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From Banking and Finance Law Daily, February 28, 2014

Response to House passage of CFPB reform bill

By Colleen M. Svelnis, J.D.

The House of Representatives has passed a bill that would vastly change the structure and funding of the Consumer Financial Protection Bureau. The bill would eliminate the position of CFPB Director; end the CFPB’s independent funding stream, making the agency go through the regular appropriations process; and make it easier for CFPB rulings to be overturned. H.R. 3193, the Consumer Financial Protection Safety and Soundness Improvement Act of 2013, was passed on Feb. 27, 2014, by a vote of 232 to 182, with 16 not voting. Ten Democrats voted for the bill, with no Republicans voting against. Rep. Sean Duffy (R-Wis), who sponsored the bill, asserted that “This is a bill about accountability and transparency.” House Democrats issued a press release saying “This legislation is opposed by more than 100 organizations with long records of standing up for the interests of consumers, including the AFL-CIO, Americans for Financial Reform, the NAACP, U.S. PIRG, and the National Consumers Union.”

The bill’s stated purpose is to amend the Consumer Financial Protection Act of 2010 to strengthen the review authority of the Financial Stability Oversight Council and regulations issued by the Bureau of Consumer Financial Protection. H.R. 3193 is actually a package of bills which passed the Financial Services Committee on Nov. 21, 2013 (see Nov. 22, 2014, issue of Banking and Finance Law Daily ).

If enacted, the bill would:

  • replace the CFPB Director with a five-member commission appointed by the president and confirmed by the Senate, to conform the CFPB’s governance to that of other federal agencies charged with consumer or investor protection;

  • subject the CFPB to the regular appropriations process and make the CFPB a stand-alone independent agency rather than a bureau within the Federal Reserve System;

  • prohibit the CFPB from using a consumer’s financial information without the consumer’s consent;

  • set the basic rates of pay for CFPB employees in accordance with the General Services scale; and

  • reduce/control the regulatory power of the CFPB.

Amendments. An amendment by Rep. Ron Desantis (R-Fla) was approved. This amendment would repeal the exclusive rulemaking authority of the CFPB. Another passed amendment was introduced by Rep. Scott Rigell (R-Va) and would require the CFPB to submit analyses on the impact of its proposed rule or regulation on the financial industry. An amendment offered by Rep. Gwen Moore (D-Wis) failed, which would have added Findings and Sense of Congress language to the end of the bill that acknowledges and honor the work of the CFPB in providing protection and relief to consumers.

Republican support. House Financial Services Committee Chairman Jeb Hensarling (R-Texas) supported the bill to lessen the power of the CFPB, attesting “we do need consumer protection. But consumers don’t just need to be protected from Wall Street. They need to be protected from Washington as well.” He spoke from the floor, referencing the Qualified Mortgage rule, which was enacted by the CFPB, “According to Federal Reserve data, because of QM ‘roughly one-third of black and Hispanic borrowers would not meet the requirements of a QM loan.’ Mr. Chairman, one-third. Core Logic, which analyzes mortgage data has said “only half of today’s mortgage originations meet QM requirements.’”

Hensarling described the bill as replacing “the Bureau’s single, unaccountable director with a bipartisan board. It puts the Bureau’s employees, whose compensation and benefits average $178,521- it puts them on the civil service pay scale. It introduces a safety and soundness check on its regulations, and gives the American people greater control over the massive quantities of personal financial data that the Bureau is collecting and maintaining on them at this time.”

Other Republicans confirmed their support of the bill. Rep. Randy Hultgren (R-Ill) called the CFPB “one of the most unaccountable agencies in American history.” He said the reforms in the bill would “bring the CFPB in line with other regulatory agencies and ensure it stays accountable to Congress and the American consumer.” Rep. Dennis Ross (R-Fla) said “[t]he Consumer Financial Protection Bureau is one of the largest federal undertakings in recent history, created by Congress yet unaccountable to Congress. One man is tasked with oversight of essentially the entire financial services industry.” He continued, “Director Cordray works hard for consumers, but no single individual can have sufficient expertise to make determinations that impact low-income families, community banks, mortgage lending, auto lending, credit card users, and students.” Rep. Steve Pearce (R-NM) hailed the bill’s ability bring accountability by “replacing the CFPB’s powerful director with a five-member commission. It subjects the CFPB to an appropriations process so it must answer to the taxpayer for how money is spent.”

