Consumer Law & Policy Blog

CFPB News Roundup

by Deepak Gupta

• Who Will the White House Pick to Lead the Consumer Bureau?  With the budget battle behind us, speculation has resumed. Deborah Solomon of the Wall Street Journal has a must-read piece in this morning's paper reporting that the President is having trouble filling the Bureau Director spot because of Elizabeth Warren's popularity.  The White House has reportedly spoken with several potential candidates (including Gov. Jennifer Granholm, Gov. Ted Strickland, and Sen. Ted Kauffman and several state AGs), only to have them turn down the job in deference to Warren.

• Sound Strategy? A few weeks back, TImothy Noah at Slate made a convincing and somewhat against-the-grain argument that "[i]t wouldn't just be unfortunate for Obama to pass [Warren] over for director. It would be strategically unsound." He argues that the GOP has inadvertently cleared Warren's path over the past year.  As Governor Granholm herself recently tweeted, a fight over Warren's confirmation would be "a fight worth waging."

• Rumors of a Backroom Compromise: Jean Noonan, a corporate banking lawyer and former FTC official, says there are rumors of "a back-room deal that would combine a five-member commission with having Professor Warren at its head." Noonan thinks this would be "a surprisingly good deal for all of us."

• Bureau Audit Requirements in Budget Deal: Yesterday, we mentioned the provisions in the budget deal requiring annual audits of the CFPB. The relevant language in the continuing resolution is available here, at pages 257-259.

• Cooperation Agreement Between the Bureau and State Attorneys General: Under a joint agreement announced earlier this week, the states and the CFPB will, among other things, develop joint training programs and share information about legal developments affecting consumer financial products; share information, data, and analysis about conduct and practices in the consumer-financial markets to inform enforcement policies and priorities; and engage in regular consultation to identify mutual enforcement priorities that will ensure effective and consistent enforcement of the laws that protect consumers of financial products.

• GC Letter on Equal Opportunity Reporting Requirements: In response to industry inquiries, including this letter from the American Bankers Association, the Bureau's General Counsel issued a guidance document this week, explaining that the provision of the Dodd-Frank Act requiring financial institutions to collect and report information on credit applications made by women- or minority-owned businesses does not take effect until after the Bureau issues implementing regulations.

GAO Report Recommends CFPB Scrutiny of Debt Protection Products

The GAO, fulfilling a mandate in the Credit CARD Act of 2009, has isssued a report to Congress on debt protection products, which will soon be under the supervisory and enforcement authority of the CFPB. The report focuses on debt suspension and debt cancellation contracts sold in connection with credit cards and concludes that “the increased popularity of debt protection products raises the importance of effective regulatory oversight of these products.”

The GAO recommends that the CFPB (1) factor into its oversight of such products, “including its rulemaking and examination processes,” a consideration of the financial benefits and costs to consumers, and (2) direct its consumer financial education efforts toward identifying “ways to improve consumers’ understanding of credit card protection products and their ability to assess whether or not the products represent a good choice for them.” The CFPB agrees with the recommendations and intends to implement them, according to its letter commenting on the report.

In conducting its study, the GAO obtained data from the nation’s nine largest credit card issuers (representing about 85 percent of the general purpose credit card market by volume) and three major insurance companies (representing about 30 percent of the credit insurance market for open-end credit). The GAO’s concerns include the following:

• Federal regulators have generally not addressed the reasonableness of the pricing of debt protection products in their examinations of such products.

• Only a relatively small portion of the fees paid by consumers for debt protection products is returned to them in tangible financial benefit, and such benefits can have modest monetary value, with some issuers even capping the maximum amount of debt that is canceled but charging fees on borrowings above this threshold. 

• The “bundling” of coverage for multiple events that is characteristic of debt protection products can result in consumers purchasing coverage that is not applicable to them, such as unemployment coverage for a self-employed individual who cannot make an unemployment claim.

