Consumer Law & Policy Blog

Hensarling Bill Would Revamp the CFPB

House Financial Services Chair Jeb Hensarling has proposed a Republican alternative to the Dodd-Frank Act, to be called the Financial Choice Act.  The Committee's summary of the portions of the bill that affect the CFPB are as follows:

SECTION THREE: Empower Americans to achieve financial independence by fundamentally reforming the CFPB and protecting investors.

 Change the name of the CFPB to the "Consumer Financial Opportunity Commission (CFOC)," and task it with the dual mission of consumer protection and competitive markets, with a cost-benefit analysis of rules performed by an Office of Economic Analysis.

 Replace the current single director with a bipartisan, five-member commission which is subject to congressional oversight and appropriations.

 Establish an independent, Senate-confirmed Inspector General.

Representative Hensarling's speech about the bill can be found here.

 Require the Commission obtain permission before collecting personally identifiable information on consumers.

 Repeal authority to ban bank products or services it deems "abusive" and its authority to prohibit arbitration.

 Repeal indirect auto lending guidance.

SECTION FOUR: Demand accountability from financial regulators and devolve power away from Washington.

 Make all financial regulatory agencies subject to the REINS Act, bi-partisan commissions, and place them on the appropriations process so that Congress can exercise proper oversight. (Exception: Fed monetary policy.)

 Impose an across-the-board requirement that all financial regulators conduct a detailed cost-benefit analysis of all proposed regulations.

 Reauthorize the Securities and Exchange Commission (SEC) for a period of five years with funding, structural, and enforcement reforms.

* * *

Institute significant due-process reforms for every American who feels that they have been the victim of a government shakedown.

  Repeal the so-called Chevron deference doctrine.

 

 

How Would a Consumer Financial Protection Commission Differ From the CFPB?

by Jeff Sovern

According to a report in HousingWire, a CompassPoint report concludes the following:

“Our channel checks estimate that shifting the CFPB’s governance from a directorship to a commission would double the bureau’s already elongated rulemaking timeline, cut its enforcement activity by 50% to 75%, and result in a far greater importance being placed on supervision,” Compass Point’s analysts noted.

No wonder the industry wants a commission; delays in rulemaking and substantial cuts in the enforcement actions that have already recovered more than $11 billion for more than 25 million consumers.

LA Times: Obama's consumer protection legacy defined by aggressive agency

Here.  Here's the beginning of the piece:

Bill Doak and his wife, Linda, were preparing to buy a new house this spring when a mortgage broker made an ominous declaration after scanning their credit report: “Oh my God, you’re in trouble.”

The couple discovered five late payments on the loan on the home they were selling in Springfield, N.H. That threatened to cost them at least a percentage point more in interest for a mortgage in their native Connecticut, where they planned to retire.

 Doak, 63, said he quickly identified the source of the trouble: a snafu last year when their servicer, Nationstar Mortgage, gave them incorrect information about the timing of an escrow increase.

Fixing the problem was much more difficult. After at least 15 calls to Nationstar in a month with no progress, Doak went to an attorney who filed a six-paragraph online complaint with the Consumer Financial Protection Bureau.

“Within five days the thing was resolved,” Doak said of reaching out to the agency. “What they did for me was just simply amazing.”

Launched in the wake of the 2008 financial crisis, the bureau is one of President Obama’s signature accomplishments.

The article has some great quotes and is worth reading in its entirety.

RollCall: Wall Street Eyes Dodd-Frank Changes in Spending Bill

by Jeff Sovern

Here.  Excerpt:

The draft bill approved by the House Appropriations Financial Services Subcommittee on Wednesday included a provision that would change the CFPB from a director-led agency to a bipartisan commission, as well as language that would make funding for the bureau subject to the annual appropriations process. Both measures largely pit supportive Republicans against Democrats.  

Richard Hunt, president and CEO of the Consumer Bankers Association, said Democrats should find such changes palatable with the possibility of presumptive GOP nominee Donald Trump winning the presidency.  

