Vice President, Center for Capital Markets Competitiveness
April 20, 2022
Fill Me In
The core mission of the Consumer Financial Protection Bureau (CFPB) is to ensure that financial institutions are adhering to consumer protection laws and regulations. Under the leadership of the CFPB’s newest Director, Rohit Chopra, the agency is departing from its core responsibilities by attempting to regulate market competition, shunning procedural requirements under the Administrative Procedure Act, and devising new enforcement powers for the Director.
Points to Know
1. The CFPB is mischaracterizing the competitive landscape of the financial services sector.
Across the U.S., thousands of banks, credit unions, and fintech companies all compete for consumers’ business and trust. American consumers benefit from a highly competitive market when it comes to selecting the banking services that suit their needs and are empowered to make informed decisions about their banking and financial services’ needs.
2. The CFPB is not a competition regulator.
President Biden’s 2021 Executive Order, “Promoting Competition in the American Economy,” directed the CFPB to stray from its core responsibilities of consumer protection. Despite potential legal issues amounting from the EO’s improper direction of an independent agency, including invalidation of Chevron Deference, the CFPB has already embarked on a regulatory agenda ostensibly focused on competition. In early 2021, the agency issued a request for information (RFI) and a series of blog posts and reports implying consumers are the unwitting victims of fees by financial services providers without acknowledging the robust disclosure requirements they are charged with enforcing under multiple laws.
As we detailed in an article on our website, and in more detail in a letter to the CFPB, the agency is exhibiting a misunderstanding of the financial services market and business more broadly by overlooking overhead costs including, but not limited to, development of the services, marketing (which can be extremely expensive in a competitive market), and the infrastructure, including customer service, that makes products function.
3. The CFPB is depriving companies of their day in court.
Uncertainty creates confusion in the marketplace, and consumers ultimately lose out because responsible, compliance-minded companies hesitate to invest in new products and services when they are unsure of the potential legal ramifications.
The agency recently issued an interim-final rule (IFR) that unilaterally reshapes administrative adjudication. The U.S. Chamber of Commerce and other industry groups wrote to the CFPB that these changes to the CFPB’s rules for administrative adjudication expand the Director’s powers and reduce protections for defendant companies in ways that will lead to a lack of due process and make it more difficult for defendants to appeal to Article III courts.
The decisions of the Director in any administrative adjudication will not be viewed as permanent statements of the law, or as impartial applications of settled legal principles to the facts, but as the individual views of a single official that only reflect the policy judgments of the present administration. Rather than creating legal stability and certainty, the new concentration of adjudicative authority in the CFPB Director will lead to the imposition of legal interpretations that swing, often substantially, under the appointees of one administration to the next.
4. The CFPB is failing to adhere to well-established legal processes for policymaking.
Congress instituted a number of procedural controls on agencies, such as ensuring that the public would have an opportunity for participation through the public comment process required by the Administrative Procedure Act (APA). Recently, the CFPB informed the public via changes to its examination manual that it has unilaterally established a new interpretation of its authority to prevent Unfair, Deceptive, and Abusive Acts and Practices (UDAAP). The CFPB states that it intends to apply the law in a way, that it admits, Congress did not prescribe: “Discrimination can be unfair in cases where the conduct may also be covered by ECOA [Equal Credit Opportunity Act], as well as in instances where ECOA does not apply.”
Congress enacted a bipartisan resolution, signed by the President, last time the agency took a similar action in 2013. The Government Accountability Office found that the CFPB’s guidance proposing to apply ECOA to indirect automotive lending was a rule given it was a “statement of general applicability; . . . it has future effect; and it is designed to prescribe the Bureau’s policy in enforcing fair lending laws.”
Why It Matters
The CFPB Director is appearing before Congress in late April to deliver testimony on the agency’s Semi-Annual Report. This is one of just a few opportunities where the American public, via their representatives in Congress, can demand explanations for how the CFPB’s actions impact their lives.
The CFPB’s radical departure from its core responsibilities under Director Chopra threatens to undermine innovation and consumer choice in the financial services sector. If the CFPB wants to help consumers, it should stay true to its core mission to enforce consumer protection laws.
Congress should continue to use its oversight and legislative tools to ensure that the CFPB only acts within the mandate it has been granted. The Chamber highlights numerous legislative reforms in its 2018 report, “Consumer Financial Protection Bureau: Working Towards Fundamental Reform,” that remain more relevant than ever.