Consumer Law & Policy Blog

Ohio State Representative Jonathan Dever Seen as a Top Candidate for CFPB Director

by Jeff Sovern

So reports Ian MacKendry in the American Banker. The article says that Dever's candidacy is being pushed by Rep. Steve Stivers, R-Ohio, a member of the House Financial Services Committee and the National Republican Campaign Committee. As is usual in such matters, no sources are identified, though a couple of administration insiders are mentioned in the article in other contexts. It is thus very difficult to know how seriously the administration is taking this suggestion.  Indeed, it is not even clear whom the president is seeking advice from on this matter. Meanwhile, Allied Progress reports that the financial industry (including insurance and real estate) has donated nearly $80K to Dever, and that payday lenders alone have donated nearly $30K

Mulvaney Does More Damage to the CFPB and Consumer Protection

by Jeff Sovern

The drip of bad news for consumer protection continues. Yesterday, the CFPB announced a "Call for Evidence Regarding Consumer Financial Protection Bureau Functions;" Evan Weinberger has more at Law360. Today we learned, as Allison posted, that the Bureau's budgetary request for this quarter is nothing--it will spend down its reserves instead. Allison also reported that the Bureau also dismissed a payday lending case in which the lenders charged interest rates that could reach 950% a year--which raises further concerns about the Bureau's decision to revisit the payday lending rule.  Any of these would be cause for worry about the role the Bureau will take in protecting consumers; combined, they suggest that consumer financial protection itself is at risk. And surely more will come.

I want to say more about the Call for Evidence. That sounds anodyne and even laudable: Mulvaney wants to “ensure
the Bureau is fulfilling its proper and appropriate functions to best protect consumers.” And the announcement talks
about giving the “public” an opportunity to submit feedback.  Also impossible to criticize. But notice that the 
announcement says the Bureau is starting with CIDs.  I doubt many members of the public even know what a CID is, 
much less have opinions about it. That sounds like the "public" is the financial industry, not consumers. Many of the 
other items mentioned similarly don’t sound like things consumers would know about, such as supervision,
rulemaking, and market monitoring. It is far more likely that the industry will weigh in on those matters than 
consumers, and not in a way that supports consumer protection.  On top of that, I haven’t gotten the sense 
that the industry has been shy about expressing its views to the Bureau even under Richard Cordray. It is hard to 
believe that the industry would hesitate to let Mr. Mulvaney know what it thinks, especially after the industry had 
generously donated money to his campaigns. The announcement also refers to the goal of “facilitat[ing] greater 
consumer choice.” That also sounds fine until you remember that when we had more consumer choice, some consumers 
chose subprime loans with payments they couldn’t make, and the result was the Great Recession. Consumer choice 
is often a postive, but not always. Mr. Mulvaney should reread the title of the Dodd-Frank Act, which describes the
purpose of the law as “to protect consumers from abusive financial services practices,” something that the 
announcement doesn’t say a word about. If he wants to ask about anything, how about whether the Bureau is 
succeeding in protecting consumers from abusive practices. It did, at least under Cordray.

House Financial Services Committee Hearing on Bill to Sharply Curtail CFPB Authority Over Banks and Credit Unions

by Jeff Sovern

Last week, the House Financial Services Committee's Subcommittee on Financial Institutions and Consumer Credit held a hearing titled Legislative Proposals for a More Efficient Federal Financial Regulatory Regime: Part III on a variety of bills. One of the bills, H.R. 1264, provides that "Community financial institutions shall be exempt from all rules and regulations issued by the Bureau." The bill defines a community financial institution as one with less than $50 billion in assets. I wonder how many entire communities have $50 billion in assets. How many banks would this leave subject to the CFPB? Not many. According to one witness, Scott B. Astrada, Director of Federal Advocacy for the Center for Responsible Lending, H.R. 1264:

. . . would essentially exempt a large part of the banking industry from the CFPB’s supervision. This is a radical break from the two-tiered regulatory structure put in place by Dodd-Frank. Anticipating the need for dynamic regulation, Dodd-Frank grants broad discretion to the CFPB to tailor regulation based on such factors as asset size and capital (e.g. determining the best approach with community banks, CDFIs, and credit unions).

This legislation takes the opposite approach to consumer protection, and would essentially (if passed) exempt more than 99 percent of all banks, and all credit unions, except one, from the supervisory authority of the CFPB. . . .

While the Bureau would have the power to revoke exemptions under the bill, it could do so only if other banking regulators agreed on the revocation. How likely is that, given the tendency of those regulators to be captured by the industry, as the industry itself acknowledges?

My favorite moment in the hearing came in response to Astrada pointing out that last year was the most profitable in history for banks, and that as for community banks, in the third quarter, more than 95% of them were profitable, which is the best since 1997.  The response: we're here to talk about regulatory burden, not the profitability of community banks. Oddly, when community banks did less well, the claim was that the cause was regulatory burden. So when community banks do badly, they blame regulations; when they do well, regulations somehow have nothing to do with it.