CFPB Director Richard Cordray’s term expires in 2018, when the next president could install someone hostile to financial regulations, Hunt said.

Anyone who thinks this will aid consumers should ask why the FTC hasn't issued the auto dealer regulations Dodd-Frank authorized it to write.  Of course, the FTC has a commission structure and its budget is subject to the appropriations process. 

 

Deadline for Antitrust and Consumer Protection State Legislation Monitoring Initiative Moved to June 10

A few weeks ago, we posted an item headed Announcement for Students and Others:Antitrust and Consumer Protection State Legislation Monitoring Initiative.  The deadline for submissions has been moved to June 10.  For convenience, I've reposted the  announcement below the fold.

House Continues War on Consumer Protection

by Jeff Sovern

The House Committee on Appropriations Subcommittee on Financial Services has released the draft of a bill it is considering that would hamstring the CFPB and at least temporarily preserve pre-dispute arbitration clauses, among other things. Here is how the Subcommittee describes the CFPB portion of the bill:

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.

House Financial Services Committee to Hold Hearing on CFPB Arbitration Rule

The title of the hearing is "Examining the CFPB’s Proposed Rulemaking on Arbitration: Is it in the Public Interest and for the Protection of Consumers?"  It will take place Wednesday, May 18. The witnesses seem not to have been announced, but given the composition of the Committee, I think we can anticipate the majority answering that question in the negative. 

Update: Mayer Brown Partner Andrew Pincus is to be one of the witnesses.

Announcement for Students and Others: Antitrust and Consumer Protection State Legislation Monitoring Initiative

We have been asked to announce this to students:

The Consumer Protection and Legislation Committees of the Section of Antitrust Law are looking for volunteers to monitor state antitrust and consumer protection legislative developments and when appropriate, draft short legislative updates to post on Connect. 

The volunteer involvement will consist of monitoring antitrust and consumer protection legislation in 3-4 assigned states and reporting relevant developments to the program coordinator (Anna Chehtova) on regular basis.  If the developments are Connect-worthy, the volunteers will proceed to draft short Connect posts.  On ad hoc basis, the volunteers may also contribute with Connect post covering federal legislation. 

For examples recent state legislative posts, we invite Section members who are interested in the initiative to check out the Legislation Committee’s Connect page:

http://connect.abaantitrust.org/communities/community-home?CommunityKey=a42a022e-adfa-4821-a59a-8de61bdf90e3 (all posts)

http://connect.abaantitrust.org/communities/community-home/digestviewer/viewthread?GroupId=193&MID=6470&tab=digestviewer&CommunityKey=a42a022e-adfa-4821-a59a-8de61bdf90e3 (New York proposed bill on collective bargaining for doctors)

http://connect.abaantitrust.org/communities/community-home/digestviewer/viewthread?GroupId=193&MID=6681&tab=digestviewer&CommunityKey=a42a022e-adfa-4821-a59a-8de61bdf90e3 (Hawaii privacy bill)

http://connect.abaantitrust.org/communities/community-home/digestviewer/viewthread?GroupId=193&MID=6015&tab=digestviewer&CommunityKey=a42a022e-adfa-4821-a59a-8de61bdf90e3 (Missouri and Hawaii bills on fantasy sports)

The initiative is an easy and fun way to get actively involved in the activities of the Section and stay on top of state legislative developments.  If you need any additional information, please don’t hesitate to reach out to the program coordinator Anna Chehtova at anna.a.chehtova@tsocorp.com or Consumer Protection Committee Co-Chair, Svetlana Gans at sgans@ftc.gov.

