Consumer Law & Policy Blog

Former FDIC Head Sheila Bair on the CFPB

Bair has a new book out, and so has been the subject of some media attention.  CNN/Money interviewed her and among the questions was an exchange about the CFPB.  Her reply: 

I support the Bureau, and I also strongly endorse it in the book.  And I think they're doing a good job.  I am, if I have one little complaint, and I do have one little complaint, it is that the rules are still too long and complex.  . . .  I think consumers can understand what their rights and protections are.  Smaller banks have basically gotten out of consumer finance because it's just too hard.  The compliance costs are just too hard.  . . .

But they're ramping up.  Finally somebody is examining the non-bank sector, and establishing more of an enforcement presence there, which I think is very important.  And I think they are sending a strong signal to regulated banks as well, but in a way that seems to me, the cases I've seen, are very much justified and in line with their mandate.  So, I don't for the life of me understand why there is this continued controversy and turmoil over the Consumer Bureau.  We did not do a good job protecting consumers of financial products leading up to the crisis.  So, it just didn't happen.  And having a bureau that specifically focused on that I think is a positive thing, and over time it will prove itself.

National Law Journal Report on CFPB's Director Cordray's Appearance Before Congress Yesterday

Here.  The headline: A Sense of Déjà Vu in Latest Hill Appearance of CFPB Chief. An excerpt:

First came the obligatory complaint that Cordray's January recess appointment was illegal. "Dodd Frank made you a very powerful appointee, but not a legitimate appointee," Representative Jeb Hensarling (R–Texas) told the perpetually unflappable Cordray. "There's a big gray legal cloud hanging over your agency."

The agency's budget, which comes from Federal Reserve fees rather than congressional appropriations, was another favorite target. Representative Randy Neugebauer (R–Texas) described it as a "slush fund of half a billion dollars."

Democrats then rushed to support Cordray and his agency. "I would say you have tremendous credibility," said Representative Carolyn Maloney (D–N.Y.), who dismissed the criticism as "election year efforts by those who never wanted to create the agency in the first place."

 

Bloomberg News: Republican State AGs Resisting CFPB Cooperation

by Jeff Sovern

Here.  An excerpt:

A group of Republican state attorneys general has declined to sign cooperation agreements with the Consumer Financial Protection Bureau, part of an escalating Republican revolt against the agency that began in the U.S. Congress.

Richard Cordray, the agency’s director, asked all 50 states in March to sign a memorandum of understanding designed to protect confidential information shared among states and the bureau. To date, only 12 states -- all but one with Democratic attorneys general -- have signed, according to the bureau and documents obtained in a public records request.

* * *

South Carolina Attorney General Alan Wilson, who is leading the effort with Pruitt, told a campaign rally in Greenville, South Carolina, last week that a suit against the Dodd-Frank would be filed in the “next couple of days.”

“We’re going to challenge that law,” Wilson said on Sept. 14, in remarks reported by Fox News. “We’re going take the battle back to Washington, D.C. because community banks on Main Street shouldn’t be choked to death so that big banks on Wall Street can take our money.” * * *

 Alas. the OCC is not the only agency captured by banks.



AP Story: Consumer regulator barks; an industry shudders

Here. An excerpt:

For some banks and industrial lenders, the new oversight may be so costly that they stop offering some products, says Bill Himpler, vice president of the American Financial Services Association, a trade group for card companies, mortgage lenders and finance companies. He says the bureau's tactics put companies on the defensive.

"It doesn't leave somebody with the best feeling that what they're trying to do is ensure compliance so much as create a gotcha situation," Himpler says.

Kent Markus, who heads up the bureau's enforcement office, says the costs are necessary to make sure companies aren't preying on consumers. "We want to make it more expensive to break the law than to abide by it," he says.

A Comment on Eric Grover's Essay on the CFPB in the Washington Times

by Jeff Sovern

A fellow named Eric Grover had a piece atacking the Consumer Financial Protection Bureau in the Washington Times this week titled "CFPB’s unchecked power."   A line at the end of the essay explains "Eric Grover is a principal at Intrepid Ventures."  I had never heard of Intrepid Ventures, but their web site states "Clients have included a broad range of payments, financial services . . . firms[, including] Fortune 10 global financial institutions." The web site reports that Grover's "prior experience includes Visa International, GE Consumer Finance, Bank of America, NationsBank and Transamerica. Mr. Grover currently serves on the board of Nordstrom's credit card subsidiary."  So Grover is part of the financial services industry, though readers unfamilar with Intrepid, as I was, may not have realized that.  It would have been appropriate to make clearer his interest in this matter.