Rep. Keith Rothfus (R-Pa) spoke on the floor before voting began for the bill, denouncing the “broad and unchecked power over our economy” the agency has. “These very reasonable reforms will protect consumers and our nation’s financial system by providing for more rigorous oversight of the powerful and unaccountable Bureau.” Rep. Marlin Stutzman (R-Ind), member of the House Financial Services Committee, also spoke in support of the bill “Let’s replace the CFPB’s director with a five-member commission to ensure healthy discussion and bring more seats to the table. Let’s rein in the CFPB’s budget so that members of Congress from both parties can protect their constituents. Let’s prohibit government bureaucrats from using private, personal information without the consumer’s consent.”

Rep. Randy Neugebauer (R-Texas) released a statement saying “[t]he CFPB has unusually broad regulatory authority that reaches across our economy. But since it operates outside the normal budgeting process, it has almost no accountability to our taxpayers. That worries me,” He expressed concern with the lack of oversight the agency currently has. “Right now, CFPB can simply draw money from the Fed whenever it needs,” Neugebauer explained. “This bill is important not only because it makes the budget accountable to taxpayers, but also because it allows Congress to regularly evaluate CFPB’s performance and detect waste, fraud, and abuse.”

He also expressed opposition to the CFPB collection of consumer financial data, “The CFPB will soon hold financial data of 10 million Americans—without their permission or knowledge. It’s as if they’re competing with NSA to see which agency can gather more information. Large-scale government data collection like this raises red flags about privacy and security.”

Democratic reaction. Rep. Gwen Moore (D-Wis), whose amendment did not pass, said “H.R. 3193 seeks to eliminate ‘consumer’ from the CFPB’s name and, quite possibly, their mission as well.” “Despite the euphemistic name, this Republican legislation is really about the ability of Wall Street to oversee the Consumer Financial Protection Bureau (CFPB),” said Moore. “The bill aims to paralyze and eventually defund the agency.”

A letter submitted by Rep. Gary Peters (D-Mich) opposing the bill was signed by 20 fellow Financial Services Committee members in anticipation of the vote on H.R. 3193. Peters commented “This misguided bill would weaken the CFPB and its ability to provide necessary consumer protections to families in Michigan and across the country. Instead of voting to undermine the CFPB, we should be standing up for consumers and making our financial system work for them.” He stated his support of the CFPB saying, “By streamlining and consolidating financial consumer protection into the CFPB, Congress created a single regulator responsible for prioritizing consumer protection while balancing those protections with the overall impact on the financial system and economy.”

Rep. Keith Ellison (D-Minn) said the bill “puts the greed of the financial industry” ahead of the wellbeing of consumers. “Among their many accomplishments, the CFPB has refunded more than $3 billion to more than 9 million consumers who have been subjected to deceptive practices. Now, the CFPB oversees industries that previously were not regulated by the federal government, including credit reporting agencies, nonbank mortgage providers, debt collection agencies and payday lenders. All of that consumer protection would end if H.R. 3193 becomes law,” he asserted.

Democrats from the House Financial Services Committee released a statement saying the legislation would “undermine consumer protection by weakening the Consumer Financial Protection Bureau’s ability to be an effective, independent advocate for consumers.” Rep. Maxine Waters (D-Calif), Ranking Member of the Committee, led the opposition to the bill. Water’s said that the bill would obstruct the CFPB’s ability to protect consumers and commented “The CFPB has ensured that all consumers have fair and transparent access to consumer financial products and services. It has written important mortgage rules that prevent lenders from engaging in the risky and irresponsible practices that led to the collapse of the housing market and fueled the 2008 global financial crisis. The CFPB ensures that the tens of millions of consumers who interact with large consumer reporting agencies, debt collectors, payday lenders, and nonbanks originating mortgage loans—have an advocate in their corner.”

Trade organization opposition. The National Community Reinvestment Coalition, an organization that advocates for fair and equal access to banking services for low income consumers, released a statement saying, “It is indefensible that some members of Congress are so committed to protecting banks that they would vote to badly damage the Consumer Financial Protection Bureau (CFPB), an institution that looks out for the interests of consumers and taxpayers. Had the CFPB existed a decade ago, irresponsible lending would have been stopped in its tracks, and the housing crisis and the Great Recession would have been avoided. Today's vote is a real indicator of which members of Congress prioritize the protection of banks over the protection of American consumers.”

Companies: National Community Reinvestment Coalition

MainStory: TopStory CFPB DoddFrankAct FinancialStability Privacy

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