Consumer Law & Policy Blog

The 1969 Fed and the CFPB

Lea Krivinskas Shepard of Loyola Chicago reports that yesterday (the day the CFPB got its first director), while researching the legislative history of the Fair Credit Reporting Act, she came across a 1969 letter from then-Fed ChairmanWilliam McC. Martin, Jr., commenting on Congress' intention to give the Fed regulatory authority over the FCRA:

With respect to the provisions for administering the bill, the Board is not prepared to assume responsibility for prescribing regulations to implement such legislations . . . . The Board has accepted responsibility for prescribing the Truth in Lending regulations.  However, the legislative history of the Truth in Lending Act clearly established that the Board's role should be a limited one, and that its acceptance of responsibility for developing regulations under that Act should not be taken as a precedent for assigning to the Board wide-ranging duties in the general area of consumer protection.

In view of the recent increase in legislative measures designed principally for the protection of consumers and the likely continuance of this trend, the Board suggests that the administrative responsibility for such legislation be vested in an agency whose responsibilities traditionally have required that it be more intimately concerned with consumer matters, or that a new Federal department or agency be established to which administrative responsibility for consumer protection measures would be transferred and in which responsibility for consumer protection measures would be vested.  In this connection, the Board welcomes the action of the Committee on Government Operations in opening hearings next week . . . to establish a Department of Consumer Affairs. Under this bill, functions relative to consumer matters that have been vested in other agencies, including the administrative responsibilities under the Truth in Lending Act, would be transferred to the new department.

The Cordray Recess Appointment and Its Legality

For a bit more on President Obama's recess appointment of Richard Cordray to head the Consumer Financial Protection Bureau go here and here. This article by Edward Wyatt of the New York Times explains why, with Cordray at the helm, the CFPB possesses powers it did not have without a Director.

President Obama's political opponents have charged that the appointment is unconstitutional because the Senate has not gone into recess but instead has been conducting pro forma non-business sessions lasting for about 30 seconds per day. As lawyer John Elwood explains, "[t]his procedure was first used for the purpose of trying to prevent the President from using his recess appointment authority late in President George W. Bush's second term, and has been used heavily since." Elwood argued yesterday that the pro forma sessions do not legitimately interrupt a recess and therefore do not interfere with the President's recess appointment authority (though he calls the issue "novel and difficult").

Assuming the legality of the recess appointment under the constitution, it appears that Cordray opponents are going to argue that, under Dodd-Frank, Cordray does not have the full powers of Director unless and until he is confirmed by the Senate.

Times Reports that President to Give Cordray Recess Appointment to Lead CFBP

Story at http://thecaucus.blogs.nytimes.com/2012/01/04/defying-republicans-obama-to-name-cordray-as-consumer-agency-chief/?hp.

Somehow, it feels as if the Jedi just won a round against the Sith.

Is This the Best Cordray Opponents Can Do?

by Jeff Sovern

Andrew Kahr, a principal in CreditBuilders LLC, had a column in the American Banker recently titled Who Really Needs the CFPB? Not Consumers at http://www.americanbanker.com/bankthink/who-really-needs-the-CFPB-not-consumers-1045296-1.html. Its reasoning is embarassing.

For example, the lead complains that the Bureau hasn't protected any consumers yet. Of course, the Bureau opened its doors only last summer and doesn't have a Director because Republicans are blocking his confirmation. It seems particularly unfair for critics to charge that the Bureau hasn't protected consumers when its critics have kept it from doing so. Then Kahr complains that the Bureau garners headlines by lobbying for Cordray's confirmation. Except that it hasn't lobbied for his confirmation.

Kahr next complains that the Bureau can pay "boundless sums" to its allies. But he doesn't identify any such payments, which suggests that it hasn't made any. If so, that's more criticism of the Bureau for not doing things that he doesn't want it to do. Then he complains about ACORN--which, as far as I know, has nothing to do with the Bureau.

There's plenty more. Kahr claims that "defects in regulation and enforcement" caused the economic crisis. If by defects he means there was too little regulation, he's right. But maybe he doesn't mean that, because the CFPB is supposed to increase regulation. Oh, and later he urges the CFPB--the agency he opposes--to address overdraft fees on checking accounts. He complains that the Bureau won't use cost-benefit analysis, but the evidence he offers is that he thinks a letter from consumer advocates to the Bureau (not from the Bureau) didn't use such analysis. He complains about prepaid cell phone terms--something the Bureau lacks jurisdiction over (as he acknowledges).

