Consumer Law & Policy Blog

House Passes Appropriations Bill that Would Cripple the CFPB

by Jeff Sovern

Yesterday the House passed the financial services appropriations bill. Here is how the Appropriations Committee describes the bill's provisions pertaining to the CFPB:

The bill includes a provision to increase oversight over the CFPB by bringing funding for the agency under the annual congressional appropriations process, instead of direct funding from the Federal Reserve. This change will allow for increased accountability and transparency of the agency’s activities and use of tax dollars. The legislation also changes the leadership structure of the CFPB from a single Director to a five-member Commission, and requires the CFPB to study the use of pre-dispute arbitration prior to issuing regulations.

If it makes it into law, this structure would make it harder for the CFPB to respond nimbly to consumer financial problems, and risks paralyzing the Bureau, just as has happened to the Federal Election Commission. If the Bureau is subjected to the appropriations process (unlike other financial industry regulators), financial industry lobbyists would be able to lobby members of Congress to reduce appropriations if the Bureau vigorously protected consumers.  And the arbitration provision, coming after the Bureau already issued the most in-depth study ever of consumer arbitration, is obviously a pretext intended to block the proposed arbitration regulation. Each of these provisions is designed to help the financial industry at the expense of consumers while maintaining the illusion of having a neutral reason.

 

 

CFPB Director Cordray's CNBC Interview: Mortgage Lending, Auto Lending, Credit Card Lending Up

Here.  He also said that the final arbitration and payday lending rules will come out in the next year or so.

Pew Animation on Class Action Waivers and CFPB Proposed Rule

Here. 

My Arbitration Op-ed in the Pittsburgh Post-Gazette

Here.  Excerpt:

* * * Affected businesses are likely to sue (in court, ironically) to try to block [the CFPB arbitration proposal]. In a move that conjures up the famous scene from “Blazing Saddles” in which Cleavon Little takes himself hostage, the financial industry has threatened to abandon consumer arbitration altogether if the regulation takes effect. Thus, the Chamber of Commerce has written of its concern that consumers who have unique $25 claims that couldn’t be heard in class actions wouldn’t be able to arbitrate them.

(Never mind that this imaginary consumer — remember, consumers rarely bring $25 claims — could presumably still sue in small claims court). But even that wouldn’t be a problem unless arbitration benefits consumers; therefore, the industry claims that it does.

Except that it doesn’t. The CFPB study found that, on average, 6.8 million consumers a year obtain relief through settlements in consumer finance-related class actions in federal court. In contrast, it reported, about 600 consumer finance disputes were filed each year with the main arbitration provider. Even if consumers filed and won 1,000 times that many arbitration proceedings a year, federal class actions would still help more than 10 times as many consumers as arbitration in a typical year. That’s why class actions can deter misconduct while arbitration doesn’t.

 

 

House Financial Services Committee Chair Hensarling Releases Bill To Cripple Consumer Protection

by Jeff Sovern

Hensarling calls the bill the Financial Choice Act.  Make America Great for Banks Act is closer to the truth. Based on a quick look, the bill would give bank lobbyists power over the CFPB by subjecting it to the appropriations process, increase the likelihood of deadlocks by turning the Bureau into a commission, strip the agency of the power to stop abusive practices (evidently the financial industry should be able to abuse consumers), repeal the Bureau's power to regulate arbitration clauses, limit the Bureau's power to regulate payday lending (apparently debt traps are good), and limit the ability of the Bureau to protect consumers in other ways. The war on consumer protection continues.

 

CFPB Debt Collection Regs SBREFA Panel Reportedly Coming in August

InsideArm.com reports that it "has learned from multiple industry sources" that the CFPB will hold a Small Business Regulatory Fairness Enforcement Act (SBREFA) proceeding the week of August 22 in connection with the Bureau's forthcoming debt collection regulations.  The Bureau has to convene the SBREFA proceeding before proposing the new rules.  Just to give a sense of what the timeline could be, the Bureau convened its arbitration SBREFA panel last October and announced the proposed rule on May 4 of this year (of course, the time table could be different for different rules). Rather than issuing the text of the proposed rules during the SBREFA process, the Bureau issues a report describing its tentative thinking (again for comparison, the arbitration SBREFA report can be found here). 

