Protecting Consumers from Themselves

The trouble with the new Consumer Protection Finance Bureau

"Holly Petraeus gets it" was the subject line of an email I (and probably several million other Americans on the White House list) got from Vice President Biden.

The email linked to her testimony before the Senate Committee on Banking, Housing, and Urban Affairs. Ms. Petraeus, who started in January as the head of the office of servicemember affairs at the newly created Consumer Financial Protection Bureau, told senators that her father served in the military for 36 years, and her husband, General David Petraeus, recently retired after 37 years. Her son and two of her brothers also served in the military.

Vice President Biden is correct that her testimony is worth a careful look. It's not because she "gets it," though, but because her statement offers a glimpse into the mindset of an administration that seems to view just about every private enterprise other than politically connected "green" energy companies as rapacious, every commercial transaction other than Energy Department loan guarantees as exploitative.

In her brief testimony, Ms. Petraeus managed to tar for-profit colleges, car-dealers, bankers, electronics retailers, furniture stores, and bankers.

In her section on the colleges, Ms. Petraeus said, "Because of a quirk in the Higher Education Act, military education money is very appealing to for-profit colleges, because it counts towards a requirement that for-profit colleges get at least 10 percent of their revenue from sources other than Title IV education funds administered by the Department of Education. This has led to some cases of very aggressive marketing by for-profit schools to military personnel and their families'"and these schools often market not only the educational programs themselves, but also expensive private student loans. A key focus at the CFPB is to be sure that students understand these loans'"and whether they will really be able to repay them. There are also serious questions about whether the education you get at many of these institutions justifies their high price."

So long as Ms. Petraeus is raising questions about "whether the education you get at many of these institutions justifies their high price," one wonders whether she is going to also turn her attention to non-profit colleges and universities, where tuition is often far higher than at the for-profits. Or whether she'll take on underperforming taxpayer-backed state colleges or public high schools, where there are also serious questions about whether the education justifies the high price to taxpayers. Unlikely. The real enemy here isn't overpriced education, it's for-profit companies. It's also quite something to see someone so closely associated with the U.S. military, which has a quite robust recruiting operation of its own, complaining about "aggressive marketing" by educational institutions.

The "private student loans" about which Ms. Petraeus complains compete with government loans. And the entire situation is an example of unintended consequences'"the colleges are targeting the military only because Congress ordered them to find a revenue source other than the ever-expanding Pell Grants.

Next after for-profit colleges on Ms. Petraeus's list were car dealers. "Military personnel love their wheels, and they don't always go shopping for them in the right places. I'm sure many of you are familiar with the typical strip of used-car dealers that cluster around the gates of military installations. Servicemembers are often sold clunkers at inflated prices with high financing charges, and when the original clunker breaks down, they sometimes take an offer to roll the existing debt into another loan for yet another clunker'"which may also break down," she said.

Ms. Petraeus doesn't mention one big reason why those used-car prices are "inflated." It's another unintended consequence of another federal law'"in this case, the "cash for clunkers" program that took hundreds of thousands of used cars off the market in an effort to "stimulate" new car sales and improve the environment via emissions standards.

It's not just for-profit colleges and car dealers who, in Ms. Petraeus's telling, are out to rip off their customers. She also complains of "a whole lot of businesses looking to lend money to servicemembers for various products (which are often overpriced to start with). This can be the kiosk at the mall selling high-priced electronics at even higher financing, the rent-to-own furniture store, or the latest installment loans that manage to exist just outside the definition of payday loans as written in the rule implementing the Military Lending Act."

Again, no mention of unintended consequences, such as the fact that off-base retailers might have to charge more than usual to make up the revenue they lose by the fact that the military itself competes with them by operating the Army and Air Force Exchange Service, which offers tax-advantaged sales from locations that are on-base.

At a certain point, you have to wonder, if these electronics are so "overpriced," why are the soldiers buying them? Same with the "inflated" prices on the cars. It's not as if there isn't good information out there on car and electronics prices on the web or in any Sunday newspaper. As The Wall Street Journal editorial page's Mary Kissel put it in a typically shrewd comment, "One thing's for sure: the administration doesn't think very highly of the enlisted man's intelligence."

A lot of these issues could be avoided with a little consumer education. Holly Petraeus's husband David is an Eagle Scout. Among the required merit badges for the Eagle award is one called Personal Management. The first requirement is "Choose an item that your family might want to purchase that is considered a major expense…. Develop a written shopping strategy for the purchase identified …. Determine the quality of the item or service (using consumer publications or ratings systems). …Comparison shop for the item. Find out where you can buy the item for the best price. (Provide prices from at least two different price sources.) Call around; study ads. Look for a sale or discount coupon. Consider alternatives. Can you buy the item used? Should you wait for a sale?" There's nothing in there about getting the government to prevent someone from overcharging.

None of this is to say that every businessman serving military customers is a perfect example of moral rectitude or business integrity. Laws against fraud should be enforced. But it doesn't do anyone any favors to teach soldiers that the private sector '" their likeliest source of post-military employment '" is out to get them.

Ira Stoll is editor of FutureOfCapitalism.com and of the just-launched NewsTransparency.com.