Article on Credit Scores and Psychosocial Disability

Christopher P. Guzelian of Thomas Jefferson, Michael Ashley Stein of Harvard Law School and the University of Pretoria Faculty of Law, and H. S. Akiskal of UC San Diego Department of Psychology have written Credit Scores, Lending, and Psychosocial Disability, 95 Boston University Law Review 1807 (2015).  Here is the abstract:

Credit scores have become a near-universal financial passport for Americans to meet common personal needs including employment, loans, insurance, and home and car purchases or leases. At the same time, Elizabeth Warren and others have documented the horrific economic, emotional, and health consequences of low creditworthiness for score-bearers and their families. Individuals with psychosocial disabilities (previously called mental disabilities or mental illnesses) can make disastrously poor financial decisions during the active phases of their conditions; during inactive phases they are as capable as others of making sound or poor financial decisions. Yet, in computing credit scores and selling credit reports, national and transnational credit-reporting agencies (like Equifax) do not account for the implications of psychosocial disability. Worse, evidence shows that businesses rely on these reports to predatorily target borrowers with psychosocial disabilities — and especially those who are also women and racial minorities — in deciding terms of lending, employment, and housing. In theory but not in practice, the Americans with Disabilities Act and the Fair Housing Act each prohibit discriminatory financial decisions arising from disability status, while also requiring reasonable accommodations to equalize opportunities for disabled persons. The United Nations Convention on the Rights of Persons with Disabilities (which the United States has signed) further mandates enabling the financial decision making of these individuals, but does not provide guidance on achieving this obligation. Further, despite the crucial and direct implications this situation also raises for vast numbers of Americans without psychosocial disabilities who likewise make poor credit decisions, it has not undergone legal analysis. We engage this significant gap by suggesting schemes drawn from historical and comparative contexts that could enable the creditworthiness of persons with psychosocial disabilities, and then critiquing the costs and benefits of each. In doing so, we proffer the first analysis of this issue in the legal literature and seek to stimulate future dialogue among academics and policymakers. The Article concludes with thoughts on the implications of its analyses for the broader issue of credit scoring.

More on the Senate Banking Committee Hearing

by Jeff Sovern

Yesterday I posted about Senator Elizabeth Warren's takedown of Leonard Chanin, formerly of the Fed and the CFPB, now of MoFo, at a Senate Banking Committee hearing. I have since finished listening to the hearing and wanted to say a few more things.

First, at the conclusion of the hearing. the Committee's chair, Republican Senator Richard Shelby, praised Mr. Chanin for his service to the country and said that he wished Mr. Chanin still worked for the government. Quite a contrast with Senator Warren's view that Mr. Chanin "played a key role in blowing up the economy."

Senator Shelby and several others at the hearing spoke of how they saw cost-benefit analysis as critical to effective regulation. One point that speakers made was that a possible cost of regulations is that they might reduce access to credit.  It was almost as if they didn't know that the Dodd-Frank Act (which also came in for criticism) commands the CFPB to consider cost-benefit analysis in formulating regulations, and that as part of doing so, the Bureau has to take into account any possible reduction in access to credit. See 12 U.S.C. § 5512(b)(2). Nor did Dodd-Frank's injunction to the CFPB not to declare acts unfair unless the acts cause substantial injury which are not outweighed by corresponding benefits draw praise.  See 12 U.S.C. § 5531(c). 

So why the focus on cost-benefit analysis?  CBA is often a pretext for opposition to regulation.  It sounds neutral--who could be against comparing the costs and benefits of a law?--but can be used to derail consumer protection laws.  At best it delays laws, sometimes for lengthy periods, during which consumers can be taken advantage of. But it can also serve to block needed protections, by, for example, giving industry the ability to argue that a regulator's CBA was insufficient and so a regulation should be invalidated. See Bus. Roundtable v. SEC, 647 F.3d 1144 (D.C. Cir. 2011).  Part of the problem is that it is often difficult to value benefits.  How are regulators to value giving consumers the ability to determine their mortgage costs, for example, as the TRID rule is intended to do? Or the ability to prevent the disclosure of information about their financial transactions, as Gramm-Leach-Bliley is supposed to accomplish?  CBA may be a great idea in theory, but when someone calls for its use, ask whether they really mean that they oppose the proposal under discussion.  I have written more about CBA here.