September 13, 2012

The Consumer Financial Protection Bureau's Overinflated Self-Image

Hester Peirce

Former Senior Research Fellow
Summary

Richard Cordray, Director of the Consumer Financial Protection Bureau, will testify today in front of the Senate Banking Committee about the CFPB's most recent semi-annual report. The hearing offers a good opportunity to hold a mirror up to the new regulator. Despite all its positive self-talk, the CFPB is not the model government agency it fancies itself to be.

Richard Cordray, Director of the Consumer Financial Protection Bureau, will testify today in front of the Senate Banking Committee about the CFPB's most recent semi-annual report. The hearing offers a good opportunity to hold a mirror up to the new regulator. Despite all its positive self-talk, the CFPB is not the model government agency it fancies itself to be.

The CFPB sees itself as a trend-setter among government regulators. In a speech several months ago, Mr. Cordray explained that "rules matter", and people should have a chance to comment on them. Cordray said, "Our new Bureau is young enough and sprightly enough that it can take such starry-eyed principles to heart. So we will. And maybe, with enough time, we will blaze a new trail and win more converts to the cause of reimagining the administrative state."

Indeed, the agency is young and sprightly. A Washington Post piece last week featured the agency's idealistic twenty-something web designers. As the article describes, they consider the CFPB akin to a Silicon Valley start-up - employees have fluid workspaces and share ideas through a "Thing Launcher" and a biweekly "Hootenanny." Of course, unlike a start-up, the CFPB has a large, secure budget with no strings attached. Also unlike a tech start-up, the agency's slightest move can impose enormous costs on the financial services industry, which will get passed on to consumers.

 

As evidence of its regulatory openness, the CFPB points to its cheerful-looking website. The website, which is chock-full of cloyingly paternalistic messages, is not particularly easy to navigate. Items, such as comment letters on open rulemakings, that are easily accessible on other government agencies' websites are nowhere to be found on the CFPB's site. Other agencies, like the SEC, CFTC, and FDIC, post comment letters on their websites as they come in and before the comment period closes so that other members of the public can respond.

As further proof of its commitment to transparent government, the CFPB cites its decision to post the calendars of Mr. Cordray and his deputy. The site promises that "each month's calendar will appear on this page a few weeks after that month has concluded." As of Monday, the website only offered calendars through May of 2012. This may not be the biggest transgression, but the CFPB likely would not take too kindly to the banks it regulates promising consumers a statement weeks after the end of the month, and missing that deadline by months.

The CFPB also points with pride to its database of consumer complaints. It includes an extremely broad description of the alleged problem and the name of the allegedly offending bank. The CFPB does not check to see whether the complaints have merit before posting them. This database is available for public downloading, searching, and "visualizing."

By making the data available in this fashion, the CFPB is lending an official air of credibility and scientific reliability to complaints, many of which may not be indicative of a legal violation by the implicated bank. The CFPB fails to understand that people are likely to assume that the government - which has the power to investigate complaints it receives - wouldn't publish them unless it had checked them out first. The CFPB's job is to analyze complaint information and investigate their merit. Making them available for the public to draw potentially unwarranted inferences is not a marker of good government. If a financial company were to dress up inferences as facts in a similar manner, the CFPB likely would not respond favorably.

Finally, for all its talk of transparency, the CFPB has persisted in its refusal to tell regulated firms what behavior it will deem "abusive" and thus illegal. Instead, the CFPB has opted for clarification by enforcement. Firms will know what abusive behavior is when they are punished for having engaged in it. Companies running scared of unwittingly violating the law will not be able to focus on serving consumers well.

If the CFPB truly seeks to embody "starry-eyed principles" of regulation, it must look beyond superficial attempts at good government. Particularly an agency with such enormous powers and so little accountability ought to fulfill its regulatory responsibilities in a manner that truly invites close scrutiny and participation by everyone whom it has the power to affect.