Unimpressive.

New Department of Transportation Rule Requires Airlines to Include Taxes and Fees in Advertised Airfares

We all have seen ads trumpting great airfares that doesn't really exist because the true cost includes hefty taxes and fees buried in fine print. Beginning on January 26, a U.S. Department of Transportation rule will require airlines to include in advertised airfares all mandatory taxes and fees, including fuel charges and the September 11 security fee. Two smaller airlines -- Spirit Airlines and Allegiant -- have sued the Department to invalidate the rule as arbitrary and capricious. Read about it here.

Inside a Banker's Mind

by Jeff Sovern

Isn’t it great that Occupy Wall Street is pretty much over? Though the truth is in some ways, they did us a favor. You know how a magician will gesture wildly with his left hand so you ignore what he’s doing with his right? Well, Occupy was like the magician’s left hand. We need people to ignore what’s happening in Washington—the magician’s right hand--and because people are more interested in demonstrations than the details of government, they’re overlooked what really counts. And, unlike the magician, we didn’t even have to do anything to make it happen. It’s as if the audience distracted itself. Plus, the occasional bad behavior of the Occupy folks and second-guessing the authorities shifted attention from us too.

What matters, of course, is that we pull the fangs of the Dodd-Frank Act. Take the Consumer Financial Protection Bureau. If it makes good on the goal of protecting consumers—from us--it may reduce our profits. So far, though, the strategy that we and Congressional Republicans are pursuing to cripple it is working beautifully, and most people haven’t even noticed.

I particularly like what we’re calling commonsense proposals to increase accountability. Congress originally arranged for the Bureau’s funding to be independent of the annual appropriations cycle, just other bank regulators. So we’re arguing for accountability by saying the Bureau ought to get funding from congressional appropriations. That way, we can lobby every year to have its budget cut unless it does what we want. It’s the same strategy Fannie Mae used to get power over its regulator. Sure, Fannie and Freddie Mac ended up being so poorly regulated they needed a bailout of $160 billion or so, but in the meantime, they made tons of money for the people running them.

We’re also saying we can increase accountability by changing the Bureau’s leadership from a single director to a five-member commission. Don’t you love the idea of increasing accountability by having decisions made by a three-member majority instead of one person? As if three people represent the public so much better than one. The bill the Republican-controlled House passed says no more than two commissioners can be from the same party, and one commissioner has to be from the Federal Reserve. That would be the same Fed that got the power to stop predatory lending in 1994, but didn’t use it until after the subprime crisis hit. I don’t think we have to worry about them stopping us from making profits. The House bill provides for accountability, all right; accountability to us. Definitely not to the 99%. It gives us a pretty good shot at either capturing the Bureau, or paralyzing it. Either way, the Bureau doesn’t hurt our profits.

The beauty part is that the Democrats will never agree to this. So we’ve disarmed the Bureau. The Bureau has only limited powers until a director is confirmed, and we’re using the Democrats’ refusal to agree to our “commonsense proposals to increase accountability” to justify blocking confirmation of a director. They didn’t have the votes to defeat a filibuster on the director the other day in the vote nobody noticed, and they can’t compromise without undermining the Bureau. Too bad, so sad. Life is full of pain.

And the long run is even brighter. Next time there’s a big consumer protection problem or bailout, we’ll be able to say we tried more regulation, and it didn’t work, so now let’s go for less regulation. Maybe we’ll be able to get rid of the Bureau.

We have only two things to worry about. One is that the president makes a recess appointment of Cordray and it sticks. The other is that the Occupy guys start paying attention to what’s going on in Washington and protest against that. It would be as if the magician’s left hand pointed to his right. But especially now that Occupy is just about done, that will never happen.

January 3 is the Big Day for a Possible Recess Appointment of Cordray

The president may have as little as thirty seconds to grant Cordray the recess appointment, as the Huffington Post explains.

2011: The Consumer Year in Review

David Lazarus at the LA Times has reviewed the year in consumer protection. While noting that immense challenges remain, Lazarus says that "[t]he last year was a remarkable one for consumer protection." He maintains that the top three stories were the establishment of the Consumer Financial Protection Bureau, the Department of Justice's successful attack on the proposed merger of AT&T and T-Mobile (which Lazarus says "would have been unthinkable under the merger-friendly Bush administration"), and Bank of America's decision to rescind its $5 per month debit card fee in response to consumer protest. 

Life Expectancy in New York City: A Triumph of Anti-Smoking Policy?

New York seems to think so.