Consumer Law & Policy Blog

Hensarling Uses Words "Tyranny," "Dictator" in Discussing CFPB

by Jeff Sovern

In the Dallas Morning News. Here are some more quotes from the article:

Hensarling bemoaned that the bureau gets to be a "cop on a beat, a judge and its own Congress." * * *

He said the bureau has led to higher bank fees, fewer banking options and more difficulty in obtaining loans. And he said the agency has failed in its enforcement duties, falling "asleep at the wheel" over Wells Fargo's sales scandal until others uncovered the problem. * * *

"I stand ready to negotiate," [Hensarling] said. "I just don't plan to negotiate with myself."

For a more empirically-based view, see Adam Levitin on Hensarling's alternative facts.  In light of the Bureau's occasional setbacks in court, such as the panel decision in PHH (now vacated but still subject to ratification by the DC Circuit), it's hard to justify the claim that it's a judge.  And if the Bureau really were its own Congress, its rules wouldn't be subject to the Congressional Review Act. 

"Gorsuch, CFPB and Future of the Administrative State"

That is the name of this article by law prof David Reiss. (Jeff had posted earlier on Reiss's views on this topic.) Here is the abstract:

U.S. Supreme Court nominee Judge Neil Gorsuch would have an outsized influence on federal consumer protection enforcement if he is confirmed. In particular, if PHH v. Consumer Financial Protection Bureau, 839 F.3d 1 (D.C. Cir. 2016), is appealed to the Supreme Court, a Justice Gorsuch is likely to vote to strongly curtail the independence of the Consumer Financial Protection Bureau and limit its enforcement powers. More generally, he will be a skeptic of agency action, one who will support greater judicial review of agency actions.

"Wells Fargo fires 4 executives over sham-accounts scandal"

The Washington Post reports today:

Wells Fargo announced Tuesday that it had fired four executives as its board of directors nears completion of its investigations into sham accounts set up by employees to allegedly meet sales quotas.

The four executives come from the megabank’s community banking division. They will not receive 2016 bonuses and will forfeit the stock and stock options they were awarded, Wells Fargo said in a statement.

The firings are the latest effort by the San Francisco bank to move beyond a scandal that led to the departure of longtime chief executive and chairman John G. Stumpf. The bank has been slammed by Congress after admitting that it fired 5,300 employees over five years for setting up accounts customers did not want or know about.

The full article is here.

Times Report on How Auto Lenders Track Borrowers' Locations

Here.  Excerpt:

They can figure out when you leave town and see where you parked your car. They can see how many times you went to the grocery store or the health clinic.

Auto loans to Americans with poor credit have been booming, and many finance companies, credit unions and auto dealers are using technologies to track the location of borrowers’ vehicles in case they need to repossess them.

Such surveillance, lenders say, allows them to extend loans to more low- income Americans, knowing that they can easily locate the car. Lenders are also installing devices that enable them to remotely disable a car’s ignition after a borrower misses a payment.

Now, federal regulators are investigating whether these devices unfairly violate a borrower’s’ privacy.

 

LA Times's David Lazarus: Republicans make killing consumer protections a top priority

Here.  Excerpt:

I asked [the] office [of Rep. John Ratcliffe, who has proposed to abolish the CFPB] to elaborate [on his claim that the CFPB hurts consumers]. I received a statement from Ratcliffe citing the group’s “qualified mortgage rule,” which he said “has made it harder for young people and retirees on fixed incomes to be able to purchase a home.”

He also cited “rules on prepaid cards and short-term lending products” — i.e., payday loans — and the agency’s “decision to expand class-action litigation in place of arbitration in consumer finance disputes.”

These are completely bogus complaints.

The qualified mortgage rule, also known as the ability-to-repay rule, requires that lenders do their homework to make sure a loan applicant can make regular payments. The idea is to avoid a repeat of the mortgage mess, in which banks handed money to pretty much anyone with a pulse and then passed off the crappy loans to unwary investors.

And the housing market is doing just fine, thanks. Mortgage applications for new homes were up 9.2% last month from a year before, according to the Mortgage Bankers Assn. Last year saw the largest number of existing homes sold — 5.45 million — since 2006, according to the National Assn. of Realtors.

* * * [The Bureau's] proposed rule for payday loans would require lenders to check if borrowers are creditworthy and make it harder for people to be trapped in endless cycles of debt.

The proposed rule for dispute settlement would block financial firms from using mandatory arbitration as a way to avoid class-action lawsuits. * * *

A 2007 study by Public Citizen found that over a four-year period, arbitrators ruled in favor of banks and credit card companies 94% of the time in disputes with California consumers. A 2015 Consumer Financial Protection Bureau study concluded that “class actions provide a more effective means for consumers to challenge problematic practices by these companies.”

