Consumer Law & Policy Blog

Impact of House Vote to Rescind CFPB Indirect Auto Guidance Remains Unclear

Joseph Lawler reports in the Washington Examiner. Excerpt:

[T]he resolution passed Tuesday raises a tricky legal question regarding what it means for Congress to disapprove of informal guidance that an agency sends to businesses. When Congress disapproves of a rule enforced by an agency, the meaning is clear: The agency is not allowed to enforce the rule any more. But when it disapproves of guidance relating to an underlying law, the intent is murkier.

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“In the longer term, if the bureau gets leadership that wants to enforce the underlying law, I still doubt that it changes enforcement because the CRA does not say anything about enforcement,” noted Jeff Sovern, a law professor at St. John’s University, “but rather only prohibits disapproved rules from taking effect and bars the agency from issuing rules that are substantially the same.”

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Christopher Willis, a partner with the [Ballard Spahr] firm, argued that congressional disapproval meant that Congress has ruled out the legal theory the CFPB was using — that lenders could be held liable for loans arranged by auto dealers for which minorities were thought to be disproportionately overcharged.

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“The disapproval has to mean something,” he added.

The president is expected to sign the resolution.

House Expected to Vote on CFPB Indirect Auto Guidance Tuesday

Adam Levitin has written about what this means--or doesn't mean--at Credit Slips.

Is Mulvaney Trying to Get CFPB Employees to Quit?

by Jeff Sovern

During the House Financial Services Committee hearing in which the Committee heard from CFPB Acting Director Mick Mulvaney, there was some discussion about how the number of CFPB staffers had barely gone down under Mr. Mulvaney's leadership--it was said that the number of CFPB employees had declined by something like ten--and that it is difficult to shrink the staff. Bloomberg is reporting that Mulvaney is considering several plans to cut costs, including moving some jobs to the basement or Dallas, Texas, and forcing staffers to share desks. It may be that Mulvaney's intent is simply to save taxpayers money (though not all members of the Trump administration seem to share that goal).  But given that Mulvaney has been open in his opposition to the agency, it is natural to wonder if he is trying to achieve indirectly something he cannot easily accomplish directly. Presumably, employees whose jobs are moved to Texas and are not able to move themselves (e.g., because of a spouse who works in the Washington area and whose job is not portable) would leave the Bureau. Employees forced to share desks or work in a basement might prefer to pursue other opportunities as well. On the other hand, another possibility mentioned in the Bloomberg article is to permit employees to work from home, which might make Bureau jobs even more attractive. It will be interesting to see which, if any, of these options Mulvaney chooses.

When Has Mulvaney Met With Consumer Advocates? Which Ones?

by Jeff Sovern

During his testimony before the House Financial Services Committee, Acting CFPB Director Mulvaney said that he had met with consumer advocates as much as he has met with industry representatives (or something to that effect; I can't remember the exact words). I've seen reports of Mulvaney meeting with industry groups (see here, for example). But I can't remember any reports of him meeting with consumer advocates. I would be interested in reading or listening to such a report. And in a related note, wouldn't it be informative if he spoke at the Teaching Consumer Law conference? 

Why Free-Marketers (and Others) Should Support Keeping the CFPB Complaint Database Public

by Jeff Sovern

Earlier this week, Acting BCFP Director John Michael Mulvaney made statements suggesting that he was going to keep complaints to the Bureau secret.  Here's the quote, as reported by Rachel Witkowski in The American Banker:

“I don’t see anything in here that says I have to make all of this public,” he said. “We are going to maintain the consumer database. It is mandated by law,” but “I don’t see anything in here that I have to run a Yelp for financial services sponsored by the federal government.” 

The analogy to Yelp is simply wrong. As I understand it, Yelp doesn't verify that the complaints it received were actually submitted by customers of the institution, which opens Yelp up to dishonest complaints. The CFPB does, which makes it much harder to get fake complaints in.  Yelp publishes positive reviews. The CFPB publishes only complaints, which makes it possible to do statistical analysis, as discussed below. The Bureau database is useful to consumers in a variety of ways and puts pressure on financial service companies to provide better service. 

