Distinguished Policy Fellow Richard Cordray caps off week-long visit at Penn Law with lecture on the importance of consumer financial protection
During the week before spring break, Richard Cordray, the Inaugural Director of the U.S. Consumer Financial Protection Bureau (CFPB) from 2012 to 2017, delivered a major lecture at Penn Law on how the law can protect consumers when they make major financial decisions. Cordray is currently a Distinguished Policy Fellow at Penn Law and his lecture was part of a week-long engagement with Penn Law students and faculty.
Penn Law’s Dean and Bernard G. Segal Professor of Law Ted Ruger welcomed attendees to the event sponsored by the school’s Leo Model Foundation Government Service and Public Affairs Initiative, which connects and informs students about public policy issues and government service career opportunities.
Cary Coglianese, the faculty chair of the Initiative and the Edward B. Shils Professor of Law and Professor of Political Science and Director of the Penn Program on Regulation, introduced Cordray.
“He is an exemplar of what it means to be a lawyer in public service,” said Coglianese, detailing Cordray’s extensive experience in government. Before his tenure as the inaugural head of the CFPB, Cordray served as Ohio’s Attorney General, Treasurer, and Solicitor General and as a member of the Ohio House of Representatives. In 2018, he was the Democratic Party’s gubernatorial candidate in the state.
In his lecture, entitled “Taking Consumers Seriously,” Cordray placed current legal battles over consumer protection into historical context, describing how the consumer experience has evolved over time. In the era before mass consumption became the norm, people engaged very little with markets because they primarily consumed only what they produced, he explained. The industrial revolution brought about what Cordray described as the “first wave” of the consumer, where the processes of production and consumption separated, and people began buying from others more of what they consumed.
Still, during the first wave, consumers’ “experience revolved around tangible purchases made face-to-face where we can apply our senses to examine the goods being offered,” Cordray explained. That changed in the “second wave,” where greater mobility led to fewer face-to-face buyer and seller relationships. Instead, consumers increasingly transacted with large companies, and the loss of interpersonal transactions led to increased risk.
Cordray went on to describe President John F. Kennedy’s call for a “consumer bill of rights” in the 1960s, which coincided with the growing availability of consumer credit on a wide scale in the form of credit cards, home mortgages, auto loans, and student loan debt.
“We might say that the individual user of household credit is called upon to be an amateur actuary, accountant, loan servicer, lawyer, financial analyst, and mathematician, but is rarely furnished the information needed to perform these tasks proficiently,” said Cordray.
“Consumer credit is an intangible product to which we cannot apply our senses. It is complex, the details are unfamiliar, and comparisons may not be easy to make, raising the prospect that many consumers may not cope well with the risk their use of household credit may present,” he noted. As a result, consumers find themselves at significant risk of abusive lending practices.
In addition, Cordray noted that the “financialization of the average consumer experience” complicates consumers’ lives because major purchases now involve two sets of considerations: the physical purchase to be made, and the financial product used to make the purchase.
“In survey research we conducted at the CFPB, we found that people were quite distracted, and eventually exhausted, with the simultaneous process of shopping for a home or a car, and eventually exhausted while also shopping for a mortgage or auto loan,” said Cordray. Those processes have often led to consumers making credit-related decisions they later regret. That is where the need for consumer protection arises.
Even as legal protections for consumers have increased in the wake of the 2008 financial crisis, the United States still has far to go in terms of informing and protecting consumers, Cordray argued.
Although consumer credit products have become more complex, “nobody would claim that this country is suddenly doing a better job of educating consumers about their obligations,” he said. “This is a task we need to take much more seriously than we now do or have done.”
At the same time, however, “the CFPB has added needed heft to prior consumer protection efforts at the federal and state level,” Cordray said. But consumer protection need not depend on a single federal agency — it can be expanded by other agencies and by state and local officials, he noted.
After concluding his remarks, Cordray answered a wide range of questions from students on issues such as the risks of new consumer finance technology, steps to promote financial literacy, and current challenges at the CFPB.
“Our Visiting Fellows Program strives to connect our community with smart, influential leaders in government, such as Cordray, who serve as role models, mentors, and inspiration for our students as they chart out their own career paths and are seeking to make an impact on the world around them,” noted Neta Borshansky, Associate Director of Public Sector Careers and Director of Government Programs.
During Cordray’s week on campus, he enriched students’ learning experiences in many ways beyond his lecture. He also served as a guest speaker in classes on administrative law, consumer finance regulation, and state constitutional law. He met one-on-one with Penn Law students interested in learning more about public service careers, and he delivered a lunchtime talk on his government service career path.
“Cordray’s meaningful engagement with so many areas of our community during his week-long visit this spring inspired our students and enriched the intellectual life of our school,” said Borshansky.
During his visit, Cordray also sat down for a special edition of Penn Law’s Case in Point podcast, hosted by Coglianese, where he talked more about consumer protection. Listen here.
Cordray will return to Penn Law again in the fall for another week-long visit.