Consumer Law & Policy Blog

Cortez Article: Regulation by Database

Nathan Cortez of SMU has written Regulation by Database, University of Colorado Law Review, Vol. 89, 2017. Here is the abstract:

The federal government currently publishes 195,245 searchable databases online, a number of which include information about private parties that is negative or unflattering in some way. Federal agencies increasingly publish adverse data not just to inform the public or promote transparency, but to pursue regulatory ends ⎯ to change the underlying behavior being reported. Such "regulation by database" has become a preferred method of regulation in recent years, despite scant attention from policymakers, courts, or scholars on its appropriate uses and safeguards.

This Article, then, evaluates the aspirations and burdens of regulation by database. Based on case studies of six important data sets (published by the CFPB, CPSC, EPA, FEC, FDA, and Medicare), the article proposes what I call "Good Government Data Practices" to ensure that databases are reliable, useful, and fair. More optimal data disclosures require careful design choices that consider both data inputs and outputs, including how to gather and process data, how to characterize them, and how to present them. The article envisions a decidedly modern role for government agencies as data "stewards" rather than as mere publishers or repositories.

Agency databases have proliferated on the belief that markets, regulation, and even democracy all require transparency, that sunlight is the best disinfectant. But as transparency has moved online ⎯ becoming more pervasive, more powerful, and more burdened with regulatory dimensions ⎯ we also must recognize that sunlight can also blind or even burn. It is in this spirit that I call for policymakers to embrace the government’s role as a data "steward," a sentinel that helps maximize the quality of data inputs and outputs via tailored procedures. The more reliable government data are, the more they can enlighten us and perhaps even deter unwanted behavior.

Financial Choice Act 2 Draft Now Out: More Like a Bank Protection Act

by Jeff Sovern

Here.  As previously reported on the blog, it would eliminate the CFPB's power to stop unfair, deceptive, or abusive practices (section 736)--that is, the power the Bureau used to stop Wells Fargo from opening sham accounts--and to regulate arbitration (section 738)--that is, the section that would give the CFPB the power to preserve class actions against bad actors in the financial industry. So if another bank wanted to do what Wells did, the Bureau and private plaintiffs who wanted to bring a class action would be powerless to do anything about it.  Of course, the Office of the Comptroller also fined Wells.  But it was the CFPB that brought the OCC into the matter and the OCC has now issued a report indicating that it knew about the problem as early as 2005--eleven years before it brought its enforcement action.  The bill has many other defects as well. The House Financial Services Committee will hold a hearing on the bill next Wednesday. No word on who the witnesses will be.  While the House may pass the bill, the Senate is less likely to do so, at least in this form, as long as the bill is subject to a filibuster.

Op-Ed Argues for Rescission of CFPB Prepaid Cards Reg Because It Gives Same Protections Credit Cardholders Have

by Jeff Sovern

Earlier, Allison posted a link to an op-ed opposing rescission of the CFPB's prepaid card rule. For readers who would like to hear what opponents of the prepaid card rule argue, here is an op-ed in The Hill by Andrew Langer of the Institute for Liberty (I wonder who provides their funding). Excerpt:

 [T]he rules seek to impose the same kinds of regulations on prepaid cards that have applied to credit cards and checking accounts. Implementing those requirements on prepaid cards will increase the cost of providing such services to consumers, directly leading to higher costs for consumers who use prepaid card services.

Imagine that!  Giving the users of prepaid card the same protections that credit cardholders and checking account customers have! What were they thinking?

Center for American Progress Report on the Proposed Financial Choice Act

Here.  Excerpt:

The CHOICE Act also rejects the painful lessons about toxic financial products from the financial crisis and Great Recession in which 10 million families lost their homes and Americans collectively lost $19 trillion in wealth. Instead of continuing post-crisis reforms that have ensured the availability of safe and affordable financial products, it would give a free pass to financial institutions to once again sell harmful products that wreck family balance sheets, as well as entire communities, without fear of getting caught.

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.

Report on Beginning of House Financial Services Committee Hearing on CFPB

Here, from Insidearm.com.  The headline is CFPB Director Cordray's Testimony Gets Off to a Heated Start

Predictions Abound: Cordray Stays; House Takes Up Dodd-Frank in the Summer or Later; Will Changes to the CFPB Go the Way of Trumpcare?

by Jeff Sovern

First, Cordray.  Here's what Politico's Morning Money reported:

CORDRAY IS ... STILL THERE - Compass Point's Isaac Boltansky and Lukas Davaz: "With a decision in the PHH case review unlikely until next year, and the path for a legislative compromise on the Bureau's governance structure becoming hazier by the day, all indications are that Director Cordray is likely to retain his seat at least through the year and possibly until it comes to term in July 2018.

"President Trump could conceivably attempt to dismiss Director Cordray, but our sense is that the White House would prefer avoiding the associated political and procedural fallout"

Now the House.  WSJ has a story about an interview with Rep. Patrick McHenry (R., N.C.), vice chairman of the House Financial Services Committee and Republicans’ chief deputy whip.  McHenry predicts that the House won't get to Dodd-Frank until the summer at the earliest. Here's a quote:

When Republicans do move toward voting on a financial regulatory bill, there is “no question” the House can “pass a major change to financial services law,” Mr. McHenry said. “What the Senate can do from there is an open question,” he added, nodding to the fact major Dodd-Frank changes might face opposition from Senate Democrats. 

* * *

Other potential changes * * * include[] changes to the Consumer Financial Protection Bureau’s structure, which he described as a “moving target” because Republicans have different ideas for how they want to change the agency.

If democrats hang tough on the CFPB, I wonder if bills to change it will go the way of Trumpcare.

CFPB's Brief in PHH

Here.