Consumer Law & Policy Blog

Some Comments on the House Financial Services Committee's Interrogation of CFPB Director Cordray

by Jeff Sovern

I finally finished listening to the House Financial Service's Committee's April 5 hearing: a more than five-hour long interrogation of CFPB Director Richard Cordray. I am torn between thinking every American should listen to some of it--to see how awful some members of Congress are--and thinking no one should have to listen to it--because no one should have to witness a decent person being treated in such a fashion. 

Every time I listen to one of these hearings (I've skipped some), I marvel at Richard Cordray's patience.  He would have been an excellent preschool teacher at a school for oppositional children, and I bet he's a terrific parent.  The abuse he calmly endured was unjustified. It's not abusive in my opinion that the chairman, Jeb Hensarling, opened by calling for his firing, and it is certainly appropriate to question a witness in a hostile fashion when there are legitimate grounds for doing so.  But that's not what this was.  Some members challenged the integrity of the CFPB employees and criticized every trivial thing they could identify and some that may have been imaginary (see the next sentence). As far as I could tell, the only time Director Cordray became exasperated was when a member asked if a particular subordinate had left the CFPB shortly before his pension vested because he was under investigation; Director Cordray explained that the employee's family circumstances had changed and that he was not aware of any such investigation. 

One notable thing about the Director's testimony is that he was able to take seriously in a non-defensive way seemingly legitimate concerns by his critics. For example, when one questioner asked if he was aware of insider trading by CFPB staff, Mr. Cordray sounded alarmed as he said he was not but wanted to hear more about what had prompted the line of questioning.  Similarly, he pledged to accelerate one required rule-making that the Bureau had not completed and that a member appeared to be asking about as a means of criticizing the Director.

Another way the incivility manifested was that certain members asked questions that implied the CFPB was not acting properly (I'm not going to quote this correctly, but one example was a question asking if money earmarked for victims was given to a law firm) and then not allow the Director time to respond. Sometimes Mr. Cordray would talk over the member (in the case of the question I just alluded to, Mr. Cordray used that technique to say that the money had been given to victims of the law firm).  Sometimes he started to answer, only to have the member say "reclaiming my time" (Congress's way of saying "shut up"). On one or two occasions, when Mr. Cordray continued speaking, the chairman gaveled him to silence to allow the interrogator to badger him some more.  Occasionally, supportive members of the committee yielded their time to the Director so he could answer questions posed by others that he was not permitted to answer; on at least one such occasion, his questioner had already left the room, apparently doing everything she could to avoid hearing answers to her questions.  I don't want to make this discussion partisan, and so I am not going to refer to political parties, but clearly Senator Warren is not the only consumer advocate that certain members of Congress want to silence.

The Bureau surely isn't perfect; no human institution (or human, for that matter) is.  No doubt a new institution is going to make even more mistakes because it hasn't had time to learn what works and what doesn't.  The members of Congress are supposed to try to help identify those mistakes and make sure they are corrected.  And some of that happened during the hearing. But all too often, that isn't what this was. Too frequently, this wasn't a good faith exercise in making something new work better; this was an attempt to play "gotcha" and to create the appearance of a justifiable firing for cause of a man who has worked hard and exceedingly well to start an institution that has already done much good.  Not only does the heroic Richard Cordray deserve better, but so does our country.  I know "politics ain't beanbag." But it shouldn't be shameful either.

Disturbing Politico Report: Cohn to Cordray: You're Out

Here.  Quoting now:

“Gary Cohn gave Richard Cordray, the head of the Consumer Financial Protection Bureau, an ultimatum over dinner a few weeks ago: Go the easy way, or go the hard way.

“Cohn, President Donald Trump’s top economic adviser, had heard the rumors that Cordray wanted to run for governor in Ohio. He left dinner that night thinking that they were true … So the White House decided to hold off on firing Cordray. Trump didn’t want to cause a sensation that could boost his candidacy and juice his fundraising”

Times Column Calls the CFPB "The Bureau of Resistance"

Here.  It's the "On Money" column by Gary Rivlin.  Excerpt:

Three days after Donald Trump was sworn in as president, the United States government fined a couple of Citigroup subsidiaries $28.8 million for giving the runaround to tens of thousands of borrowers who were trying to avoid foreclosure on their homes. One week later, it sued a ring of law firms, accusing them of illegally levying high fees on desperate clients seeking to lessen their crushing debt loads. In the days that followed, the government took action against several others, including a California-based mortgage lender and a Virginia-based pawnbroker. It also ordered Mastercard and a partner to jointly pay $13 million in fines for “breakdowns that left tens of thousands of economically vulnerable RushCard users unable to access their own money.”

* * *

For the moment, the C.F.P.B. seems to be a full-throated expression of resistance: a government watchdog doing its job, despite a chief executive who resents its mission. But even if Warren and her allies repel legislative attempts to weaken the C.F.P.B., Trump will still get to name Cordray’s replacement. What will be good news for big banks and fringe lenders will be sad news for the forgotten who thought they were sending a champion to the White House.