 

CFPB Announces Intention to Engage in a Rulemaking Procedure That "May Reconsider" Payday Rule

by Jeff Sovern

Here.  It seems unlikely that the Bureau would go to the trouble of a rulemaking only to ratify the rule. The Bureau had previously stated that it intended to amend the prepay card rule. 

Consumer Advocates Charge Mulvaney's Freeze on Data Collection is a Ploy to Cripple the CFPB

by jeff Sovern

The American Banker has the story, in a report headlined Is CFPB’s data freeze about security or a political ploy? The article quotes Minnesota's Prentiss Cox, as saying "This is a very thinly veiled attempt to shut down fraud enforcement, which is consistent with the not-even-veiled priority agenda item of the congressional Republicans to eviscerate the CFPB." Senator Elizabeth Warren wrote to Mulvaney to protest the freeze last week, saying:

CFPB cannot fulfill its core functions without collecting personally identifiable information. * * *  CFPB bank examiners and enforcement lawyers regularly use account level data provided by regulated institutions to detect improper and unlawful activity. Likewise, the Office of Fair Lending collects and analyzes data to bring lawsuits against financial institutions that discriminate against their customers.

The American Banker article also states:

In his directive, Mulvaney cited concerns about data security laid out in a May 2017 report by the Office of the Inspector General, which found that confidential and sensitive enforcement information was accessible by a wider circle of CFPB employees than was necessary and prudent. Mulvaney said that staff instead could access aggregate data.

* * * 

One unresolved question is why Mulvaney would take so drastic a step in response to a months-old Inspector General's report. Bank regulators - not to mention other government agencies like the Social Security Administration and Internal Revenue Service - deal extensively in highly sensitive personal information and have never been subject to such a drastic directive. Both the Office of Personnel Management and State Department were the subject of extensive security breaches in 2015 and neither were instructed to not collect personal data. 

District Court Rules for Mulvaney, Against English on PI Motion in CFPB Acting Director Case

The opinion is here.

Report that Mulvaney CFPB Stafffer Lobbied Against CFPB Discrimination Protections Before Joining CFPB

The report comes from Allied Progress. Excerpt:

Just before the holiday break, Consumer Financial Protection Bureau (CFPB) “Acting Director” Mick Mulvaney announced that several of his senior staff from the Office of Management and Budget (OMB) would be taking on leadership roles at the CFPB. That list included his chief of staff Emma Doyle. What he failed to mention is that immediately before working for him at OMB, Doyle worked for Ford Motor Company where she lobbied on multiple bills, which would have nullified CFPB protections against discriminatory auto lending practices.

Looks like the swamp is swallowing the CFPB.

NCLC Establishes Spanogle Institute for Consumer Advocacy

by Jeff Sovern

A fitting honor for John "Andy" Spanogle, whom I have come to know as co-author of our consumer law casebook.

More CFPB News to be Concerned About: Hensarling Aides Move to CFPB

by Jeff Sovern

The new chief of staff for the CFPB will be Kirsten Sutton Mork, a longtime aide for House Financial Services Chair Jeb Hensarling, according to Mr. Hensarling. Chief of staff is the position formerly held by Leandra English, who is locked in a battle with Mulvaney to be acting director of the Bureau.  Hensarling has been a huge critic of the Bureau, and this is the second of his aides to join the CFPB under Mulvaney. Though as someone subject to the optimism bias, I still hope that the new Bureau leadership will understand the value of consumer protection once they learn more about it at the Bureau, this does not bode well for that dream.

 

 

Bank Trade Group Fears Industry Will Capture CFPB

by Jeff Sovern

Camden R. Fine is the president and CEO of the Independent Community Bankers of America, a trade group for community bankers. The American Banker recently published his op-ed, Don’t let a credit union regulator run the CFPB, opposing the candidacy of National Credit Union Administration Chairman J. Mark McWatters to head the CFPB. Here's an excerpt:

[A]mid concerns that the CFPB lacks sufficient checks on its regulatory authority, the NCUA’s willingness to flout Congress in its rulemakings makes its chairman suspect for leading the bureau. McWatters and others at the NCUA have been strident advocates for expanding the credit union charter far beyond what Congress intended when it established the industry in the 1930s.

* * *

The CFPB should not be led by the head of an agency that has acted as a cheerleader for the industry under its oversight.

* * * 

if Washington is willing to settle for single-director governance at the CFPB, then let’s advance a director with meaningful experience in the full range of regulations for which the CFPB is responsible. And let’s choose a leader not with a track record of cheerleading for the industry he is charged with overseeing and regulating, but rather a commitment to the laws by which our agencies are established by Congress.

Mr. Fine should be commended for pointing out that regulatory capture is a problem, especially when it comes to the CFPB (Mr. Fine's position appears to be rooted in the fact that credit unions compete with community banks). Regulatory capture has been endemic among banking regulators, most notably at the OCC. Indeed, it was the fear of regulatory capture that prompted Congress to structure the CFPB the way it did. It would be great if the next CFPB director, whomever that person may be, avoids regulatory capture, not only by credit unions, but also by banks and other financial institutions. One place the president could look for a director who would be unlikely to be captured by the industry, of course, would be among consumer advocates. Yes, I know, but a person's reach should exceed his grasp, or what's a heaven for?