U.S. Department of the Treasury Calls for CFPB Reform in Report to President


6/14/2017 10:13:00 AM

The reforms outlined in the report are mostly consistent with the Financial CHOICE Act passed by the U.S. House of Representatives this month.

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A U.S. Department of Treasury report written at the request of President Donald Trump contains some recommendations to restructure the Consumer Financial Protection Bureau in ways that align with positions held by ACA International. Titled, “A Financial System that Creates Economic Opportunities, Banks and Credit Unions,” the document identified “numerous regulatory factors that are unnecessarily limiting the flow of credit to consumers and businesses and thereby constraining economic growth and vitality.”

Trump signed an executive order in February requiring extensive review of all financial industry regulations stemming from the Dodd-Frank Act, after stating that his administration would be “cutting a lot out of” the 2010 law that created the CFPB.

According to Treasury, it will divide its review of the financial system as required by the February executive order into a series of four reports.  Although this first one focuses on banks and credit unions, it contains important findings about the CFPB, as well as recommendations to address identified issues, that are important to the credit and collection industry and consistent with ACA’s advocacy efforts. 

The other three upcoming reports include:

  • Capital markets: debt, equity, commodities and derivatives markets, central clearing and other operational functions;
  • The asset management and insurance industries, and retail and institutional investment products and vehicles; and
  • Non-bank financial institutions, financial technology and financial innovation.

While the CFPB was created to pursue an important mission, its unaccountable structure and unduly broad regulatory powers have led to predictable regulatory abuses and excesses, the report states. “The CFPB’s approach to rulemaking and enforcement has hindered consumer access to credit, limited innovation, and imposed unduly high compliance burdens, particularly on small institutions,” according to the report.

The CFPB is led by a single, unelected director who does not answer to the president or Congress. Thus, as part of the restructuring recommendations, Treasury suggests reforming CFPB’s structure “to ensure that it is accountable to elected officials and, ultimately, to the American people.” The for-cause removal protection for the CFPB director limits the president’s authority, disperses executive power, and renders the CFPB less politically accountable than other agencies.

“The most straightforward remedy is to make the director removable at-will by the president. As an alternative, the CFPB could be restructured as an independent multi-member commission or board which would create an internal check on the exercise of agency power,” the report said, adding that the CFPB should also be subject to the same degree of accountability to Congress as other regulatory enforcement agencies.  

The department also recommends that financial regulatory agencies, including the CFPB, “perform and make available for public comment a cost-benefit analysis with respect to at least all ‘economically significant’ proposed regulations, as such term is used in Executive Order 12866. Such analysis should be included in the administrative record of the final rule.”

Another chief area of concern outlined by Treasury is associated with the Consumer Complaint Database which it claims “lacks appropriate safeguards.” The database, maintained on CFPB’s website, allows consumers to submit and view complaints about a wide variety of providers of financial products and services including credit cards, mortgage providers, student loans, vehicle loans, payday loans, credit reporting and debt collection.

Treasury suggests that the database should be reformed to make the underlying data available only to federal and state agencies, and not to the general public. The Federal Trade Commission also maintains a complaint database, known as Consumer Sentinel, that is available only to local, state and federal law enforcement organizations that have entered into confidentiality and data security agreements.

Consistent with ACA’s criticism of the Consumer Complaint Database, the report noted objections to the Consumer Complaint Database as currently maintained given its potential to provide consumers with misleading or incomplete information. Indeed, as ACA has consistently pointed out, Treasury underscored that the database does not indicate whether a complaint reflects dissatisfaction with legitimate terms of service as opposed to actual wrongdoing, and does not provide information on the size of the relevant market.

Because of these shortcomings, the report notes the frequent criticism that the Consumer Complaint Database subjects companies to unwarranted reputational risk.

Overall, recommendations to the president in the report focus on “identifying laws, regulations, and other government policies that inhibit regulation of the financial system according to the core principles,” in the report.

Themes in the recommendations include:

  • The need for enhanced policy coordination among federal financial regulatory agencies;
  • Supervisory and enforcement policies and practices should be better coordinated for purposes of promoting both safety and soundness and financial stability and increased coordination on the part of the regulators will identify problem areas and help financial regulators prioritize enforcement actions; and
  • Financial laws, regulations, and supervisory practices must be harmonized and modernized for consistency.

As ACA International previously reported, in January Trump called the Dodd-Frank Act a “disaster” and vowed to do “a big number on Dodd-Frank” when Trump met with small business owners on Jan. 30, the same day he also signed an executive order requiring leaders of federal agencies to reduce regulations and costs.

ACA International will continue to follow this story and provide updates when available.

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