Consumer Law & Policy Blog

Campaign Contributions and the Vote to Cut the CFPB's Budget

by Jeff Sovern

As we noted a couple of weeks ago, the House of Representatives voted to cut the Consumer Financial Protection Bureau's budget.  I was curious about the relationship of campaign contributions to the vote, so I asked my research assistant, Edmund Witter, to look into it. Using data from the Center for Responsive Politics, Edmund concluded that the average representative who voted to reduce the Bureau's funding received $186,723 from the financial, insurance, and real estate industries; those who voted to preserve its funding received $159,138, for a difference of $27,585.  Reminds me of the old saw about how we have the best Congress money can buy.

You Have to Admire the Cleverness of the Deception

by Jeff Sovern

   The letters arrive every January and February with "Important Tax Information Enclosed" written on the envelopes.  W-2s and 1099s.  The one I'm looking at bears the return address "Processing Headquarters."  Only it's not a tax form.  When you open it up, it includes what looks like a check in the amount of $2,750.00.  At the top of the apparent check appear the words "This document has a blue background and microprinting."  But the "check" contains some small print: "Not a check."   The letter explains that the addressee has "been selected to receive a special tax related incentive of up to $2,750 . . .  ."  Unfortunately, the only "designated site" for the tax incentive program is a particular car dealership.  So much for the Processing Center return address.  The dealership promises to match the addressee's tax return check or W-2 up to $2,750 when the addressee buys a car. 

Now here's an interesting question: just how special is this offer?  Any employee who earned at least $2,750 in 2010 should have received a W-2 reflecting that fact.  The self-employed might feel left out, except that if they file a tax return of at least $2,750, they can still qualify.  Oh and by the way, this solicitation was the product of pre-screening, meaning that the dealer has to make a "firm offer."  I wonder if the requirement that the consumer submit the required documents prevents this from being a "firm offer."  Why do I feel this offers another argument about the wisdom of Congress in largely excluding car dealers from the Consumer Financial Protection Bureau's jurisdiction? 

My Op-Ed in the Pittsburgh Post-Gazette: Don't Defund Consumer Financial Protection Bureau

Here.

HuffPo Reports How Lenders Try to Restrain CFPB Without Seeming To

Here.  Basically, organizations that include lenders as members but whose names suggest a different membership (e.g., the International Franchise Association and the Manufactured Housing Institute) urge restraint.

Jim Hawkins Paper on the CFPB and Regulation of Fringe Credit Products

Jim Hawkins of Houston has written The Federal Government in the Fringe Economy, 14 Chapman Law Review (2011).  Here's the abstract:

This paper is a contribution to Chapman Law Review’s symposium, From Wall Street to Main Street: The Future of Financial Regulation. It explores the Dodd-Frank Act’s creation of the Consumer Financial Protection Bureau and specifically assesses the Bureau’s new power to regulate alternative financial services providers like payday lenders, rent-to-own companies, pawnshops, and auto title lenders.

I advance two claims. First, I argue that the Consumer Financial Protection Act gives broad, novel powers to the Bureau to regulate fringe credit. Part I describes the scope of the Bureau’s power under the Act, demonstrating how the Act covers the vast majority of fringe credit transactions. Part II surveys the substance of the Act to reveal the surprising emphasis the Act places on the Bureau governing fringe banking transactions. The scope of the Bureau’s authority coupled with its substantive mandate to confront problems in fringe credit markets signal the new power and interest the federal government has taken in the fringe economy.

Second, I argue that most of the justifications that have been offered for the Bureau regulating fringe credit are flawed. To understand why people have contended the Bureau should govern the fringe economy, I surveyed the two most important academic articles arguing in favor of the Bureau, and I conducted an empirical study to measure the frequency of the rationales for the Bureau regulating fringe credit in media, government press releases, and testimony to Congress. Part III reports the results of the study, and it assesses the different rationales for the Bureau intervening in fringe credit markets.

Will the CFPB Budget Be Cut?

Remember last year when Congress enacted Dodd-Frank and provided that the Consumer Financial Protection Bureau would not be subject to annual appropriations, but would instead be able to claim a portion of the Fed's budget, thus apparently insulating it from the vicissitudes of the political process?  "Apparently" turns out to be the operative word.  Ed Mierzwinski reports here and Politico here that the House budget resolution slashes the CFPB budget.  It's still subject to negotiation with the Senate and the President.  It turns out that all those people who voted for Republican House members were also voting against consumer protection.

WSJ Article on CFPB Enforcement Chief Richard Corday

Here.  A subscription is required to read more than the first two paragraphs.  Here's a brief excerpt, which may whet your appetite enough to obtain that subscription: 

Asked in the interview how soon the Consumer Financial Protection Bureau would start bringing enforcement actions, Mr. Cordray said: "I will be seeing to it that we will be ready with some of our priorities immediately."

Mr. Cordray said mortgages, credit cards and student loans are high on his enforcement agenda. No decisions will be made until the agency digs into problem areas and sets its "priorities accordingly," he said. "I don't prejudge what we're going to find."

More on the CFPB's Agenda

by Jeff Sovern

The National Law Journal has an interesting article on the response of lawyers representing businesses to the CFPB, headlined "Agenda Unknown" (I can't post a link because it requires a subscription).  As the headline implies, the basic idea is that they can't predict what the Bureau will do.  I cannot help but wonder whether industry lawyers had a clearer understanding of, say, the FTC's agenda when it was first ramping up.  The piece also mentions some Bureau hires and offers speculation about who the first Director will be.  Here's a quote that is particularly entertaining:

[Stephen] Ryan of McDermott Will [& Emery] predicted the bureau will move swiftly to crack down on pay-day and tax-refund loans.

But he noted that millions of people use these products, and taking them away amounts to "treating taxpayers like dogs not allowed to eat the dog food they want." As the bureau moves forward, Ryan said, he hopes its focus will be on "notice, education and transparency, rather than telling people they can't do something."

Looks like the lobbying has begun.  Since we know that notice, education, and transparency often don't affect consumer decisions, that may among to little more than permitting lenders to continue doing what they're doing and just providing consumers more disclosures they ignore.

Consumer Financial Protection Bureau launches website and social networking presence

The Consumer Financial Protection Bureau has launched its spiffy new website -- located at  http://www.consumerfinance.gov/ and already equipped to receive suggestions and consumer complaints.  The site's design immediately sends the message that the CFPB, as the first major federal agency created in the 21st century, will be more responsive and less, well, bureaucratic. The use of the prominent badge logo visually conveys the concept that there's a new cop on the beat, a new sheriff in town. Highlighting the agency's commitment to transparency, the website posts Elizabeth Warren's complete calendar of meetings.

The site the contains the following animated video, explaining the agency's genesis and mission in a simple, accessible way:

And here's Warren's welcome video:

Below is a letter from Warren, announcing the website's launch and providing links to the Bureau's presence on Twitter and Facebook.  She invites consumers to post their YouTube videos in response to the welcome video, "Like" the agency or post on its wall on Facebook, or tweet suggestions.

The message: There's a new sheriff in town. We're open to suggestions. This is not your grandfather's federal agency.

Efforts to Repeal Dodd-Frank Start

Michele Bachmann, Republican of Minnesota, seems to be spearheading the effort.  Story here.