Business as Usual at the CFPB Is Not Good for Consumers
There has been quite a bit of buzz surrounding the future of the Bureau of Consumer Financial Protection, or CFPB, as the priorities of the new administration begin to take shape. Some in Congress are calling for the CFPB’s director to be fired, others want to reform the structure and funding of the agency, and still others want to eliminate the agency altogether. Underlying all of these calls for change is the growing realization of just how far off the rails this fledgling agency has gone.
The calls for reform have not fazed the CFPB, which has assured the public that nothing has changed. When asked during a Wall Street Journal interview how the new administration might affect the bureau, Director Richard Cordray answered that “it really shouldn’t change the job at all.” A Journal report neatly summarized the sentiment: “CFPB chief Cordray says it’s still business as usual.”
What does business as usual look like? For the CFPB, it often means limiting Americans’ options in the name of consumer protection. The bureau, for example, proposed such onerous restrictions on small-dollar lenders that many of them might simply stop making loans. As our colleagues suggested in a comment letter on the rule, the CFPB would do well to familiarize itself with the deep financial struggles of small-dollar borrowers before further diminishing their already scant credit options.
Business as usual for the CFPB means compromising customer privacy, too. The bureau collects a lot of information from consumers. Its 2016 strategic plan set a goal of maintaining “a credit card database, including both summary and de-identified loan-level data, covering over 80 percent of the credit card marketplace.” There’s no reason to collect so much data, as a much smaller sample would suffice.
Business as usual for the CFPB also means ignoring the legal boundaries Congress set for the agency. Prohibited by statute from regulating auto dealers, the agency targeted them anyway by bringing enforcement actions against the companies to which the dealers sell their car loans. An internal memorandum obtained by Congress shows the CFPB gaming out different options for getting around the statutory prohibition without inviting “legal and political” fallout.
And the CFPB is looking to expand its authority beyond consumer financial products. The bureau is in a dispute with the Accrediting Council for Independent Colleges and Schools, from which it demanded reams of information related to “whether any entity or person has engaged or is engaging in unlawful acts and practices in connection with accrediting for-profit colleges.” The district court judge, in denying the CFPB’s authority to investigate the accrediting process, cautioned that “Although it is understandable that new agencies like the CFPB will struggle to establish the exact parameters of their authority, they must be especially prudent before choosing to plow head long into fields not clearly ceded to them by Congress.”
The CFPB’s business as usual means changing the rules in the middle of the game. The case that landed the bureau in an ongoing constitutional crisis arose out of its decision to impose on PHH, a mortgage lender, a $109 million fine. To get to such a big number, the bureau reinterpreted the law; actions that were legal when PHH engaged in them became illegal through some after-the-fact interpretive magic by the bureau. The court explained, “even if the CFPB’s new interpretation were consistent with the statute (which it is not), the CFPB violated due process by retroactively applying that new interpretation to PHH’s conduct that occurred before the date of the CFPB’s new interpretation.” To make matters worse, the bureau assumed away the statute of limitations that made much of its case outdated.
Business as usual apparently means politicizing consumer protection as well. Former CFPB enforcement attorney Ronald Rubin described the bureau’s hiring decisions as being driven less by experience and merit than by factors such as the political affiliation of an applicant. Rubin points out that, although the CFPB made much of the Wells Fargo case, the real work was done by Los Angeles journalists and prosecutors. Last year, during a Senate Banking Committee hearing, Chairman Richard Shelby, R-Ala., noted that unauthorized accounts were opened at least as far back as 2011, and aptly asked, “Where were the federal regulators during these years?” He continued, “If there were ever a textbook case where consumers needed protection, this was it. How many millions of unauthorized accounts does it take before the CFPB notices? And while the bureau is billing this as the largest settlement in its history, it’s unclear whether it had any significant role in discovering or investigating the bank’s conduct.”
It’s no surprise that this unique agency—funded outside the appropriations process and led by a single, fixed-term director—finds itself in the middle of a heated debate over its future. For the sake of American consumers, let’s just hope its future is no longer business as usual.