What did Grover say about the CFPB? Here are some quotes, in italics, with my responses:

The abuse standard is new and gives bureau mandarins a blank check.

It is indeed new, but it doesn't give the Bureau a blank check.  The statute specifically identifies the circumstances in which conduct can be found abusive.

The bureau  took its first scalp with Capital One’s $210 million settlement for deceptively  marketing payment protection and credit monitoring. The $25 million in penalties  it collected will be used to reward administration allies.

Does anyone believe that Cap One would have settled the case for $210 million if it hadn't had a significant possibilty of being found liable for at least that sum?  Put another way, how plausible is it that Capital One did nothing wrong yet still agreed to pay that kind of money?  And what is the basis for the statement that the penalty funds willl be used to "reward administrative allies?"

Easy-to-vilify payday lenders may be next.

Could it be that they are easy to villify because they are doing something troublesome? 

Bureau architect Elizabeth Warren,  director Richard Cordray and Mr. Obama  think hapless consumers are victims of predatory financial institutions and,  even if all products’ material facts are disclosed fully, Joe  Six-Pack cannot be trusted to make the “right” choices.

Unfortunately, the evidence shows that many consumers make bad borrowing choices, especially when they are helped along by predatory lenders, and that that's why we had a financial crisis. What evidence is there to the contrary? 

As Mr. Cordray declared, “We cannot  afford to tolerate practices, intentional or not, that unlawfully price out or cut off segments of the population from the credit markets.” This is exactly the  kind of thinking that brought down the housing market. The willful weakening and  politicizing of credit wreaked havoc in the financial sector. If the government  learned its lesson from that catastrophe, credit would be more expensive and  less available to risky borrowers.

This sounds like another claim that the Community Reinvestment Act caused the Great Recession.  Such attacks have been shown time and again to be utterly specious. 

Credit card issuers rely on race-blind scores to approve accounts. Paraphrasing King, credit scores judge men by  their character, not their skin color. But many liberals don’t believe in  colorblind credit. In a thinly veiled call for intervention, The Washington Post  reported “a persistent gap between the credit scores of white and black  Americans.” Logically, the next step is a call for credit-scoring apartheid,  which would be disastrous for financial markets.

How can we know how credit scores judge people?  Fair Isaac has provided only a bare bones description of what goes into credit scores.  The phrase "credit-scoring apartheid" sounds pretty bad, but what does it mean? 

I could go on, but you get the idea.  Another banking person wants banks to be able to do what they want.  So what if we have another Great Recession? 

Republicans Wanted CFPB to Have a Single Director! Who Knew?

by Jeff Sovern

We have blogged many times about the Republican call for the CFPB to have a commission-structure, rather than a director (see, for example, here).  That call has been spearheaded by Senator Shelby.  So that makes it all the more surprising to note that during the Senate's consideration of what became the Dodd-Frank Act, Senator Shelby, along with other Republican senators, proposed that the Bureau be headed by--you guessed it--a single director!  Senator Shelby's proposed amendment appears in the Congressional Record of May 5, 2010, at page S3217 and following.  In fairness to the Senator, the amendment, which would have housed the Bureau (called a division in the amendment) in the FDIC, would have given the FDIC the power to vote down Bureau rulemakings (the Dodd-Frank Act provides that Bureau rules can be vetoed by a two-thirds vote of the Financial Stability Oversight Council).  I guess Senator Shelby was for a director before he was against it.

Senior Staff Moves at CFPB

The CFPB has announced several major hires and moves. The New York Times Dealbook has the story here.

Leonard Chanin, the outgoing head of Regs will be replaced, at least temporarily, by his deputy, Kelly Cochran. Kelly was part of the original Dodd-Frank team at the Treasury Department and has been with the Bureau since its beginning, before which she was an associate at Wilmer Hale. 

