House Financial Services Subcommittee Urges CFPB Reforms

At a hearing before the House Financial Services Subcommittee on Financial Institutions and Monetary Policy, witnesses urged Congress to implement broad reforms to the CFPB.

The Subcommittee considered the following bills sponsored by Republican legislators on CFPB reform:

• H.R. ___, the "CFPB Dual Mandate and Economic Analysis Act" would (i) establish the Office of Economic Analysis under the CFPB, (ii) require the CFPB to expressly state the problem a proposed rulemaking aims to resolve in addition to metrics used to measure the proposed rulemaking’s success and (iii) update the purpose of the CFPB to include “strengthening [the] private sector participation in markets”;

• H.R. ___, the "Taking Account of Bureaucrats' Spending (TABS) Act" would (i) remove provisions that allow for funding of the CFPB through transfers from the earnings of the Federal Reserve System and (ii) make the CFPB an independent agency from the Federal Reserve System called the “Consumer Financial Empowerment Agency”;

• H.R. ___, the "CFPB–IG Reform Act" would create a separate Office of Inspector General for the CFPB;

• H.R. ___, the "Transparency in CFPB Cost-Benefit Analysis Act" would require the CFPB to include certain information when putting forth a proposed rulemaking, including (i) a written justification of the proposal, (ii) qualitative and quantitative cost impact assessment, especially on small businesses, (iii) alternatives to the proposal and (iv) information, such as data or studies used in preparing the proposal;

• H.R. ___, the "CFPB Whistleblower Incentives and Protection Act" would require the CFPB to provide award amounts to whistleblowers who report information resulting in monetary sanctions exceeding $1 million, with compensation (i) no less than the greater of ten percent of the collected monetary sanctions or $50,000 and (ii) no more than 30 percent of the collected monetary sanctions (to be capped at $5 million);

• H.R. ___, the "Consumer Financial Protection Commission Act" would (i) remove the CFPB from the Federal Reserve System to make the CFPB an independent commission and (ii) modify the CFPB’s leadership structure;

• H.R. ___, the "Encouraging Innovation and Protecting Consumers Act" would revert to its original purpose the CFPB’s Office of Innovation’s structure and operations;

• H.R. ___, the "Making the CFPB Accountable to Small Businesses Act" would mandate the CFPB to consider the impact of all rulemaking on small entities; and

• H.R. ___, the "Federal Reserve Loss Transparency Act" would amend the (i) Consumer Financial Protection Act of 2010 to prohibit the Federal Reserve System from transferring money to fund the CFPB if covered banks face operating losses and (ii) Federal Reserve Act to require the Federal Reserve System to follow U.S. GAAP.

Testimony

American Financial Services Associate President and CEO Williams M. Himpler. Mr. Himpler provided various examples of the CFPB’s regulatory overreach by “ignoring” its own regulatory processes and pursuing policies that will restrict consumer credit access. In his testimony, Mr. Himpler said that the CFPB has (i) taken steps to eliminate arbitration, despite its own findings that arbitration benefits consumers, (ii) created regulatory ambiguity through its focus on releases and guidance that have the potential to conflict with current law and create uncertainty with regard to companies’ legal requirements, (iii) sought to use regulation by enforcement to alter the Truth in Lending Act and create an ability to repay a standard that does not exist under current regulation, (iv) issued press releases as regulations that ignore current statutory requirements such as a recent press release on the Servicemembers Civil Relief Act, which “fails to account for the impact on the securitization market” and (v) created potential harm to servicemembers’ access to loan types through its misinterpretation of the Military Lending Act.

Devin Watkins, Attorney at the Competitive Enterprise Institute. Mr. Watkins recommended that Congress implement several CFPB reforms, including (i) limiting the CFPB’s funding to the amount determined by Congress, (ii) preventing the CFPB’s practice of “regulation by enforcement” by requiring that no money is spent on enforcement that is not based in rulemaking, (iii) mandating the CFPB to bring enforcement actions through jury trials in Article III courts before imposing penalties or monetary fines, (iv) making clear that Congress and not the CFPB has the authority to implement industry-wide changes due to potential for significant impacts on the economy that the CFPB is “not well situation to understand” and (v) addressing the “vagueness” of the CFPB’s authority and mission by providing clarity on the terms “deceptive,” “unfair” and “abusive” which Mr. Watkins said constitute the basis of the CFPB’s jurisdiction.

Jessica L. Thompson, Attorney at the Pacific Legal Foundation. Ms. Thompson warned of the threat posed by the CFPB to individual liberty and consumer access to financial services due to its constitutional defects in structure and “appetite” to expand authority. In her testimony, Ms. Thompson also criticized the CFPB for its violation of the “separation of powers.” To address these issues, Ms. Thompson called on Congress to (i) bring the CFPB within the constitutional appropriation process and (ii) conduct oversight hearings to review the extent to which the CFPB’s power extends.

Managing Director of Patomak Global Partners Brian Johnson. Mr. Johnson, who previously served CFPB Deputy Director, asserted that while the CFPB has an important statutory purpose, it has “not yet reached [its] potential.” He evidenced the CFPB’s “ripe[ness] for reform” through what he called a “litany” of instances where the CFPB had operated beyond its authority or ignored its statutory obligations. Furthermore, he stated that the frequency of such examples showed the CFPB’s lack of internal and external controls to operate within the law, consequently calling for greater Congressional oversight. Specifically, he suggested that Congress provide funding to the CFPB through the annual appropriations process to help the CFPB confine its priorities.

Attorney General of Minnesota Keith Ellison. Mr. Ellison underscored the meaningful protection to consumers provided by the CFPB through joint enforcement actions taken with Minnesota and other states to hold companies accountable for fraudulent activities. He stated that the CFPB is operating just as Congress intended when the Agency responded to the 2008 financial crisis. He also emphasized that the destruction of the CFPB would “topple” the financial system. Beyond its role in enforcement and regulations, Mr. Ellison referenced the information made available to consumers by the CFPB on financial issues and consumer guidance.

Ranking Member of the House Financial Services Committee Maxine Waters (D-CA) and U.S. Senate Banking Committee Chair Sherrod Brown issued a separate statement, calling the proposed bills "another page pulled from the same Republican playbook designed to destroy the CFPB." The legislators reaffirmed their commitment to stop any "anti-consumer bill[s]" and to protect the CFPB and consumers.