Center for Progressive Reform: Regulating Forced Arbitration in Consumer Financial Services: Re-Opening the Courthouse Doors to Victimized Consumers

Martha T. McCluskey of SUNY Buffalo, Thomas Owen McGarity of Texas, Sidney A. Shapiro of Wake Forest, and James Goodwin and Mollie Rosenzweig, both of the Center for Progressive Reform, have written Regulating Forced Arbitration in Consumer Financial Services: Re-Opening the Courthouse Doors to Victimized Consumers.  Here's the abstract:

Forced arbitration clauses have become almost unavoidable in contracts for financial services and products ranging form credit cards to private student loans. This report examines how the financial services industry uses these clauses to defeat consumers' rights and evade accountability for their wrongdoing.

As the report explains, the forced arbitration process harms consumers by relegating them from the civil justice system to an inferior forum for vindicating their rights. In contrast to the courts, forced arbitration tends to be secretive, less independent of industry, more prone to erroneous and arbitrary rulings, more likely to discourage the pursuit of claims with procedural barriers, and more likely to provide inadequate relief for compensating victims of corporate wrongdoing.

The report examines the 2016 proposal by the Consumer Financial Protection Bureau (CFPB) to limit the use of forced arbitration clauses in contracts for financial services and products, and finds that the proposal is consistent with the agency's statutory obligation to protect consumers. The report goes on to explain that the CFPB would better fulfill its statutory mandate by revising its proposal to include stronger protections for consumers.

American Banker: Putting Agencies on Budget Could Lead to 'Whipsaw' Regulation

Here (behind paywall).  The CFPB is one of the agencies that House Financial Services Chair Jeb Hensarling's bill would ubject to the appropriation process.  Excerpt from the article:

"There are many things to like about Chairman Hensarling's bill, particularly its tough capital requirements," [former FDCIC head Sheila] Bair said. "However, subjecting the banking agencies to congressional appropriations is not a good idea. Past history has shown that appropriations bills present ripe opportunities for industry lobbyists to wreak havoc with the funding resources of their overseers."

The drive to subject the agencies to appropriations is relatively recent. A decade ago, Republicans led the charge to push the Office of Federal Housing Enterprise Oversight - then the regulator of Fannie Mae and Freddie Mac - to be independently funded.

At the time, Fannie and Freddie were able to call on allies in Congress to wreak havoc with OFHEO's funding, hampering its ability to oversee the government-sponsored enterprises. * * *

* * * Many point to the Securities and Exchange Commission and the Commodity Futures Trading Commission, both of which have been limited by congressional battles over their budgets. * * *

During testimony Tuesday before the Senate Banking Committee, SEC Chair Mary Jo White said the lack of funding has slowed rulemaking and that the agency is being outspent on the IT side by the firms it regulates.

LATimes's David Lazarus: Republicans cook up plan to cripple consumer agency

Here. Excerpt:

 

“[House Financial Services Committee Jeb Hensarling would] gut Dodd-Frank and gut the Consumer Financial Protection Bureau,” said Deepak Gupta, a Washington lawyer who previously worked as senior counsel for the watchdog agency. “Jeb Hensarling is a wholly owned subsidiary of the financial services industry.”

Too harsh? Not when you consider that, according to the Center for Responsive Politics, Hensarling has received more than $5.5 million from financial firms and industry groups since being elected to the House in 2002. The top two contributors to his political endeavors are JPMorgan Chase ($105,000) and the American Bankers Assn. ($85,000).

House Appropriations Committee Votes to Cripple CFPB

by Jeff Sovern

Yesterday the House Appropriations Committee reported out a bill that would convert the Bureau to a commission, subject it to the congressional appropriations process, and delay (perhaps forever) the adoption of the arbitration and payday lending rules.  More information on the Committee's web site.