Another Wilmer veteran, longtime New York partner Chris Lipsett, joins the Bureau as Senior Counsel in the Office of the Director.  Chris is a very well respected and thoughtful banking lawyer; I ran into him at a New York City Bar event a few months ago and was pleasantly surprised to hear how excited he was about the Bureau and its mission.

And from the other side of the aisle, Delicia Reynolds Hand, the legislative director of the National Association of Consumer Advocates, has joined the Bureau as the staff director of the Consumer Advisory Board.

Finally, in the General Counsel's Office, Steve Van Meter, assistant GC for policy, consumer law expert, and longtime veteran of the OCC, moves up to Deputy General Counsel.

More Commentary on the CFPB's Proposed Mortgage Disclosure Forms

by Jeff Sovern

In last Sunday's Times, Richard H. Thaler, a leading behavioral economist at Chicago, published A Chance to Make Mortgage Shopping Easier, about the CFPB's proposed mortgage disclosure forms.  Thaler suggested that the CFPB should require that the forms be machine-readable so that borrowers could use web site "choice engines" to compare mortgage terms.  A good idea, but in my letter, I noted "the column also pointed out that many people spend little time shopping for mortgages, and that they often could save much money if they applied to just one more lender. Is it realistic to expect such borrowers to use choice engines?"  It remains my opinion that compulsory mortgage counseling is the way to go for many borrowers.

CFPB's Head of Regulations Joins Morrison & Foerster

The Consumer Financial Protection Bureau's chief rulewriter, Leonard Chanin, is leaving the Bureau next month to join the law firm of Morrison & Foerster, where he previously practiced for many years. Because of Chanin's background in private practice and the Fed, he has strong industry contacts and a deep understanding of banks' perspectives on regulation. For the past year and a half, he oversaw the Bureau's Office of Regulations, which now has a staff of 40 or so attorneys dedicated to writing new regulations across the spectrum of consumer finance markets. When I was at the CFPB, those attorneys always seemed like the busiest people in a busy place. And they continue to have their work cut out for them, particularly given the Dodd-Frank Act's imminent deadlines for new mortgage rules.

The American Banker breaks the news of Chanin's departure and quotes Alan Kaplinsky. "He's going to be a hard person to replace," says Kaplinsky, an attorney for Ballard Spahr who knows Chanin from his current job and his previous work overseeing financial protection regulations as a deputy director of the Federal Reserve Board. "There was a level of comfort the banking industry had with Leonard, because they dealt with him for many years during his tenure at the Fed. . . . I think this would be a setback for the CFPB because they're right in the midst of an avalanche of mortgage lending regulations." (The American Banker article also mentions my new law firm, which it describes as a "consumer advocacy law firm"; actually, we're doing appellate and policy work more broadly, including consumer protection.)

Here's a recent interview with Chanin.

Julie Williams Steps Down As OCC Chief Counsel

Julie Williams, the Office of the Comptroller of the Currency's notorious longtime Chief Counsel and sometime Acting Comptroller, is stepping down from her post effective September 30. According to a statement released by the agency, she will retire from the government at the end of this year; it's unclear whether that means that she won't do any lobbying for banks after leaving the agency. The Wall Street Journal has the story here.  The published reports do not indicate whether Williams was fired, but that's what I have heard from some reliable sources.

Williams has long been a target of criticism by consumer advocates; in a post earlier today, Naked Capitalism calls her "the Lex Luther of bank regulators."  The main reason for the criticism is Williams' role as the principal architect and chief defender of the OCC's expansive preemption regime, which wiped out state anti-predatory lending laws at the very time they were most needed. Even after Congress took specific action to roll back OCC preemption through the Dodd-Frank Act, Williams persisted, spearheading new rules last summer that attempt to circumvent the Act.  More generally, Williams was known for her tendency to prioritize banks' interests over consumer protection and for her hostility to the CFPB and the Dodd-Frank Act.

Although she held the position during previous vacancies, Williams was passed over for Acting Comptroller by the Obama Administration and there has been much speculation about whether she would be fired outright by the new comptroller, Tom Curry.  Curry had a very different, and more balanced position on preemption when he ran the state banking agency in Massachusetts, but has been circumspect on the topic since taking over the OCC.