Improving safety at railroad crossings

The Department of Transportation says that "[a]lthough rail incidents have declined over the last 10 years, railroad crossing fatalities spiked in 2014. [And in 2016] alone, 232 people died in railroad crossing accidents, and approximately every three hours, a person or vehicle is hit by a train in the United States." So, DOT is doing a $7 million ad campaign. The government could also demand that railroads install automatic lights and gates (as opposed to just signs) at more high-risk railroad crossings. That would save lives.

To view a DOT rail safety ad, click here or on the embedded video below.

 

 

Robotic cars and liability

AAJ Research (an arm of the American Association for Justice) has written Driven to Safety: Robot Cars and the Future of Liability. Here is the abstract:

Widespread adoption of robot cars could have a revolutionary impact on these figures, potentially preventing 90 percent of crashes and saving thousands of lives every year. The impact of such a robotic revolution would go beyond transportation. Robot cars may transform the automobile industry from one based on car ownership to one based on ride-share services. The auto insurance industry may wither, as the idea of personal car ownership slowly disappears. And without human drivers, or insurance policies to match, traditional approaches to liability when there are crashes may have to evolve.

Such uncertainty has led some commentators to propose schemes such as no-fault insurance, or various forms of manufacturer immunity. Most of these concepts have already been tried and found flawed. They also underestimate the ability of the courts to adapt to new technology and guide society’s beliefs on what is right and wrong. The civil justice system is better placed than any other regulatory mechanism to ensure innovations develop in the safest manner possible.

If there is one proposal that might fit in an eventual driverless world it is strict liability. Under a strict liability regime, the claimant need only prove the tort occurred and that the defendant is responsible. Holding vehicle makers accountable for crashes will be the only way to guarantee that humans and governments do not end up footing the bill for collisions over which they have no control. A strict liability system would ensure manufacturers have an incentive to make their vehicles as safe as possible, while giving victims meaningful access to justice.

Two items on the CFPB: Trump and a new bill

The Wall Street Journal reports:

President Donald Trump believes the structure of the Consumer Financial Protection Bureau makes the agency “unaccountable” to the American people, according to a White House spokesperson, weighing in for the first time in the debate about the future of the watchdog agency created under the Obama administration.

The comment came a day after a significant court action Thursday in a case questioning the CFPB’s constitutionality. That order could slow the Trump administration’s effort to overhaul the agency long attacked by Republicans and the financial industry for what they brand regulatory overreach.

The full article is here. (Subscription required.)

Meanwhile, CNBC reports in a new bill that would allow the president to fire the CFPB director. According to the article, industry representatives say they want a different approach.

A draft bill from Rep. Jeb Hensarling, R-Texas, would fundamentally alter the structure of the Consumer Financial Protection Bureau by allowing the president to fire the agency's director, according to a document obtained by CNBC. Currently, the director is a political appointee but can only be removed in extreme circumstances.

Instead of a director who can be fired, industry groups have called for a bipartisan five-member commission to lead the CFPB. The structure mirrors that of other regulatory agencies — such as the Securities and Exchange Commission and the Federal Communications Commission — and industry groups are now hoping that Hensarling will scale back his plans.

The full CNBC story is here.

Bloomberg BNA's Perry Cooper Report on the Class Action Bill the House Judiciary Committee Reported

Here.  I won't post an excerpt because the report is too full of information to single some items out.  If you care about class actions, I suggest reading the whole piece.

Zwyicki Chapter: Market-Reinforcing versus Market-Replacing Consumer Finance Regulation

Todd J. Zywicki of George Mason has written Market-Reinforcing versus Market-Replacing Consumer Finance Regulation in Hester Peirce and Benjamin Klutsey, eds., Reframing Financial Regulation: Enhancing Stability and Protecting Consumers, Mercatus Center at George Mason University, pp. 319-341, 2016.  Here's the abstract:

The aftermath of the financial crisis has seen the formation of several new banking regulators and an onslaught of new financial regulation. In the area of consumer financial protection bureau these regulations have resuscitated the regulatory approach of prior eras, namely substantive regulation of the prices, terms, and products offered to consumers. But these regulations have also resulted in predictable unintended consequences — higher prices, reduced innovation, and exclusion of many consumers from mainstream financial products. This chapter drawn from the book Reframing Financial Regulation: Enhancing Stability and Protecting Consumers, distinguishes between two types of regulatory approaches, “market-reinforcing” and “market-replacing” consumer finance regulation, and argues that consumer welfare would be improved by a regulatory strategy that makes markets work better instead of displacing them with command-and-control regulation.