• Consumers may have difficulty obtaining the full terms and conditions of debt protection products before making a purchase. For example, the report notes that the GAO was told by customer representatives of seven of the nine surveyed issuers that they would not provide the terms and conditions before enrollment.  

More on Proposals to Gut the CFPB

by Deepak Gupta

As discussed in my previous post, the House Financial Services Committee is holding hearings this morning on GOP proposals to turn the CFPB into a five-member commission and strengthen FSOC veto power, among other things. A staff memo describes the four GOP bills from the sponsors' perspective.

The committee's website now includes the written testimony, including pro-Bureau statements by Adam Levitin of Georgetown Law and Hilary Shelton of the NAACP. The Chamber of Chamber asserts, with a straight face, that it wants to avoid regulatory capture.  If you want an accurate overview of what's really going on here, read Levitin's testimony first.

Bloomberg News reports that Sen. Tim Johnson (D-SD), Chairman of the Senate Banking Committee, has come out strongly against the four GOP proposals under consideration, which suggests the proposals have little hope of making it through the Senate. “This issue was already considered during the thorough Wall Street reform debate we had last year," said Johnson in an email, "and agreement was reached that consumers would be protected best with a director in place at the CFPB.

House Committee Takes Up Legislation to Weaken the CFPB

by Deepak Gupta

The House Financial Services Committee is holding a hearing at 10am tomorrow, April 6, on "Legislative Proposals to Improve [Read: Weaken] the Structure of the CFPB."  The Committee will consider four GOP proposals to weaken the Consumer Financial Protection Bureau's effectiveness in both the short and long term -- even before the agency is officially launched.  Each of the four proposals seeks to relitigate issues that were resolved with the enactment of the Dodd-Frank Act last year:

H.R. 1121: "The Responsible Consumer Financial Protection Regulations Act of 2011." This bill, introduced by Chairman Spencer Bachus, would replace the Director of the CFPB with a five-member Commission.

H.R. 1315: "The Consumer Financial Protection Safety and Soundness Act." This bill, introduced by Rep. Duffy, would beef up the Financial Stability Oversight Council's already unprecedented power to veto regulations issued by the CFPB.  It would change the vote required for the FSOC to set aside CFPB regulations from two-thirds to a simple majority. It would make clear that the FSOC must set aside any regulation that puts the safety and soundness of the banking system at risk. And it would eliminate the time limits established for the FSOC's decision about whether to veto a regulation.

H.R. __ and H.R. ___: Legislation Affecting CFPB's Authorites Prior to the Appointment of a Director. These bills, introduced by Rep. Capito, would (1) remove the prudential regulators' ability to allow the CFPB to participate in examinations of large financial institutions before the designated transfer date and (2) make the date for transferring regulatory authority dependent on whether the CFPB's Director has been confirmed by the Senate.

Tomorrow's hearing will include testimony from representatives of five financial services trade groups -- the American Bankers Association, the Consumer Bankers Association, the Credit Union National Association, the Independent Community Bankers of America and the National Association of Federal Credit Unions - along with input from Jess Sharp, executive director of the U.S. Chamber of Commerce's Center for Capital Markets Competitiveness. As far as I can tell, nobody from the CFPB is slated to appear.

For more, see this article in The Hill. You can watch a live webcast of the hearing here.

Gail Hillebrand of Consumers Union Joins CFPB

Story here.  Another excellent hire.  (HT: Ted Mermin)

The Worst Thing About the CFPB

by Jeff Sovern

Peter J. Wallison of the American Enterprise Institute has written a paper, Will (Should) Dodd-Frank Survive?  Here's part of what he says about the Consumer Financial Protection Bureau:

The worst thing about [the CFPB] is that it will operate independently, without any control by the Fed, Congress, or the president.

