Consumer Law & Policy Blog

House Financial Services Committee's Continued Efforts to Weaken the CFPB

by Jeff Sovern

In its ongoing efforts to weaken the CFPB and consumer protection generally, the House Financial Services Comittee's Subcommittee on Financial institutions and Consumer Credit held a hearing on May 21 on eleven bills.  I will talk in this post about only one, the so-called ‘‘Preventing Regulatory Abuse Act of 2014, sponsored by Representative Barr. As regular readers of the blog are likely to know, the Dodd-Frank Act authorized the CFPB to take action against entities within its jurisdiction that engage in unfair, deceptive, or abusive practices.  Mr. Barr's bill would direct the CFPB to issue a proposed rule defining abusive within fifteen days of the bill's enactment and would block the Bureau from using its power under the abusive prong until the rule was issued.

I can appreciate that the industry would like to know what "abusive" means. Congress did too, and no doubt that's why it defined abusive in the statute.  Here's what Congress wrote:

The Bureau shall have no authority under this section to declare an act or practice abusive in connection with the provision of a consumer financial product or service, unless the act or practice—

            (1)             materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service; or         

             (2)             takes unreasonable advantage of—             

                 (A)                 a lack of understanding on the part of the consumer of the material risks, costs, or conditions of the product or service;             

                 (B)                 the inability of the consumer to protect the interests of the consumer in selecting or using a consumer financial product or service; or             

                 (C)                 the reasonable reliance by the consumer on a covered person to act in the interests of the consumer.

 

That's a pretty good definition, in my view.  But the industry claims it needs to know more so it can predict whether particular actions are abusive.  Personally, I would love to hear examples of the conduct that the industry speculates might be abusive under that definition but isn't certain about.  So far, I haven't heard any, which makes me wonder whether the rule is really needed or whether this is part of a different agenda, the anti-consumer protection, anti-CFPB agenda.  I can't remember hearing calls for similar rules when the Fed was given the power to block abusive lending in 1994, a power the Fed basically ignored until 2008, though perhaps I just overlooked those calls.  Maybe what's really going on is that instead of an agency that was sympathetic to lenders having the power to ban abusive practices, the power is now in the hands of an agency charged with protecting consumers, and the industry wants to prevent that agency from using that power. But let's assume that the industry genuinely needs clarification.  That still leaves open the question of whether this is a good bill.

 

The bill calls upon the Bureau to act within 15 days!  Haven't they ever heard that haste makes waste, look before you leap, or Rome wasn't built in a day? Those cliches are cliches because they reflect a basic truth: that moving too quickly often leads to errors. if Mr. Barr genuinely wanted a good rule, wouldn't he want the Bureau to take the time to craft it well? No doubt the Bureau is still figuring out how best to use its abusiveness power.  The Federal Trade Commission had decades of experience with its power to ban deceptive practices before it issued its 1983 policy statement on deception, and likewise had decades of experience with its power to ban unfair practices before it issued its 1980 policy statement on unfairness.  The Bureau may not need decades before it is ready to issue a policy statement or rule on abusiveness, but surely it needs much more time than it has had.  And why a rule? Why isn't a policy statement, which was good enough for the FTC, good enough for the Bureau?  Yes, rules are subject to notice and comment, but is the industry having difficulty making its voice heard? Not, apparently, in the House.

The Research Integrity Council, the CFPB, and Transparency

by Jeff Sovern

Last March, the CFPB Monitor Blog, announced  that "a group of representatives from across a variety of industries met to discuss the formation of a Research Integrity Council (RIC), the purpose of which will be to make recommendations to improve the quality and veracity of the research being conducted by the CFPB to inform its rulemaking process." According to that blog post, one concern about CFPB research was "the lack of transparency into the activities of the [CFPB's] Academic Research Council."

Yesterday, the CFPB Monitor reported that the RIC had held a Research Academic Forum. The blog post summarized remarks by the speakers, who included Thomas Durkin, retired Senior Economist in the Federal Reserve Board’s Division of Research and Statistics; Howard Beales, Professor at George Washington University School of Business and former Director of the Federal Trade Commission (FTC) Bureau of Consumer Protection; and Todd Zywicki, Professor of Law at George Mason University School of Law, Senior Scholar of the Mercatus Center, and former Director of the FTC Office of Policy Planning. Mr. Durkin "expressed concerns with the overall lack of transparency in how the CFPB conducts its research . . . ."

I was curious to discover more about RIC.  I have learned a lot from the CFPB Monitor and the firm that produces it, Ballard Spahr, and so I hoped to learn more from the RIC web site, and maybe even be able to listen to the Research Academic Forum. I googled the Research Integrity Council and Research Academic Forum, but couldn't come up with anything beyond links to the CFPB Monitor blog postings.  How about some transparency, guys?

