Former Director of the Consumer Financial Protection Bureau Richard Cordray joins Yahoo Finance’s Aarthi Swaminathan and Seana Smith to discuss how the coronavirus outbreak is impacting Americans.

Video Transcript

SEANA SMITH: We've been talking about the impact the coronavirus is having across all aspects of the economy, but we want to focus on you, the consumer. So we know the coronavirus has triggered a number of job losses already. It's impacting the labor market, and this comes as business activity across many states almost comes to a screeching halt. And we know that when people lose some of their jobs, and people also tend to lose some health care, it could also impact the real estate market.

So to discuss all this I want to bring in Richard Cordray. He's the former director of the Consumer Financial Protection Bureau, and we also have our very own Aarthi Swaminathan joining the conversation as well. And Richard, let me just start with you just in terms of in this time of uncertainty, when people are faced with mounting losses, they look at the fact that we are expected to see much slower growth, at least in the short term, what's the best way to help people try and navigate through this crisis?

RICHARD CORDRAY: Well first of all, people who suffer job loss, as you say, will often lose health care as well. They may also be unable to afford rent or their mortgage, so they could lose their housing. So there's a lot of talk about some sort of facility to try to help people who are going to miss rent or mortgage payments.

At the same time, consumers will find that the different things put out for them to try to help them will often be very complicated. They won't be easy. They won't be something that they can just slide into. So it's going to be important to help them navigate those new paths.

Also, there will be a lot of scams and frauds that will grow up and shadow these government programs and government assistance, and people are going to need to be on lookout for those. Who are going to need to provide a lot of warnings for people so that they don't get scammed, they don't have money taken out of their pocket when they can least afford it.

AARTHI SWAMINATHAN: So Richard, because of this coronavirus we're seeing a lot more uncertainty and obviously we're going to see a little more desperation on the consumers part, right? From your experience from the global financial crisis, what are some things that we can do differently now that we have a little bit of hindsight?

RICHARD CORDRAY: Well I think certainly trying to get money directly in the hands of people. There was some of that done during the last financial crisis. But a lot of the money flowed to the banks, and it wasn't lent on in turn or made available to Main Street businesses or to people in the communities, and they suffered. And there was a lot of resentment about that, and I think it helped fuel the rise of the Tea Party and a lot of the polarized politics that we've seen over the last decade.

These economic consequences will in turn have political consequences for people, because they're going to feel resentment. They're going to feel that others got something that I didn't get. They're going to feel that people weren't really thinking about my situation. I'm particularly concerned about the hourly workers, the people who are part time, the people who can't count on a certain number of hours per week. If they don't have money coming in it's going to be harder to feed their children. It's going to be harder to meet their payments. And a lot of people are not able to work from home.

If you're able to work from home, that's great. But if you have to work face to face to do your job, you're either exposed to the virus or you're not going to be paid, and that's going to be very difficult for people.

SEANA SMITH: Richard, what about the fact that we've been hearing reports just in terms of the fact that the coronavirus outbreak is leading to new scams or targeting vulnerable consumers? I mean it can be anything from-- I guess, I was just reading a report just about people having a scam where they call your house and they say that they have a test kit for you and they can mail it to you if you just give them certain information that they need. What do you think from your perspective needs to be done more so than what we're seeing done right now to protect these vulnerable consumers?

RICHARD CORDRAY: There needs to be real vigilance and monitoring by government officials, and they need to provide very clear, dependable information about that. People are going to be misled. There are some people, I hate to say it, they're at the bottom of the barrel in our society, but they will take advantage of any crisis, whether it's trying to sell you a test kit or trying to sell you medicine if you think you may be sick. And people are going to have to be very careful that they don't get conned by these kind of rip offs.

At the same time, once money starts flowing to people with these checks that are going to go out in the mail, or however this money is going to be distributed, there will be rip off artists looking to lift that off of people and intercept it, or say you can get it faster if you pay me 25% of it. There will be those kinds of scams and fraud. They happen every time. And government officials are going to have to provide very clear information, dependable information to help lead people on the right path, or they're going to go astray and they're going to hurt themselves and their families.