I’ve heard a number of anecdotes about how the complaint portal helped consumers. My favorite: as we previously reported on the blog,  Gene DeSantis, who served 12 years as Counsel to the Assembly Consumer Protection Committee, in which capacity he drafted some of NY’s consumer protection laws, and also taught Consumer Law for 15 years at Syracuse University, had a dispute with a bank last year. He complained repeatedly to the bank, but got nowhere, and I have to think that if Gene couldn’t make headway, less knowledgeable consumers would make even less. But within days of his filing a complaint with the CFPB, he got all the relief he asked for. The amount at issue was too small for him to go to arbitration over. The point is that the public nature of the complaint database is itself a consumer protection mechanism because it incentivizes businesses to respond to consumer complaints.

I suppose you could argue that the database has the same coercive effect on financial institutions whether or not the consumer is right, except that as the database also includes consumer narratives, people can read them and come to a conclusion about whether the consumer has stated a legitimate complaint. An issue there though is that if the consumer misrepresents the facts, readers have no way to know that.  One solution to that problem is to examine how many complaints financial institutions get relative to their size. For example, Money Magazine recently published an article based on a Lendedu report on the number of complaints per consumer deposits, a measure that adjusts for the fact that different banks have different numbers of customers. The most-complained about bank by size had more than 7 complaints per billion in deposits while some banks had no public complaints at all. If you assume that banks will elicit unjustified complaints by consumers in proportion to the number of customers they have, that metric compensates for that.

Which brings me to the free market. Free marketers believe that perfectly-informed consumers can protect themselves from misconduct.  But how can consumers become perfectly informed in a country with hundreds of millions of people if they don't have access to consumer complaints? If you believe in the free market, you ought to believe in making consumer complaints public in a way which helps inform consumers.  The CFPB consumer complaint database does that. Mulvaney seems to want to keep consumers in the dark about complaints. That will help banks that mistreat consumers, but it won't help consumers or the banks that treat consumers properly and so elicit few if any complaints. The complaint database is not a perfect solution to the problem of financial institution misconduct--but a partial solution is much better than none, which seems to be where we are headed for financial institutions not named Wells Fargo.

Guy Who Goes by Nickname "Mick" Doesn't Want CFPB Known by Nickname

by Jeff Sovern

Acting CFPB Director John Michael Mulvaney, known as "Mick," has been making a big deal about the fact that the name of the CFPB, or Consumer Financial Protection Bureau in the Dodd-Frank Act is the Bureau of Consumer Financial Protection (or BCFP), even asking that the Associated Press change its stylebook accordingly. Some consumer advocates, including a commenter on our blog, Dennis Wall, have complained that this deemphasizes the word "consumer" in favor of emphasizing the word "bureau." Here is an excerpt from an Oklohman article by Ken Sweet: 

"Doing that signals you want to take the emphasis away from serving consumers — which unfortunately is what Mulvaney's been doing in many ways — and put it on 'this is a bureaucracy'," [ Americans for Financial Reform executive director Lisa] Donner said.

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You couldn't find a better example of contrasting messaging here. One says 'we are here to help' while the other says 'we are the mighty and here to protect,'" said Kit Yarrow, a professor of psychology and an expert on corporate branding at Golden Gate University.

I actually don't care about this as much as some people, but I couldn't resist the snarky headline. I suppose someone could complain about that to the CFPB, but it looks like the complaint database is not going to be public anymore, so why should I care?  More about that in a later post.

Hudson Cook Partner Worries that Trump Administration Will Miss Chance to Name Permanent Pro-Industry CFPB Director

by Jeff Sovern

Hudson Cook partner Allen Denson has written an op-ed for the American Banker, Clock's ticking: White House should name a permanent CFPB director, in which he expresses fear that the Democrats will capture the Senate in the fall, with the result that Democrats will have a say, through the confirmation process, on whom the next director will be.  The longer the president takes to name a director, the later the confirmation process will conclude, and Denson's concern is that it will last until the new Congress takes over. I'm not sure how realistic the fear is: Democrats are defending far more seats than Republicans in the Senate this fall (which makes a Democratic Senate less likely), the new Senators would not take their seats until January, and Democrats could not use the filibuster to delay confirmation. But it's nice to dream.

