Earlier this week, Ohio Republican Senator Rob Portman reportedly met with Richard Cordray in secret in an attempt to have the Consumer Financial Protection Bureau (CFPB) chief confirmed by the Senate.
According to Roll Call, Portman’s efforts were not an endorsement of the CFPB, a controversial bureau that has been repeatedly targeted by Republicans. Rather, he was brokering a deal. In exchange for confirming Cordray, long a source of political drama and the primary figure in the congressional fight over hold-ups of presidential appointments, Senate Majority Leader Harry Reid (D-NV) would desist from limiting filibusters.
This continuing political drama over CFPB leadership has obscured the fact that the agency has been aggressively identifying and adding new targets. The bureau is going after what it has deemed unfair practices in the banking, payday loan, mortgage, credit card and student loan industries. It also is investigating debt collectors, foreclosure relief services, securities firms, among others.
Supporters of the group say that CFPB’s work has protected consumers from unethical practices that cause average Americans unnecessary financial hardship. As Roosevelt Institute fellow Mike Konczal recently wrote, "It’s gone after illegal or deceptive practices at American Express, Discover, and Capital One and is bringing extensive new regulations to the housing market. It is, as they say, a big deal, and it is now the law of the land."
But to its critics, CFPB represents the worst of the Dodd-Frank financial reform bill, an unnecessary bureau intruding on consumer choice. In a February letter to the president signed by 43 senators, Republicans said the bureau “lacks congressional oversight” and wielded “nearly unprecedented powers.” The US Chamber of Commerce, in a letter dated that same month, said the bureau’s investigations were “confusing, unnecessarily duplicative, inconsistent, and open-ended.”
According to Alan Kaplinsky, an attorney at Ballard Spahr who represents companies before the CFPB, the bureau has overextended its mandate and is limiting consumer choice.
“They’re very entrenched philosophy is that they know better than the consumer,” Kaplinsky told the Fiscal Times. “We’re living in a nanny state right now. They think they’re in a better position to determine what’s right for the consumer than the consumer is for themselves.”
The bureau did not return calls for comment. At a hearing last month, Cordray defended the agency, saying it had the best interest of the public in mind.
“We have no interest in watching consumers,” he said. “We do have an interest in how financial products and services are affecting consumers.”
The endless leadership crisis at CFPB, starting with Obama’s former choice, now Sen. Elizabeth Warren (D-MA) and continuing to Cordray, has eclipsed just how quickly the bureau has grown since it was formed in 2011. It now employs more than 1,000 people across the country and has received more than 130,000 consumer complaints. More than 150 banks are in its jurisdiction and it has refunded $425 million in fraudulent charges to consumers.
The bureau has also gone after private businesses, fining credit card companies $101.5 million for so-called “ad-ons,” like identity theft protection. According to a report in Bloomberg Businessweek, credit card providers, including JPMorgan Chase, Bank of America, American Express all canceled ad-on offerings after CFPB published guidance on what it deemed an acceptable additions.
A Davis Polk &Wardwell report on Dodd-Frank implementation found that CFPB has already checked off a large number of its regulatory requirements, including publishing 44 specific rules and publishing 11 reports into fraudulent practices.
“They certainly have been getting a lot of work done,” Kaplinsky said. “They’ve been operational for not even two years, and they have been extremely active.”
Kaplinsky calls the bureau a “three-headed monster” active on the regulatory, supervisory and enforcement fronts.
On the regulatory side, the bureau has “promulgated thousands of pages of regulations that ... will completely overhaul the mortgage lending and servicing business,” Kaplinsky said.
In its supervisory role, Kaplinsky said CFPB has been “conducting examinations for compliance with the consumer financial services laws at large banks, mortgage lenders and servicers, payday lenders, student lenders, and the debt collection industry.”
As an enforcer, the bureau, according to Kaplinsky, has “issued dozens of civil investigative demands to banks and to a wide variety of non-banks that are engaged in practically every area of the consumer financial services industry.”
“They are making very big waves,” he said.
ACCUSATIONS OF OVERREACH
These big waves are at the heart of Republican opposition to the agency. They contend that the head of the bureau is too powerful and not subject to sufficient oversight; a committee appointed by Congress should take Cordray’s place. Portman has tried to bridge the gap between the White House and Republicans, suggesting that an independent inspector general be appointed.
An independent IG would not quiet complaints that the bureau limits consumer choices. For instance, CFPB has cracked down on payday lenders, arguing that most of these loans ultimately hurt the consumer. According to Kaplinsky, consumers should be able to make their own choices about how to manage their finances. He said the government should not be in the business of protecting consumers from themselves.
“They jumped to the conclusion that payday loans are a pernicious product and that [borrowers were] rolling over their two week loans more frequently than the CFPB thought they should be. But they didn't look at how the consumers use their loans,” Kaplinsky said. “If they don’t have them available, they’ll incur late fees, they’ll be late on rent, they’ll overdraw their checking account. All of that got completely ignored.”
LEGAL CLOUDS LOOMING
The CFPB continues to grow, although it’s not clear what role Cordray will play in the bureau’s future. A DC Circuit court recently ruled that Obama’s recess appointments were illegal and the Supreme Court is expected to take the case. If the Senate does not confirm Cordray and the high court upholds the lower court’s decision, Cordray might be out of job, bringing his actions as chief under new scrutiny
“There’s all this great uncertainty about whether or not anything Cordray is doing right now is legal,” Kaplinsky said.