AARTHI SWAMINATHAN: Yeah, it's interesting because New York actually stopped the debt collection, and I thought that was an interesting action, and proactive action that they took, but in your book that just came out, you mentioned that there was an uprooting of what it meant to be middle class. You know, income and wealth inequality grows. Does this coronavirus actually even divide this inequality even further? Are we going to see this even worsen?

RICHARD CORDRAY: I think it does. I mean you have the divide that we all know between the 1% and the 99%. And that's very real in our society these days. Economic inequality has grown to be its worst, as I talk about in the book Watchdog, since the Great Depression and before. But at the same time we're going to start to see a divide between government employees who maintain their health care and their pension benefits and the like, and other people.

We've seen that divide before. We're now going to see a divide between people who can stay at home and work and maintain their full salary, and for them it's just an inconvenience, right? They just have to have the right computer equipment and they can do an interview like we're doing now or they can handle aspects of their job or they're [? writers, ?] or whatever it may be.

But people who have to work face to face are going to be upended. They're already being upended. These are the ones who are having to file for unemployment. Their businesses are closing down. Many of those businesses may not reopen.

Small businesses live on a very thin margin. They don't have a lot of capital set aside. They just can't afford it. And so they're going to be hurt if this drags on weeks or months, and many of them will end up not being able to restart again. It's easy to say we'll just stop the economy, flip the switch, and then flip it again and turn it back on. That is not the practical reality for most people.

SEANA SMITH: Richard, from your perspective, have you seen anything to this scale before just in terms of relating it back into what Aarthi was asking you, just in terms of the policies that we're seeing now compared to what we saw in the financial crisis, but in terms of people at risk, in terms of people that could lose their job, that could have their financial situation disrupted in some way, have you seen a scale of anything like this before?

RICHARD CORDRAY: I don't think we've seen anything that happened this fast. I mean, it's been lightning speed. It's just been a matter of weeks and the entire economy, as you said earlier, has screeched to a halt. That is the reality. It will start to show up in the statistics. They're trying to defer some of those statistics. But it is already happening.

Now the depression, the Great Depression endured for years. And we hope and expect this will not be like that. But it will be like the financial crisis because it is a very sharp drop, a very significant drop, and it will not come back immediately. And it will take time for the economy to adjust. It doesn't just stop and start, as I said, like a light switch.

It is a much more complicated cumbersome marketplace that we have in America. It is much more complicated than people realize. You can't just throw the weight of the federal government at it and think that it's going to be enough. The economy is much greater than the resources of the federal government.

AARTHI SWAMINATHAN: Richard, where are people are going to feel the most pain? Is it with their mortgages? Is it their student debt? Is it with their auto loans? Where do you think the biggest pain point is going to be as we move through this crisis and eventually get over it?

RICHARD CORDRAY: It will be, and again as I talk about in my book, it will be all the places where people are financially vulnerable. If they lose health care that is going to upset families because then a health problem means that your finances can be ruined. If they lose their jobs for a period of time, they're going to get behind on their housing. They're going to get behind on rent if they're renters or their mortgages if their owners.

And if they aren't given relief, if it's not made available to them, many of them will lose their homes, lose their housing. Some will end up homeless. Many will end up disrupted, their children's school disrupted. You know, it's already disrupted by having to stay at home. But they'll have to move, and the transience of that. At the same time, people will be defaulting on credit card paying. They'll be defaulting and getting behind on auto loan payments. You know, there's a tremendous amount of credit.

And again, in my book, I talk about the fact that consumer credit has expanded and become so widely available that the average consumer debt per person in America is approaching now $40,000 per person. And if people can't sustain the ability to make those payments, many of them will fall into bankruptcy. They will fall into ruin that will be difficult for them to come out of. They will deplete all their savings.

And this could happen fairly fast for a lot of Americans. You know, the statistics are that it's between a third and a half of Americans who don't have $400 set aside for a rainy day emergency. And right now it is pouring on a lot of these consumers.

SEANA SMITH: Richard Cordray, former director of the Consumer Financial Protection Bureau. Thanks for joining us today.

RICHARD CORDRAY: My pleasure.