What Are We To Make of the CFPB's Billion Dollar Wells Fine?

by Jeff Sovern

As Allison posted earlier, the CFPB has levied a $1 billion fine on Wells.  Some first reactions:

A person inclined to give acting director Mulvaney the benefit of the doubt might say that this shows that the Bureau is keeping Mr. Mulvaney's promise to enforce consumer financial protection laws vigorously when that is warranted.  This marks the first enforcement action of Mr. Mulvaney's tenure, and the billion dollar fine is indeed vigorous. The Bureau imposed the fine using its power to proscribe unfair practices; perhaps we will see similarly aggressive actions when Mr. Mulvaney concludes a miscreant has behaved deceptively. Mr. Mulvaney's professed uncertainty about when conduct is abusive makes it unlikely that he will use the Bureau's power to pursue companies for abusive practices.

A person less enthusiastic about Mr. Mulvaney (regular readers will know I fall into this camp) will note several things:

• The OCC fined Wells $500 million, and the CFPB credited that sum towards its $1 billion fine, so this is effectively a $500 million fine by the CFPB. Sure, $500 million is still a huge amount but: 
• Fines are supposed to both punish past misconduct and deter future misconduct. How much additional deterrence are we going to get from this fine? Wells had already been slammed by the Bureau, OCC, and the Federal Reserve.  If that's a prerequisite for a Mulvaney-enforcement action, how many financial institutions are going to avoid misconduct out of fear that the same thing could happen to them?  Probably not many if they think that they will escape punishment from the Bureau unless they have the string of misbehavior that Wells has been tagged for. Could what's really be going on be a political exercise in creating the illusion of forceful consumer protection without making other financial institutions worry that the Bureau will come after them? In addition, how would the Bureau have looked if it had not fined Wells when the OCC was imposing a $500 million fine on them?  Did the OCC's action increase the pressure on Mr. Mulvaney to act?
• Then there's the Trump tweet. That tweet is not just something lurking in the background: the American Banker headline reads Wells' $1B penalty: Regulators make good on Trump tweet. That raises a second concern that this is a political exercise: now the president can campaign on the argument that he is tough on banks (well, one anyway)--even if he has protected them in other ways, like preserving their power to use arbitration clauses to escape class action law suits. Would an independent CFPB director have taken this action, or is this at least partly the product of a White House factotum? In that regard, NY Times columnist James B. Stewart's piece today is titled Punishing Wells Fargo: Just Deserts, or Beating a Dead Horse?.  Don't misunderstand: my best guess is that an independent director would have fined Wells for the misconduct at issue here. But I wonder if the fine would have been so large. I don't have any insight into that at all, but the lack of independence naturally generates such questions. And I particularly wonder if Mulvaney would have fined Wells if Trump had not tweeted that Wells would pay big fines and penalties.

It's good news that the CFPB has finally announced an enforcement action under Mr. Mulvaney. But I remain very interested to see what the next enforcement action is, if there is one.  I suspect it will be a debt collection case for two reasons: first (the innocent explanation), Mr. Mulvaney has already indicated that the number of complaints about a matter should drive Bureau priorities and also noted that the Bureau receives many debt collection complaints. Second (the cynical explanation), the Bureau is not the only entity that can bring debt collection cases, meaning that even if the Bureau chooses not to bring a debt collection case, someone else may bring the same case, and so there is not much more deterrence effect when the CFPB files a debt collection case. Even when Mr. Cordray directed the Bueau, the FTC brought more debt collection cases than the Bureau, and of course private plaintiffs bring thousands more such cases. So if the Bureau wants to create the impression of vigorous enforcement, without actually making a difference, debt collection is one way to go.  

 

 

As Expected (Feared), Senate Votes to Rescind Auto Lending Guidance

The Hill has the story here. Looks like the auto guidance will soon be gone.

Senate Likely to Vote to Rescind CFPB Indirect Auto Guidance

The Senate voted, 50-47, to debate whether to use the Congressional Review Act to rescind the CFPB Indirect Auto Guidance. As it is unlikely that a senator would vote both to debate the issue and retain the Guidance, that almost certainly means the Senate will vote to block the Guidance when it votes, probably tomorrow, on the merits. The vote is not subject to the filibuster, so a simple majority is enough. The House has yet to act but is generally less protective of consumers than the Senate and so is likely to follow suit. All Republicans voted to proceed to the debate, and one Democrat, Senator Manchin of W Va. joined them. WSJ has more here.