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April 11, 2016 • Issue 16:04:01

CFPB on hot seat, again

The war of words between Congress and the Consumer Financial Protection Bureau intensified during a March 16, 2016, hearing on Capitol Hill. At least one lawmaker likened CFPB Director Richard Cordray to a dictator. Several representatives threatened a revamp of the bureau; some also want to overhaul the 2010 Dodd Frank Act, which created the CFPB.

The CFPB has regulatory authority over banks and nonbanks providing financial services that touch consumers. But many lawmakers complain that it lacks any clear oversight and that it has been overly zealous in its pursuit of bad actors. Organizationally, the Bureau is part of the U.S. Department of the Treasury, but it receives funding from the Federal Reserve. (Unlike most other government agencies, the Fed operates without budget authorizations from Congress. Rather, the Fed's funding comes from interest on U.S. government securities and fees collected from financial institutions for payment clearing and settlement services.)

Many lawmakers also object to the fact that the CFPB is led by a single director. "In short, Congress has made Mr. Cordray a dictator, and when it comes to the well-being and liberty of American consumers, he is not a particularly benevolent one," said Representative Jeb Hensarling, R-Texas, Chairman of the House Financial Services Committee.

Rep. Hensarling proposed changing the structure of the CFPB as part of legislation introduced to roll back the Dodd-Frank Act. Rep. Randy Neugebauer, R-Texas, who chairs the Financial Services Subcommittee on Financial Institutions and Consumer Credit, proposed legislation that would shake up the CFPB by changing the leadership structure from a single director to a five-person commission, akin to the Federal Trade Commission and the Securities and Exchange Commission.

It's not just Republicans who oppose the CFPB and its actions. Rep. Debbie Wasserman Shultz, D-Fla., Chair of the Democratic National Committee, recently signed on to co-sponsor legislation that would put a two-year hold on payday lending rules that the bureau hasn't yet finalized. Introduced by Rep. Patrick Murphy, D-Fla., that bill (H.R. 4018) has strong Republican backing. During the March 16 hearing, committee member Rep. Steve Pearce, R-N.M., took Cordray to task over the planned payday loan rules, accusing him of "going after an industry and trying to shut them down."

The CFPB also has a controversial set of rules pending that would extend to prepaid cards disclosure and other consumer protection rules that now apply to debit and credit cards. That, too, has raised the ire of some in Congress. "The CFPB's structure is seriously flawed," said Joseph Lynyak III, a partner in the international law firm Dorsey & Whitney LLP and a leading expert on the CFPB.

Concerns about lack of oversight

The Dodd-Frank Act requires the director of the CFPB to appear before Congress twice a year to report on its activities, which is what brought Cordray to Capitol Hill March 16. Lynyak described the semi-annual hearings before the House Financial Services Committee as "the closest approximation to oversight" there is over the CFPB. "The Director can take unilateral action without approval by the Administration, virtually controls his own budget, and has been regulating not by true rulemaking but by using high-profile enforcement actions," Lynyak explained in a statement.

Several members of the Financial Services Committee echoed those sentiments during the March 16 hearing. "Federal agencies that are authorized to enforce federal law act appropriately when they take actions to hold unlawful actors accountable," Neugebauer stated. "However, when federal agencies routinely bring enforcement actions instead of undertaking rulemaking with the sole purpose of changing entire market behavior, it begins to look like deliberate evasion of public notice and comment."

The CFPB has taken numerous enforcement actions against financial services firms in recent months. In early March, the bureau ordered the online payment platform Dwolla Inc. to pay a $100,000 penalty for misrepresenting its data security practices and the safety of payments traveling across its network.

In December 2015, the CFPB ordered EZCorp Inc., a small-dollar lender, to refund $7.5 million to consumers subjected to what it determined were unlawful debt collection practices; the company also had to pay $3 million in penalties. And in January, the bureau ordered a subprime "Buy Here Pay Here" auto dealer to pay $700,000 in restitution to consumers who, it was determined, had paid hidden finance charges; the CFPB also imposed a $100,000 civil penalty on that company.

In his statement to the House Financial Services Committee, Cordray reported that supervisory actions taken by the CFPB over the last six months of 2015 resulted in financial institutions providing more than $95 million in redress to over 177,000 consumers. Also during that time frame the bureau filed enforcement actions resulting in over $153 million in civil penalties, Cordray added.

Overstepping authority?

Staffers for the House Financial Services Committee released in time for the hearing a report blasting the CFPB for spending "significant resources" on regulations for auto dealers "even though those businesses are specifically exempted from the bureau's authority by Dodd-Frank." The report – Unsafe at Any Bureaucracy: CFPB Junk Science in Indirect Auto Lending – also accused Cordray of using a flawed methodology for determining ‒ over the objectors of advisers ‒ which consumers were owed refunds.

"Soon Mr. Cordray will presume to decide for all Americans whether he will allow them to take out a small-dollar loan to keep their utilities from being cut off or to keep their car on the road so they can go to work," Hensarling said. In step with his colleague, Neugebauer added, "The director should expect continued and aggressive congressional push back to [the CFPB's] continued use of regulation by enforcement." end of article

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