough out there for consumers.

“The entry-level market is really getting sketchy,” he said. “When you’re in a hot market like this, the consumer does some pretty silly stuff, because they’re desperate.”

In particular, he said young families and low-income families are at risk, and it’s critical that they take time to ensure that their financial decisions align with their values.

CU Boulder professor of law Erik Gerding agrees with news reports that suggest the CFPB is in the crosshairs now, but he’s less that impressed with the idea that it’s just got to be up to consumers now.

“There are always calls for more financial literacy in consumers and more education, and I think that’s great, but realistically it only gets us so far,” Gerding said.

He said that normal people can’t be expected to always understand the legalese that comes with mortgage loans, credit cards, debit cards and retirement investment products, or to always have the amount of time it could take to really shop around effectively and compare one investment product to another. That makes Gerding especially concerned about Trump also delaying the effectiveness of the Department of Labor Fiduciary Rule, which he said “would have imposed a fiduciary duty on broker dealers to make sure that they’re steering clients toward appropriate investments.”

That is, financial professionals who provide retirement planning advice would have to give you advice that benefits you, not them, and they’d have to reveal any potential conflicts of interest.

Moving forward, Gerding said some states might act to take up the mantle of consumer protection because Dodd-Frank made it so that federal regulation doesn’t always trump state regulation.

“State financial regulation is an incredible opportunity for ambitious attorneys general and ambitious regulators,” he said.