Alternative Finances

CFPB’s New Congressional Drama

The CFPB found itself in the middle of another brouhaha last week, this time over allegations by a government watchdog group that congressmen who’ve tried to scale back its hold over payday lending must have been paid bribes by payday lenders. Their rationale is that unless one had been bribed, they’d never support payday lending. Sometimes truth is stranger than fiction.

While there are many conceivable metrics for measuring whether or not a financial services firm has made it, we can suggest a simple “yes or no” question that will solve it quickly and efficiently.

Has the firm been fined by the Consumer Financial Protection Bureau?  

If the answer is “yes,” send champagne — they’ve really made it.  If not, well, with hard work and patience they too can hope to pay millions or even hundreds of millions in CFPB fines someday.

We are mostly kidding of course (please don’t send champagne to a group of executives who’ve just been hit with a big fine), but these days it sure can seem like anyone who is anyone in financial services has come up against the CFPB — and usually paid out a lot of money by the time the experience was over.

Bank of America, GE Capital, JPMorgan Chase, Discover, American Express, Western Union, PayPal and Capital One are just a few names on the long, long list of FinServ firms large and small that have paid out a bunch of dough to the CFPB in recent memory. 

Tallied up, in about four years, the consumer watchdog group has levied in the neighborhood of $10 billion in fines against various financial services players. A number that is literally going up all the time, which is unsurprising given that once the letter arrives from the CFPB that announces an investigation is underway, it is mostly safe to assume that the fine is forthcoming. The only question worth wondering about is how much that fine will cost.  

Which, unsurprisingly, has made the CFPB one of the more controversial and polarizing regulatory authorities.  

And disagreements over the CFPB have gotten particularly pointed in 2015, as more congressional pushback and calls for oversight and reform have surfaced. And — because the story was not fraught or dramatic enough yet — the pushback is now getting pushback, in the form of ethics complaints against congressional members who’ve advocated for CFPB oversight and reform.  

So who’s mad about what?

The CFPB And Its Discontents

Pretty much since its inception, one of the main critiques lobbed against the CFPB is that it was created to run almost without oversight. Congress does not appropriate its annual budget, it receives its funding directly from the Federal Reserve, with which it also shares an Inspector General.

Since 2012, the CFPB’s annual operating budget has 12 percent of the Federal Reserve’s operating budget, which was $584 million last year (meaning the CFPB has about $70 million to work with). Final say on how that budget is spent, which institutions are investigated and what shape enforcement will take all fall under the purview of a single director (currently Richard Cordray) who is appointed by the president and serves a five-year term.  

Those concerns have circulated for the entirety of the CFPB’s existence, but strong efforts to dial back some of that power have been more active in 2015, particularly since Republicans took control of both the House and the Senate.  

The goal, it should be noted, has not been to generally eliminate the CPPB, but to limit the scope of its power.

“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,” said U.S. Rep. Tim Walz, of Ohio. “Their work is important, but that doesn’t mean that they don’t need oversight.”

Walz along with U.S. Rep. Steve Stivers (also from Ohio) introduced The Bureau of Consumer Financial Protection – Inspector General Act of 2015, which does exactly what its name implies: creates an Inspector General position for the CFPB.

That was followed this spring by the proposal of the Financial Products Safety Commission Act this spring that would replace the CFPB director with with a five-member commission.

Tensions also ran particularly high this summer when the CFPB moved sharply in monitoring and regulating how auto loans are underwritten, a move that drove the House Financial Services committee to pass a bill intended to drastically scale back the Consumer Financial Protection Bureau’s guidance over auto lending.

“Hopefully this will send a very powerful message to the CFPB that we want you to do your job but not this job of manhandling [the auto industry],” noted U.S. Rep. David Scott.

However, CFPB opponents – or at least modification advocates — have been alone in heating up as of late.  

Pushing Back Against Pushing Back

Left-leaning government watchdog group, The Campaign for Accountability, are non-plussed by this flurry of congressional activity and filed an ethics complaint. Specifically, that complaint alleges that 12 members of Congress took campaign donations from predatory payday lenders as a form of quid pro quo for protecting their interests legislatively.  

“These members of Congress are advancing the interests of what can only be called a reprehensible industry. Its business model is to trap people into this endless cycle of debt, and it’s hard to imagine how they could see this as being in the best interests of their constituents,” noted TCA Executive Director Anne Weismann.

The ethics complaint comes on the heels of a report by Allied Progress that — after a review of data for lawmakers who had accepted at least $25,000 from the industry since the CFPB was established in 2011 — noted a pattern. There was a group of a dozen lawmakers who tended to take in larger contributions from payday lending advocates shortly before or after (or before and after) signing on to sponsor or co-sponsor legislation that would have curtailed the CFPB’s power.

“It would be one thing if we had only found one instance,” said Karl Frisch, the executive director of Allied Progress, “but when you see it with a dozen members of Congress, and it totals hundreds of thousands of dollars, then I don’t think that’s a coincidence.”

Well about that …

The Problem With A Fist Fight Is It Solves No Problems

A quick perusal of the Allied Progress report has a lot of data about payday lending, most of it unfavorable, and a list of which politicians supported legislation that would limit the CFPB. One could argue that this is evidence of a conspiracy, but as presented it looks more like a breakdown of how lobbying typically functions on K Street. Lobbyists and PACs funnel money to legislators who will advocate their cause.

Nothing in the Allied Progress data favors the belief that politicians were paid to adopt a view on behalf of industry, which is illegal influence peddling, as opposed to believing that politicians who are ideologically opposed to how the CFPB operates find enthusiastic supporters among those who lobby against it, which is just a textbook explanation of how lobbying works.  

That line can get fuzzy, but the only way to push what is being described in the report into being an ethics violation is if one also believes that payday lending is by definition “a reprehensible industry,” as Weismann statedly does. The only reason to legislatively support something reprehensible is bribery, because the term sort of defies having a rational or principled objection.

If one is not so inclined, the case for an ethics complaint disappears — and calling those congressmen “The Dirty Dozen” seems like perhaps putting too fine a point on it.  

Given that, it seems like the complaint now filed with the Office of Congressional Ethics will go about as far as all those efforts to reign in the CFPB have — aka probably nowhere.  

But, the battle rages on. And perhaps someday soon, there might even be meaningful progress to report past the elbow throwing.


New PYMNTS Report: Preventing Financial Crimes Playbook – July 2020 

Call it the great tug-of-war. Fraudsters are teaming up to form elaborate rings that work in sync to launch account takeovers. Chris Tremont, EVP at Radius Bank, tells PYMNTS that financial institutions (FIs) can beat such highly organized fraudsters at their own game. In the July 2020 Preventing Financial Crimes Playbook, Tremont lays out how.