SCOTUS to Hear Oral Arguments Today in Henson v. Santander, FDCPA Case

Law360's Evan Weinberger reports here (behind paywall). The case will decide whether debt buyers that don't have debt collection as their principal purpose, because, as in Santander's case, the debt buying unit is part of a multipurpose financial institution, are covered by the FDCPA. If the debt buyer wins, will we see debt buyers join with other financial institutions to evade the FDCPA's restrictions?

"G.O.P. Bill Would Make Medical Malpractice Suits Harder to Win"

The New York Times reports:

Low-income people and older Americans would find it more difficult to win lawsuits for injuries caused by medical malpractice or defective drugs or medical devices under a bill drafted by House Republicans as part of their plan to replace the Affordable Care Act.

The bill would impose new limits on lawsuits involving care covered by Medicare, Medicaid or private health insurance subsidized by the Affordable Care Act. The limits would apply to some product liability claims, as well as to medical malpractice lawsuits involving doctors, hospitals and nursing homes.

....

But Democrats and plaintiffs’ lawyers said it would take rights away from people served by federal health programs, including those harmed by horrific medical mistakes.

The full article is here. The House bill is here.

Study Examines Impact of Usury Limits on Auto Financing

Brian Melzer of Northwestern's Kellogg School of Management and Aaron Schroeder of the CFPB have written Loan Contracting in the Presence of Usury Limits: Evidence from Automobile Lending.  Here is the abstract:

We study the effects of interest rate ceilings on the market for automobile loans. We find that loan contracting and the organization of the loan market adjust to facilitate loans to risky borrowers. When usury restrictions bind, automobile dealers finance a greater share of their customers' purchases, which allows them to price credit risk through the mark-up on the product sale rather than the loan interest rate. Despite having little effect on who receives credit, usury limits therefore have a substantial effect on who provides credit and on the terms of credit granted. Usury limits may harm defaulting borrowers, who face greater liabilities in default than they would if loan contracts were unconstrained.

Trump Can Now Fill Little-Known Position that Affects Consumers, the Comptroller of the Currency

by Jeff Sovern

During the George W. Bush administration, then-Comptroller of the Currency John Dugan, a former bank lobbyist and lawyer, aggressively protected banks by claiming that state anti-predatory lending laws were preempted as to national banks (remember the predatory lending that contributed to the Great Recession?), among other things. So this is a position that matters for consumer protection. The term of the incumbent, Obama appointee Thomas J. Curry, has now expired, though I gather he can stay until a successor is appointed, but perhaps he can be dismissed by President Trump and replaced by an acting-Comptroller.  In any event, the time is now ripe for the president to appoint a new Comptroller. Will we see Mr. Dugan again? 

Gibson Article on Boilerplate-Free Transactions

James Gibson of Richmond has written Boilerplate's False Dichotomy, Georgetown Law Journal, Forthcoming.  Here is the abstract:

The argument against enforcing boilerplate contracts (i.e., contracts that no one reads) seems clear. Indeed, if this were a court case, we would say that the jury is in; the evidence against boilerplate is overwhelming. Yet the judge has yet to render judgment. Courts continue to enforce boilerplate terms, and even those scholars who have exposed boilerplate as an emperor with no clothes are reluctant to gaze upon its nakedness and condemn its use.

This reluctance originates in an assumption that pervades the boilerplate debate. Courts and commentators alike view boilerplate as necessary to the modern transaction. When asked to set it aside, then, they confront a dichotomy: either enforce boilerplate terms or wreak havoc on the consumer economy. When the choice is so presented, it is no choice at all. Living with boilerplate is better than living without mass-market commerce. We would rather be naked than dead.

This article shows that the dichotomy is false. First, it establishes that it is possible doctrinally to sever boilerplate from other terms of the consumer transaction, such that the transaction can proceed. Second, it demonstrates that the resulting transaction is theoretically feasible. When default rules take boilerplate’s place, the result is either no economic disruption at all, or economic disruption that shakes things up in a positive way. Finally, it shows that this approach is empirically viable; I use a case study of boilerplate contracts from a real-world consumer purchase to prove that there is a realistic third option — the boilerplate-free transaction.

Trump travel ban may cause large downturn in travel to U.S., in turn harming U.S. tourist industry

This article by Abha Bharrarai reviews anecdotal evidence and data from Internet searches for flights to the U.S. indicating that, as a result of Trump's travel ban, far fewer people want to travel to the U.S. for tourism, conferences, and other temporary visits. The article suggests that this phenomenon could cause great economic harm to segments of the U.S. tourism industry (in addition to its other negative effects). Worth reading.

CFPB issues 2016 Fair Lending Report

The Consumer Financial Protection Bureau's Office of Fair Lending and Equal Opportunity is charged by statute with “providing oversight and enforcement of Federal laws intended to ensure the fair, equitable, and nondiscriminatory access to credit for both individuals and communities.” Today, the CFPB issued its 2016 Fair Lending Report.

The report is here.