The battle over the future of the Consumer Financial Protection Bureau (CFPB) rages on, with Republicans trying a host of measures to challenge and contain the agency.
With the new administration taking over in January, Republicans have made it a priority to effect change at the CFPB but have been met by a new obstacle. In February, the U.S. Court of Appeals for the D.C. Circuit granted the Bureau’s motion for a rehearing en banc in CFPB v. PHH Corporation, thereby vacating the ruling by a panel of the D.C. Circuit that ruled last year that, among other things, the CFPB’s structure was unconstitutional to the extent that its single director was removable solely for cause. As a result, the court preserves the status quo and leaves President Donald Trump unable to terminate CRPB Director Richard Cordray absent cause.
The new strategy: a multifaceted approach to change, control and/or defund the CFPB through whatever means possible.
For example, Republicans recently introduced multiple bills to reform or eliminate the Bureau. Sen. Ted Cruz (R-Texas) proposed Senate Bill 370, a measure that would repeal the Consumer Financial Protection Act of 2010 (with “the provisions of law amended or repealed by that Act … restored or revived as if the Act had not been enacted”). An identical bill was introduced in the House of Representatives.
An alternative bill would leave the CFPB in place but eliminate its funding by amending the Dodd-Frank Wall Street Reform and Consumer Protection Act to remove the primary funding mechanism for the Bureau (the transfer of funds from the Federal Reserve Board) and establish a “Civil Penalty” fund. Pursuant to Sen. Mike Rounds’ (R-S.D.) measure, Senate Bill 365, all civil penalties obtained by the CFPB would be deposited into that fund and in turn transferred to the general fund of the U.S. Treasury, in lieu of funding the Bureau.
A third piece of legislation, Senate Bill 105 from Sen. Deb Fischer (R-Neb.) addressed the structure of the agency, eliminating the current single director and replacing it with a five-member bipartisan commission similar to the Federal Trade Commission and Federal Communications Commission while Senate Bill 387, put forward by Sen. David Perdue (R-Ga.), would permit federal lawmakers to control the CFPB’s funding by making it subject to Congressional appropriations.
Lawmakers are likewise employing the Congressional Review Act to review any rules promulgated by the agency within the past 60 legislative calendar days. Efforts have already begun to nullify the Bureau’s Prepaid Rule, set to take effect in October, when Sen. Perdue introduced a joint resolution of disapproval in February.
Although the means may vary, Republican legislators appear united in their efforts against the CFPB. “We fought a war to get rid of the king and now it’s time to bring the unconstitutional CFPB’s war on credit and war on consumer choice to an end,” House Financial Services Committee Chairman Jeb Hensarling (R-Texas) said recently. “We will win this war.”
While all the politicking goes on, the Bureau has continued its work. Its active enforcements have substantially increased in the first quarter of 2017. By February, the CFPB had commenced ten enforcement actions. A five-fold increase over the two filed over the same period last year.
And the CFPB is active on other fronts. This past week, the CFPB released a Request for Information (RFI) about the use of “alternative data” to help increase access to credit for “credit invisible” consumers and publishing a report on the agency’s efforts in the credit reporting industry.
The CFPB estimated that 26 million Americans are “credit invisible,” lacking a credit history with a nationwide consumer reporting agency. Traditional credit history is based on data such as mortgages, credit cards and other loans, and is used by lenders to decide credit eligibility and the cost to borrowers. But what about using different data sources, like rent payments and mobile phone bills, to make lending decisions, the Bureau asked.
Specifically, the RFI sought information about whether alternative data could improve access to credit, if the complexity of the process would make it harder for consumers to understand their financial lives, the possible impact on costs and service (with the potential for lower operating costs for lenders and in turn, lower costs for borrowers), the implications for privacy and security, and the impact on specific groups (such as members of the military, who move frequently).
“Alternative data from unconventional sources may help consumers who are stuck outside the system build a credit history to access mainstream credit sources,” Cordray said. “We want to learn more about whether this nontraditional approach can offer opportunities to millions of Americans who are credit invisible and how to minimize any risks in how this information is used.”
In other agency news, the CFPB released a Supervisory Highlights Credit Reporting Special Edition, detailing the problems in the industry the Bureau said it has “uncovered and corrected” through its oversight work.
Since launching its supervision of the market in 2012, the regulator has worked to fix data accuracy. Recent exams have found that quality control programs ordered by the CFPB at consumer reporting companies have improved the accuracy of consumer records. The Bureau also made an effort to repair broken dispute processes by directing companies to follow federal requirements to send a notice with the results of disputes to consumers, for example, and consider documentation provided by consumers on a disputed item. Information from furnishers has also been cleaned up, the CFPB reported, with furnishers dedicating more resources to ensuring the integrity of information provided to credit reporting companies.
“Much more work needs to be done,” Cordray said in a statement with the release of the report. “But our corrective actions are leading to positive changes that are benefiting consumers all over the country.”
To read Senate Bill 370, click here.
To read Senate Bill 365, click here.
To read Senate Bill 105, click here.
To read Senate Bill 387, click here.
To read the CFPB’s RFI on alternative data, click here.
To read the CFPB’s report on the credit reporting industry, click here.
Why it matters
The future of the embattled CFPB remains uncertain, with Republicans trying on several fronts to eliminate or reform the Bureau. How the changes end up taking place—whether via a lack of funding, new legislation, or the PHH case pending in the D.C. Circuit—remains to be seen.