A lot of ink has been spilled about the future of the Consumer Financial Protection Bureau (CFPB) in the last week. Unfortunately, not much of it has been focused on concrete solutions that will ensure the Bureau fulfills its responsibility of protecting consumers and supporting a competitive financial services marketplace. America’s leading banks fully believe in the need for a responsible regulator to ensure the highest levels of consumer protection across the financial services marketplace. But for the Bureau to function beyond reproach, reform is needed.
The U.S. Supreme Court announced last week that it will hear a case about the constitutionality of the Bureau’s funding mechanism. Certainly, this is a critical issue that needs to be resolved, but it will take many months before a decision is made. Depending on the Court’s conclusion, Congress may very well need to step in and make adjustments to the Bureau. Congress should develop a plan for meaningful reform now and need not wait on the Supreme Court.
In our experience, the CFPB has become increasingly motivated by politics and headlines as opposed to data and industry input. Consider, for example, the Bureau’s proposed changes to the safe harbor dollar amount credit card issuers can charge consumers who fail to make their payments on time. These changes were recommended despite the fact that the CFPB acknowledges in its Notice of Proposed Rulemaking there may not be any quantitative benefits to consumers (p.102). Further, the data the Bureau did use to justify its proposal is outdated and incomplete. Unfortunately, the result of this inadequate analysis is likely to be a decrease in access to affordable credit, which the Bureau recognized as well (p. 105).
Another example is the sweeping revisions to its examination manual to reflect a legal theory that the “unfairness” prong of the Unfair, Deceptive, or Abusive Acts or Practices (UDAAP) definition can be applied to any conduct the CFPB alleges is discriminatory. Banks fully support the elimination of discriminatory practices of any kind. However, in this case, procedurally the agency provided no necessary notice and comment opportunities and virtually no details about what classes of consumers or which products and services will be subject to new expectations, leaving banks with very little information to respond to any relevant concerns. Ultimately, this hurts the ability of banks to serve consumers, especially those in underserved communities.
These are wonky regulatory examples – but they have a real-world impact on Americans. When the CFPB acts without consistency, clarity, transparency or oversight, it creates an unstable financial marketplace, leads to fewer choices and – ironically – less access, feeding into the skepticism many have around the Bureau. It makes it harder for the Bureau and for banks to serve consumers. Let’s fix it.
First, the CFPB needs stability. Under the CFPB’s single-director structure, the Bureau is subject to political shifts. Each administration brings in a new director, a new vision and new policies, making it difficult for institutions to innovate new products and services for consumers. Lawmakers should replace the CFPB’s single director structure with a bipartisan, Senate-confirmed, five-person commission – like at the Securities and Exchange Commission, Federal Communications Commission, and Federal Trade Commission – to create the consistency and greater transparency consumers deserve.
Second, the CFPB needs clearly defined UDAAP authority. Congress should define how the Bureau can use its UDAAP authority and require the CFPB to conduct transparent and thorough rulemaking on the definition of UDAAP. Too often, the Bureau has announced new UDAAP standards through enforcement actions, press releases and conferences, blogs, and alleged guidance instead of issuing rules or guidance in accordance with processes required by the Administrative Procedure Act. This approach has created chaos in the market, where banks are shifting resources away from consumer-friendly innovations and towards trying to make sense of their ever-changing and inconsistent compliance obligations.
Third, the CFPB needs oversight. Checks and balances are required throughout our system of government and it’s common sense for the CFPB to have them too. Congress should require the CFPB’s Inspector General, who also serves as the IG for the Federal Reserve, to be independent and solely focused on the CFPB. The CFPB should also be subject to the annual Congressional appropriations process, which would also provide Congress with an opportunity for ongoing effective oversight to ensure the Bureau is appropriately regulating, supervising, and enforcing consumer financial products and services on which millions of consumers rely.
Democrats and Republicans need to put consumers first and take this opportunity to discuss concrete solutions that will improve the Bureau. Bringing stability and transparency to the CFPB’s structure and authority should and can be a bipartisan desire. Without reform, consumers lack the assurance that the Bureau is always acting in their best interest, as opposed to political ideologies.
We don’t know how the Supreme Court will decide the constitutionality issue surrounding the CFPB’s funding. We do know, regardless of the outcome of that single case, Congress can help ensure the CFPB protects all consumers through much-needed stability, clearly defined UDAAP authority, and oversight.