The Hill Reports on the GOP's Continuing Effort to Cripple the CFPB

by Jeff Sovern

Here. Eleven proposed bills this time.  It creates an interesting contrast with the just issued CFPB's Supervisory Highlights report, which reports, for example, that the CFPB found that one collection firm violated debt collection laws approximately 17,000 times and a creditor has been selling debts on which consumers were no longer liable.  And those are only two examples from one law covered in the report; there are plenty of others. If the Republican House members get their way, what would stop those violations of the law from continuing?

Every American Should Read (Or Better Yet, Listen to) Elizabeth Warren's Book

by Jeff Sovern

I've been listening to the audio version of Elizabeth Warren's new book, A Fighting Chance (you can read and listen to a short excerpt here).  Over at PrawfsBlawg, Jennifer Bard wrote that law professors should read the book. I would go much further: anyone who cares about our country should read (or better yet, listen to the audio version, read by the Senator herself) to this book.  It is extraordinary.

I've been a law professor for more than thirty years, and my father became a law professor before I was born, so I've been around law professors since I was in the womb.  I've obviously read a lot of things written by law professors. This is the most moving writing authored by a (now-former) law professor I've ever encountered.  I never thought a law professor's writings could bring me to tears. But this book did.

Senator Warren blends her personal story with the policy issues and politics that in recent years have consumed her life. Often it feels as if the politics and policy are part of her personal story, and her policy views are clearly informed by her personal experiences.  As is widely known (this viral video is only one example), she has a gift for presenting complex materials in a way that is accessible and affecting. That gift is on display throughout the book, whether she is discussing her personal life, the machinations in Washington, her research, or policy issues. As someone who has tried his own hand at writing op-eds, or even just on this blog, I envy that gift. Senator Warren knows how to tell a story.

Senator Warren makes a persuasive case for why families in this country need more help than they are getting. She also explains why they aren't getting it. The book talks about the people who have fought for her. I can see why they do so.

My only complaint so far (I am not done with the book, but I didn't want to wait any longer to post something about it) is her view of consumer disclosure. When she talks about the Consumer Financial Protection Bureau, the Senator's goal appears to be that information be disclosed, so that consumers will have an opportunity to know what they are agreeing to when the sign contracts. That is important, but disclosures that consumers don't read do little good.  My view is that law-makers should focus on getting consumers information in a way they will use, rather than just getting them information that they may (and probably do) ignore.  The CFPB seems to focus on disclosure rather than whether consumers use the disclosures, at least with the new TILA-RESPA disclosures. 

In any event, it is an excellent book. Readers of this blog should find it of great interest.

New York Department of Financial Services Brings Dodd-Frank Case

by Jeff Sovern

The Dodd-Frank Act, in section 1031, authorizes the CFPB to bring actions to prevent abusive, deceptive, and unfair practices. Section 1042 gives states the power to enforce Dodd-Frank provisions as well.  Accordingly, as reported here, here, and here, on Wednesday New York’s Department of Financial Services, led by Ben Lawsky, brought what has been described as the first such state action. I suspect that state officials who believe in protecting consumers will find Dodd-Frank a valuable aid. For example, while the New York statutes give its attorney general the power to pursue deceptive practices and repeated fraudulent or illegal acts, they don’t extend to unfair or abusive practices that are not deceptive or otherwise illegal.  In other words, Dodd-Frank enables state consumer protection offices to bring cases that they might not otherwise be able to bring when consumers are being treated unfairly or abusively.  Some states, unlike New York, already give their attorneys general the power to bring cases when they find unfair practices, so in such states the Dodd- Frank statute may be less significant.   

It is quite common for federal consumer protection statutes to give states enforcement powers, and for good reason.  Federal regulators have limited budgets and so can’t bring every meritorious case. State consumer protection agencies might have a better sense of what is going on locally than federal regulators. Finally, sometimes government agencies are captured by the industry they are supposed to regulate. For example, former President Bush appointed a bank lobbyist to head a key bank regulatory agency, the Office of the Comptroller of the Currency.  That agency later declared state anti-predatory lending laws inapplicable to national banks, thus protecting the banks rather than consumers.  If the Consumer Financial Protection Bureau is ever captured by the financial industry, and so stops enforcing the Dodd-Frank Act, the states will be able to pick up the slack.

Ryan Budget Would Subject the CFPB to the Congressional Appropriation Process

No surprise, in view of past Republican attempts to cripple the CFPB by doing just that, but still an unfortunate proposal. The Hill has the story here.

