Consumer Law & Policy Blog

Guardian Article on How the Election Could Affect the CFPB

Here. Excerpt:

Even before the November election, warning lights were flashing. Jeb Hensarling, the Republican member of Congress who chairs the House financial services committee, has declared he won’t rest until he tosses post-financial crisis reforms like the Dodd-Frank Act “on to the trash heap of history”. Hensarling is also a fierce opponent of the CFPB, which has calls a “dangerously out-of-control agency”.

Hensarling’s plan to repeal Dodd-Frank and replace it with a patchwork quilt of lightweight, bank-friendly rules, unveiled in June, would gut the CFPB. It would deprive the agency of the right to scrutinize some kinds of lending altogether (such as auto loans), and it would politicize the entire process. Right now, the CFPB is about as independent as any Wall Street agency can be: its head is appointed by the president and left to get on with his job, with independent funding received from the Federal Reserve.

If Hensarling gets his way, the CFPB would become completely accountable to Congress, having five commissioners appointed by party leaders, and having to fight for an annual budget. In other words, the same politicians who receive lobbying funds from Wall Street would be deciding who runs the agency that protects consumers from Wall Street – and how much money that agency should get. That hasn’t always worked out terribly well for the SEC, which has battled for its budget, and which is still waiting for the Senate to confirm two nominees to its five-member commission.

What Does the Republican Platform Say About Consumer Protection?

The full platform is here.  Here are excerpts on consumer protection issues:

The Republican vision for American banking calls for establishing transparent, efficient markets where consumers can obtain loans they need at reasonable rates based on market conditions. Unfortunately, in response to the financial institutions crisis of 2008-2009, the Democratic-controlled Congress enacted the Wall Street Reform and Consumer Protection Act, otherwise known as Dodd-Frank. They did not let the crisis go to waste but used it as an excuse to establish unprecedented government control over the nation’s financial markets. The consequences have been bad for everyone except federal regulators.

Rather than address the cause of the crisis — the government’s own housing policies — the new law extended government control over the economy by creating new unaccountable bureaucracies. Predictably, central planning of our financial sector has not created jobs, it has killed them. It has not limited risks, it has created more. It has not encouraged economic growth, it has shackled it.

Since the enactment of Dodd-Frank, the number of community banks has significantly declined, and the cost and complexity of complying with the law has created impediments to the remaining banks’ ability to support the customers they serve. From 13,000 community banks in 1985, only 1,900 remain. * * *

The worst of Dodd-Frank is the Consumer Financial Protection Bureau, deliberately designed to be a rogue agency. It answers to neither Congress nor the executive, has its own guaranteed funding outside the appropriations process, and uses its slush fund to steer settlements to politically favored groups.

Its Director has dictatorial powers unique in the American Republic. Its regulatory harassment of local and regional banks, the source of most home mortgages and small business loans, advantages big banks and makes it harder for Americans to buy a home. Its one-size-fits-all approach to every issue threatens the diversity of the country’s financial system and would leave us with just a few enormous institutions, as in many European countries.

If the Bureau is not abolished, it should be subjected to congressional appropriation. In that way, consumer protection in the financial markets can be advanced through measures that are both effective and constitutional. Any settlements arising from statutory violations by financial institutions must be used to make whole the harmed consumers, with any remaining proceeds given to the general Treasury. Diversion of settlement funds to politically connected parties should be a criminal offense. * * *

Because regulations are just another tax on the consumers, Congress should consider a regulatory budget that would cap the costs federal agencies could impose on the economy in any given year.

American Banker Story: Pence's Statements on the CFPB and Other Banking Issues

The story is headlined Pence VP Pick Could Shape Trump's Banking Policy (free content).  Here is what the article says about Pence's view of the CFPB:

When the Consumer Financial Protection Bureau was just a legislative proposal, Pence objected to giving a new agency so much power; he would likely support efforts to reform the structure of the agency. Republicans have been pushing to replace the bureau's single director with a five-person commission and to require that the bureau consider credit availability as well as consumer protection.

"The bill allows bureaucrats to determine the types and terms of credit products offered to consumers, through the establishment of the so-called Consumer Financial Protection Agency," Pence said in the speech to the New York Hedge Fund Roundtable.

"An unelected 'credit czar' would be empowered to dictate what financial products could be offered and at what terms, drastically reducing the number of financial products available and driving up the cost of credit generally, at a time when families and small businesses can least afford it," Pence added. "Agencies need the ability to consider safety and soundness and consumer protection together to ensure that a balance is achieved and neither responsibility is neglected."

Consumerist Report on How the House Appropriations Bill Would Hurt Consumers by Preserving Class Action Waivers and Crippling the CFPB

Here. 

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.

 

 

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.

 

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.

Dee Pridgen's Important Guest Post: Update on the ALI's Proposed Restatement of Consumer Contracts: Will it Perpetuate a Legal Fiction?

ALI’s Proposed Restatement of Consumer Contracts – Perpetuating a Legal Fiction?

By Dee Pridgen

            The members of the American Law Institute (ALI) are currently working on what may ultimately become “The Restatement of Consumer Contracts.” This project could provide an opportunity for real law reform. Indeed, the original goals of the ALI include adapting the law to social needs, and the better administration of justice as well as reflecting the law as it stands.

I have been involved with the American Law Institute’s proposed Restatement of Consumer Contracts project as a member of the advisory committee for the past four years. This would be a supplemental Restatement separate from the existing Restatement (Second) of Contracts, which already exists. The Consumer Contracts project is now in its 2^nd preliminary draft. The draft still has to go through a process of approval by the ALI Council and the ALI general membership before it becomes final. So bear in mind the proposed Restatement is not yet an official final document of the ALI, and there is still time to reshape it.

            The ALI Restatements of Law are aimed at common law doctrines. While much of consumer law is governed by statutes and regulations, there is at least one area where the common law of contracts is having a big impact on consumer law, and that is the application of the so-called “duty to read” doctrine to online standard form contracts. One-sided and unfair clauses are increasingly showing up in the scroll down box, or the multi-page link, or even in the shipping container or on a hyperlink that is only accessible after the purchase has been made.