Will The CFPB Get Its Own Watchdog?

Back in 2010 and in the aftermath of the financial meltdown, the CFPB was created by passage of the Dodd-Frank Act. Its intentions were to protect consumer rights in the financial sector with authority over banks, credit unions, debt collectors, securities firms, payday lenders, mortgage-servicing operations, and credit card companies.

During its brief tenure, the government agency has inarguably been busy. Since 2012, the agency has issued  fines to  Capital One ($210 million), GE Capital ($225 million) and Bank of America ($727 million) just to name a few. 

Currently, the agency is currently taking a close look at short term, small dollar lending, and is expected to issue new rules soon. Among the topics those rules are expected to address include the practice of extending (or rolling over) short-term financing beyond than the traditional two-week payday loan, according to industry lawyers cited by The New York Times. Many of these installment and car title-type loan schemes come via lenders who once made the more typical payday loans and who have modified their practices to avoid scrutiny.

However, while no one would argue the CFPB has been dormant, its actions have not been universally popular either. Now a bipartisan effort to limit its power is before Congress again, now with a stronger Republican majority and a Republican controlled Senate for the first time since its formation.


The Trouble With The CFPB

Though the lending habits of both banks and consumers in the run-up to the 2007-2008 financial crisis are almost universally reviled as dangerous and by some, even irresponsible; the CFPB has never been universally embraced as the appropriate inoculation against similar future economic cataclysms.

Arguments against the agency tend to fall into one of three categories. The first is libertarian and disagrees with the premise that underlies the program on the grounds that it is not the job of the federal government to protect consumers  - they ought to know how to protect themselves.

The second category doesn’t disagree with oversight of the type that the CFPB offers on the surface, but believes that the objectives of the CFPB as carried out are often in conflict with actually protecting consumer interests – aka the unintended consequences theory.

“I lost faith that the agency would become a truly independent entity and carefully balance consumer costs and access to credit with consumer protection,” former CFPB employee Leonard Chanin told The Washington Post, offering the example of payday loans. “I think the Bureau sees consumers taking out payday loans and believes ‘there must be something wrong here, because consumers really wouldn’t choose these products.’ There is great risk in assuming you know what is best for the consumer.”

Which ties into the third category of criticism typically leveled against the CFPB. While the organization is tasked with knowing what’s best for the consumer, no one is tasked with knowing what is best for the CFPB. Congress does not appropriate its annual budget, it receives its funding directly from the Federal Reserve, with which it also shares an Inspector General.

“The Bureau is headed by a single director. Over a five-year term, the director will have unfettered authority over thousands of American businesses, not just banks,” Republian Senator Richard Shelby wrote in an op-ed of The Wall Street Journal on the Eve of the CFPB’s creation. “While the bureau receives hundreds of millions of dollars of public money annually, the elected representatives of the American people have no say in how it spends this money. Moreover, other regulators have no meaningful ability to prevent Bureau mandates that may threaten the financial health of banks.”

And calls for increased accountability for the CFPB have persisted since 2011. The agency has been questioned at various times about the travel habits of its employees, its building renovations and discretionary spending budgets by Congressmen dissatisfied with the level of autonomy the group has been given.

“The director of the CFPB can effectively direct the managers of the Penalty Fund, a repository for funds collected by the CFPB in judicial or administrative proceedings, to follow his particular wishes with regard to compensating victims throughout the United States,” the House Committee On Financial Services noted in a 2013 release. “It appears the CFPB need not win its own cases – instead the CFPB can identify cases brought by other Federal, State and even private plaintiffs and selectively intervene. Such vast authority demands accountability.”

However, various bills to try to enforce said accountability have, until now, failed to gain traction in the House and have died a quiet death in committee.


A Bill To Appoint An IG For The CFPB Gets A Second Life

Democratic U.S. Rep. Tim Walz, of Ohio, and Republican U.S. Rep. Steve Stivers, also from Ohio, have reintroduced a piece of legislation they first attempted to get passed in 2013.

Brought to the floor during the first week of February 2015, The Bureau of Consumer Financial Protection – Inspector General Act of 2015 does exactly what its name implies: creates an Inspector General position for the CFPB.

“The CFPB is an important agency that works to ensure that you, the consumer, are protected from things like predatory payday lenders, shoddy mortgage bankers and defective products,” Walz said. “Their work is important, but that doesn’t mean that they don’t need oversight. I fully support their cause, to stand up for you and believe the appointment of an independent Inspector General will only increase their ability to fulfill their important mission.”

The new legislation moves to amend the Inspector General Act of 1978.  The new IG position would be functionally similar to those of other federal departments, in that they must be appointed by the President and then confirmed by the Senate.

“Government accountability is important now, more than ever,” Stivers said. “This legislation will allow for increased oversight of an agency that has been given broad authority. It is important that we take the necessary steps to ensure the CFPB is accountable to the American people.”

While it is believed this version of the bill has a greater chance of making it to the House floor for a vote, especially with backing from some House Democrats, it’s highly uncertain the bill can pass in the Senate where Republican control is not as strong. It is also considered highly unlikely that President Obama would sign the bill, even if it were passed.



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