While the CFPB Made it Easier to Complain to Credit Bureaus, the House Attacked the CFPB

by Jeff Sovern

The CFPB announced yesterday that the big three credit bureaus have added a function to their web sites to enable consumers to upload documents supporting claims of errors--police reports, copies of correspondence, etc--in credit reports.  That shouldn't be a big deal in 2014, but in the world of credit bureaus, where the incentive is to accommodate the creditors who provide the bulk of both the information the credit bureaus sell and the revenue they receive (see here), everything that aids consumers is a step forward. Until last year, as noted in the NCLC report Automated Injustice: How a Mechanized Dispute System Frustrates Consumers Seeking to Fix Errors in Their Credit Reports (2009), consumer complaints to credit reports were typically reduced to codes, often of only two digits, and forwarded to creditors without any supporting documents.  Now the credit bureaus will be able to forward those documents more readily and consumers will have an easier time supplying them to credit bureaus.  As NCLC's Chi Chi Wu was quoted in the Times:

“The Consumer Financial Protection Bureau was able to get the bureaus to do something that years of advocacy and litigation had been unable to achieve,” said Chi Chi Wu, a lawyer at the National Consumer Law Center. “Step by step, they are trying to fix this terribly broken system and they are making decent progress considering how old they are.”

These seemingly small steps, which for affected consumers may turn out to be big steps, are just another reason why we need an effective CFPB so much.  Which is in turn another reason yesterday's vote in the House to undermine the Bureau is so disappointing (see the Washington Post story here). (HT: Ed Mierzwinski)

PIRG Report: Mistaken Identity Tops Debt Collection Complaints

Here.  Excerpts from PIRG's news release:

Debt collectors trying to collect debt from the wrong person were the top source of complaints to the Consumer Financial Protection Bureau (CFPB), according to a report released today by the U.S. PIRG Education Fund. The report also found that debt collection, the newest category in the database, is already a top source of complaints to the CFPB, outpacing common consumer products such as credit cards and bank accounts.

* * *

Some key findings:

• The CFPB has helped enable more than 2,700 consumers – 22 percent of complainants - to receive relief as a result of their debt collection complaints. The majority of these consumers received non-monetary relief, such as halting harassing phone calls.
• The most common problem was debt collectors trying to collect debt from the wrong person (25 percent), followed by repeated phone calls (13 percent). State and federal laws protect consumers from harassing phone calls from debt collectors.
• Encore Capital Group received the most complaints nationwide.
• The District of Columbia ranks #1 in complaints per 100,000 residents, followed by Nevada, Florida, and Delaware.
• About 16 percent of responses received from debt collectors to complaints filed with the CFPB were deemed unsatisfactory by consumers and were subjected to further dispute.
• Companies varied widely in how frequently they offered relief to complainants. Allied Interstate LLC granted relief to over 97 percent of complainants, while several companies never provided relief.

House to Vote this Week to Make CFPB Less Effective

by Jeff Sovern

Housing Wire reports in Congressional Republicans mull bill to add CFPB oversight, that the House will vote this week on a bill to replace the CFPB's director with a commission and subject it to the congressional appropriation process.  The bill is not expected to receive a warm welcome in the Senate or at the White House.  Though the bill is described as increasing accountabilty for the Bureau, the effect of the changes would be to reduce the Bureau's ability to protect consumers.  For example, while the proposal to subject the Bureau to the appropriations process sounds unobjectionable, when Fannie and Freddie Mac's regulator were subject to that system, the regulator ended up toothless and unable to prevent the conduct that led to the GSEs needing gigantic bailouts.  Ultimately, the regulator was replaced, as we have previously discussed.   And commission structures, which often require that different commissioners be of different parties, frequently produce deadlocks. Would the CFPB commissioners include bank lobbyists, just as the OCC was formerly led by a bank lobbyist, who sued states to block them from stopping predatory lending (see here)? If so, how much protection would the Bureau provide consumers?

Here is how House Financial Services Chair Jeb Hensarling is quoted in the article as justifying the bill:

“These are modest, common-sense reforms that bring a modicum of accountability and transparency to the CFPB. We know that this is an agency that was designed to be unique, if not perhaps rogue; it is an agency like no other. Arguably it is the single most powerful and least accountable Federal agency in the history of our nation and thus demands rigorous oversight. The American people deserve better,” said House Financial Services Committee Chairman Jeb Hensarling, R-Texas.

“They now have witnessed a failed stimulus plan, trillions of dollars of unsustainable debt… revelations of NSA domestic data collection and a broken promise of ‘if you like your health insurance, you can keep it.’ The American people rightfully demand accountability from this administration, and H.R. 3193 is a step in the right direction,” Hensarling said.

Of course, the items he mentions in the second paragraph have nothing to do with the Bureau or financial regulation and some are inaccurate. As for the first paragraph,the Bureau has less independence than the OCC. It is interesting that Representative Hensarling fails to note that the CFPB was designed to prevent future Great Recessions. If we are worried about rogues, perhaps we should worry about those who destroyed the country's economy more than about those who are merely protecting consumers.  And speaking of rogues, I wonder how Mr. Hensarling feels about Sarah Palin, a self-described rogue.

House Republicans Wasting More Time Trying to Weaken the CFPB

by Jeff Sovern

The Wall Street Journal has the story here. The bill would allow other federal agencies to veto Bureau rules more easily.  It is hard to imagine the bill passing the Senate or being signed into law by the president. Meanwhile, the article points out, the clock is ticking on the debt ceiling.