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Legal, Regulatory, and Privacy Issues

Does the CFPB’s task force further consumer protection?

There is criticism that resources are being diverted from fighting the pandemic

Summary

A task force set up by the Consumer Financial Protection Bureau to address gaps in existing consumer protection laws has drawn some unfavorable public comment, as well as some suggestions for improvement.  

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A task force set up by the Consumer Financial Protection Bureau to address gaps in existing consumer protection laws has drawn some unfavorable public comment, as well as some suggestions for improvement.

However, consumer advocates have filed a lawsuit against the CFPB alleging that the task force is illegal and is a means to further the interests of the financial sector, rather than consumers.

In late March, the CFPB asked for public comment (with input prompted by questions the CFPB provided) on how the task force could best tackle its job, with the period for comment ending in early June. The task force is expected to submit its recommendations to the CFPB by January 2021.

The timing of the public notice period itself has drawn negative attention, with a lot of comments from organizations as well as individuals, stating that this is not the best use of the CFPB’s resources at a time when it should be focusing on fighting the pandemic.

Several commenters also noted that the industry-friendly CFPB task force does not resemble the bipartisan National Commission on Consumer Finance from 1968, after which the CFPB says it is modeled.

See related: CFPB’s fair debt collection proposal update elicits negative feedback

Fighting COVID-19 should be current focus

According to Carol Kenner, who identifies herself as a retired bankruptcy court judge, “I believe that existing CFPB protections for consumers should remain as vigorous as they are today. The regulations in place now are effective in protecting the public. Now is not the time to rethink CFPB’s mission. Preventing harm to consumers, especially during the COVID-19 pandemic, is key.”

She believes current consumer protection laws, such as the Equal Credit Opportunity Act, are working well and notes, “Let’s not ‘fix’ what is not broken. Let’s continue to protect consumers.” (The CFPB has asked for public comment, with a deadline of Dec. 1, on the ECOA, focusing on how best to create a regulatory environment that expands access to credit.)

A number of comments look to be attempts at astroturfing – a practice whereby an organization, or individual, plants comments to further its agenda by making it appear to have wider grassroots support – with several consumers (including those identifying themselves as Aaron Swift, Timothy Wilson and Pamela Hewitt) observing:

“We need the CFPB to focus on preventing harm to consumers during the pandemic, not to be distracted by broadly rethinking its mission. We need regulation, supervision, and enforcement so that financial products and services are safe from the outset and companies do not engage in unfair, deceptive or abusive practices. The effectiveness of the CFPB’s rules must be measured by how much they help consumers, not by the amount of industry profit. Competition by itself does not produce consumer benefits.”

See related: Some issuers not delivering on COVID relief, CFPB complaints reveal

Task force or ‘task farce’?

Other comments were critical of the taskforce’s mission and composition.

Virgil Valente noted, “We are in the midst of the worst recession in history, where people are in need of safety nets and access to loans. By protecting and prioritizing corporations, banks, lenders and profits, this bureau fails its very essential mandate. Lives will suffer as a result. This proposed task force is partisan, extreme and counter to the Bureau’s mandate. Independent members with nonpartisan beliefs should be appointed, not right-wing industry sycophants. The task force should represent Americans, consumers, not industry and greed. Stand up for Americans, not greed!”

Another commenter, Hank Keeton, believes the task force is “a thinly-veiled attempt by far-right political elements in our society to allow the ‘finance’ sector to control the ‘public’ sector.”

And Adam J. Levitin, a professor of law, sees the task force as unnecessary, besides the unfortunate timing of the request for public comment, which only serves to get a hasty report out before the election could change the CFPB’s political control. He also noted that the CFPB had in previous years asked for similar input from the public on how to improve the consumer protection agency’s functioning.

According to Levitin, “Every one of the task force members has a well-established track record as an advocate for deregulation. There is no one in the consumer finance world who has any doubt about the type of recommendations that will come out of the task force given its membership. That makes the whole request for information an exercise in regulatory kabuki theater.”

Will state and local authority be further preempted?

Levitin believes that consumer financial education, disclosures and market competition have a limited role in advancing the cause of consumer finance regulation.

For instance, there is no competition in the credit reporting arena considering that consumers do not choose a credit reporting bureau. Besides, financial products are not commoditized, offering identical features.