Let's break that into parts.  The Fed is itself an independent agency.  So independent, in fact, that some supporters of the first President Bush believe that the Fed's refusal to loosen monetary policy cost him his bid for re-election, and more recently, critics of the Fed have complained that it's too independent and needs to be reined in. So Wallison argues that one problem with the CFPB is that it's so independent it can't be controlled--by another independent agency. 

Now let's look at Congress.  As we have noted in previous postings, the House of Representatives has voted to cut the CFPB's budget.  Oh, and the House Financial Services Committee has already held a hearing into the functioning of the Bureau and Elizabeth Warren.  And that's before the Bureau is even up and running!  Congress also has the power to overturn Bureau decisions through the legislative process.  So much for lack of control by Congress. 

As for the President, well, the President gets to appoint the Director of the CFPB.  And if the Bureau attempts to promulgate rules the President doesn't like, the Financial Stability Oversight Council, which includes other presidential appointees, can overrule the Bureau. 

The Bureau will have considerable independence, just as the Office of the Comptroller of the Currency did when it acted to preempt state predatory lending laws.  We may some day regret that.  But if this is the worst thing about the Bureau, the country is going to be in good shape in consumer protection.  And maybe critics of the agency should move on to a different agency.

Barney Frank on Elizabeth Warren's Prospects for Nomination and Confirmation to Lead the CFPB

Here.

Joe Nocera Criticizes the Republicans Who Attack Elizabeth Warren

by Jeff Sovern

Here.  An excerpt:

And thus the real purpose of the hearing: to allow the Republicans who now run the House to box Ms. Warren about the ears. The big banks loathe Ms. Warren, who has made a career out of pointing out all the ways they gouge financial consumers — and whose primary goal is to make such gouging more difficult. So, naturally, the Republicans loathe her too. That she might someday run this bureau terrifies the banks. So, naturally, it terrifies the Republicans.

That's to be expected.  But here's another excerpt that illustrates a problem that could have been avoided:

It’s not just the House Republicans either. Already the Office of the Comptroller of the Currency has reverted to form, becoming once again a captive of the banks it is supposed to regulate. (It has strenuously opposed the efforts of the A.G.’s to penalize the banks and reform the mortgage modification process, for instance.) The banks themselves act as if they have a God-given right to the profit they made precrisis, and owe the country nothing for the trouble they’ve put us all through. The Justice Department has essentially given up trying to make anyone accountable for the crisis.

It's a shame that the Obama admininstration has not nominated someone to head the OCC.  Someone who could stand up to the banks when appropriate.  The directorship has been vacant for quite a while now. I wonder why it's taking so long to fill it.

Baseline Scenario Asks Who's Afraid of Elizabeth Warren?

Here.  Excerpt:

The next big political battle in Washington – after the budget debate is declared “over” – will likely feature the Consumer Financial Protection Bureau, in particular the fight to determine whether Elizabeth Warren can become as the agency’s first official head.

Preemption After the Dodd-Frank Wall Street Reform Act

Today's issue of American Banker has an alarming article entitled "Preemption After Dodd-Frank May Not Be as Weak As You've Heard."  According to the article, "a growing number of preemption experts" (all on the industry side) are arguing that the conventional wisdom on federal preemption of state banking laws — that it's been rolled back — is "dead wrong."  Here's the text:

For eight months after the enactment of the Dodd-Frank Act, it has been conventional wisdom that federal preemption of state banking laws was rolled back at least somewhat, dealing the Office of the Comptroller of the Currency and national banks a significant blow.

But a growing number of preemption experts are arguing that is dead wrong, saying the regulatory reform law left preemption largely untouched despite the addition of ambiguous language that consumer advocates and others see as weakening it.

"The substance of the federal preemption analysis hasn't changed at all," said Robert Cook, a partner at Hudson Cook.

He is hardly alone. Howard Cayne, a partner at Arnold & Porter, has given speeches to fellow lawyers entitled "Reports of the Death of National Bank Preemption Have Been Greatly Exaggerated."