As for consumer finance education, he sees it as “the homeopathy of consumer finance regulation,” considering that there is no proven and significant improvement in consumer welfare that stems from consumer financial education.

Regarding the effectiveness of consumer disclosures, Levitin said, “No reasonable consumer reads his cardholder agreement, much less is likely to understand exactly how the interest rate application provision works,” adding that even if a consumer believes he understands how things work, practically speaking it’s the card issuers’ understanding that prevails.

And the Conference of State Bank Supervisors is concerned, based on the questions in the CFPB’s requested feedback, that the agency might be looking to further preempt state and local regulators’ authority.

According to the CSBS, “Federal and state regulators share the objective of protecting consumers from the harmful practices of consumer financial services providers. This objective can be better achieved if states are not prevented from acting as a regulatory partner by federal preemption.”

The CSBS also notes that no former state regulators are on the CFPB task force.

See related: State-level CFPBs could fill void left by federal watchdog rollbacks

Scope for improvement in consumer protection legislation

Some other commenters, notably trade associations, took the chance to provide some serious input to the task force. Such input included:

  • The Bank Policy Institute, a banking industry advocacy group, said that the CFPB should make it convenient for consumers who operate in a digital world to get disclosures.
  • The BPI also wants underwriting of credit to be modernized so lenders can make better use of alternative data and machine learning inputs to make access to credit easier.
  • The Financial Health Network, an organization that aims to promote financial health, noted that more regulatory oversight is required in terms of ensuring consumer reporting agencies take reasonable efforts to ensure the accuracy of consumer data, as the Fair Credit Reporting Act requires.
  • The FHN also wants more robust protection related to sharing of consumer data under the Gramm-Leach-Bliley Act, with more of an opt-in default model rather than an opt-out one that presumes consumers are inclined to share their data.
  • The Center for Responsible Lending pointed out that there are a number of “structural issues” present in the debt collection marketplace, in which creditors, rather than consumers, are providing business to debt collectors.
  • In the credit card market, the CRL says, there are “reverse Robin Hood” subsidies present whereby subprime consumers, and those who make only minimum payments, subsidize wealthier consumers.
  • The Consumer Bankers Association asked for the updating and harmonizing of regulations related to electronic advertising and disclosures.
  • More regulation of fintech companies, holding them to the same standards as the ones for traditional financial institutions, is another aspect the CBA would like the CFPB to consider.
  • The Consumer Data Industry Association, which represents credit reporting bureaus, came up with various suggestions for the improvement of the CFPB’s consumer complaints process, noting that consumers should have to take recourse to the Fair Credit Reporting Act before disputing the accuracy of credit reporting information with the CFPB. Consumers oftentimes confuse a lender’s misreporting and blame it on the credit reporting agencies, the CDIA said.
  • The Consumer Relations Consortium, representing participants in the debt collection marketplace, would like all financial services statutes to harmonize their statutory record retention standards.
  • Mastercard would like to see a uniform national standard for companies other than financial institutions, which are already subject to breach notification requirements, to notify consumers about data breaches.
  • At a public hearing on the CFPB task force that the consumer protection agency organized, with input from various academics, one suggestion was that there needs to be more disclosure on investing apps, with more accountability, much the same way that the CARD Act has brought in more accountability and protection for younger consumers. (The CFPB is also looking for public comment on how the CARD Act regulations have impacted the consumer credit market and small businesses.)

See related: Alternative data looks beyond traditional scores to extend credit, but risks abound

Consumer groups allege task force is illegal

In the meantime, various consumer advocacy groups, including the National Association of Consumer Advocates and the U.S. Public Interest Research Group have filed a lawsuit against the CFPB and CFPB Director Kathy Kraninger, alleging that the task force is in violation of the Federal Advisory Committee Act.

The groups allege that the task force is industry-aligned and does not have any consumer protection advocates. They also say it does not serve any public interest and works behind closed doors. Thus, the case seeks to stop the task force’s operation.

Democracy Forward Executive Director Anne Harkavy said, “The Federal Consumer Financial Law Taskforce is the latest effort by a Trump appointee to outsource policymaking to private interests while excluding other voices. We’ve stopped them before, and we’re asking the court to stop them here.”

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