As the Consumer Financial Protection Bureau (CFPB) continues to be a target of the Trump administration, the Bureau was the focus of a recent Subcommittee on Financial Institutions for the House Financial Services Committee hearing titled, “A New Era for the CFPB: Balancing Power and Reprioritizing Consumer Protections.”
The hearing examined the current regulatory and legal landscape for federal consumer financial protection, with a review by the Subcommittee of the structure and funding of the CFPB, in addition to statutory authorities granted to the Bureau under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
Testifying before the Subcommittee were:
- Ana Fonseca, President and CEO, Logix Federal Credit Union (on behalf of America’s Credit Unions)
- Rebecca E. Kuehn, Partner, Hudson Cook LLP
- David Pommerehn, General Counsel and Head of Regulatory Affairs, Consumer Bankers Association
- Bryan A. Schneider, Partner with Manatt, Phelps & Phillips LLP
- Seth Frotman, former General Counsel and Senior Advisor to Director Rohit Chopra from the Consumer Financial Protection Bureau
“Nowhere has overregulation and overreach been more evident than at the Consumer Financial Protection Bureau, which became the most unchecked and unaccountable agency in the entire federal government under the previous Administration,” said Subcommittee Chair Rep. Andy Barr in his opening statement. “Under former Director Chopra, the CFPB prioritized politics over sound policy—leading to disastrous outcomes for American consumers.”
Questioning Supervision
After a brief introduction, Schneider, a Partner with Manatt, Phelps & Phillips LLP and former Associate Director for the Division of Supervision, Enforcement and Fair Lending at the CFPB, took the stand and discussed the current state of the CFPB and its operations. As Associate Director for the Division of Supervision, Enforcement and Fair Lending for the Bureau, Schneider was tasked with overseeing issues related to student loan origination and servicing, mortgage origination/services, auto finance, credit card account management, debt collection, and payday and other small dollar lending. He was also a member of key interagency governing organizations including the Task Force of Supervision of the Federal Financial Institutions Examination Council (FFIEC).
“Risk-based supervision is key to the successful oversight of the financial services system,” said Schneider in his testimony. “However, because supervision is by necessity a confidential process, some protest that supervision is little more than a way to brush problems under the rug and attempt to convert the supervisory process into a pipeline for enforcement investigation. I disagree entirely. The close relationship between a supervised entity and its regulator creates oversight opportunities that not only allow for the rapid identification of areas that require correction, and an equally fast consumer redress schedule, but also those that actually prevent consumer harm before it happens.”
Mass Changes on the Horizon?
Next to deliver testimony was Pommerehn, current General Counsel and Head of Regulatory Affairs for the Consumer Bankers Association (CBA), a trade organization representing financial institutions offering retail lending products and services.
Pommerehn’s expertise covers a wide range of legal, legislative, and regulatory issues associated with the areas of consumer financial services. He serves as the CBA lead for deposits and payment issues as well as small business banking issues and manages CBA’s Deposits and Payments and Small Business Banking Committees. Prior to joining CBA in 2008, he served as a Defense Attorney for the State of Maryland, and as Counsel to several non-profit financial services companies.
During his opening testimony, Pommerehn called for change within the Bureau.
“The political shifts over the past few years have created instability and uncertainty,” said Pommerehn. “We now see the need for reform at the agency.”
He continued, “Under the prior administration, the Bureau frequently sought to score political points by penalizing businesses in the press, rather than prioritizing true consumer protection. While unfortunate, this outcome is no surprise given that the CFPB is statutorily structured to be immune from oversight from elected legislators. Additionally, unlike most other financial regulators, the CFPB is led by a single Director with unilateral authority, which allows for significant political and policy swings when the Bureau’s leadership changes.”
The High Costs of Regulation
Fonseca was next to speak before the Congressional panel. She is the President and CEO of Logix Federal Credit Union, and previously worked as CFO at Southland Credit Union, and Revenue Manager at Lockheed Finance Corporation.
She discussed how since the passage of the Dodd-Frank Act, the credit union industry has somewhat consolidated, as most community-based financial institutions lack the resources to keep pace with regulations passed by the CFPB.
“From the inception of the CFPB, credit unions have expressed frustration with being regulated in the same manner as for-profit banks and non-regulated entities,” noted Fonseca. “There are a number of statutory consumer protection provisions included in the FCU Act that the laws governing other types of financial institutions do not have. This is one reason why the industry was concerned about credit unions of any size being placed under the CFPB’s direct regulatory authority as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Despite the fact that credit unions are already heavily regulated and did not contribute to the 2008 financial crisis, credit unions of all sizes are still subject to the rulemaking authority of the CFPB. While some may argue that the CFPB ‘levels the playing field’ for community-based financial institutions, the reality could not be further from the truth, as community-based financial institutions do not have the armies of lawyers that large Wall Street banks have to keep up with the pace and scope of regulations coming out of the CFPB. This has led to significant consolidation in the industry since the passage of the Dodd-Frank Act and the creation of the CFPB. There are over 3,000 fewer credit unions today than there were when the Dodd-Frank Act was signed into law.”
She cited her own company’s struggles to maintain its near-90-year legacy under the CFPB’s rules.
“Logix’s journey to meet CFPB compliance as a $10 billion institution has placed a significant burden on operations and has required extensive audits, significant costs, and substantial staffing increases,” explained Kuehn. “According to our own internal analysis, we face operational and financial challenges, including $517,000 for CFPB Exam Readiness Reviews, annual compliance software costs of $300,000, and an annual budget of $200,000 for compliance audits and legal services. We expect our compliance staffing will increase by at least 30 employees, which translates to an annual staffing cost increase of $3.3 million a year once we cross the $10 billion threshold. These added costs are particularly burdensome given the estimated $10 million (and growing) in lost annual interchange revenue as a result of the Durbin Amendment’s limitation on interchange fees for institutions with more than $10 billion in assets. With such a significant decrease in revenue, combined with a substantial increase in CFPB compliance-related expenses, our ability to deliver the superior value our members have come to expect over the past 88 years will be severely impacted.”
Restricting CFPB Powers
Kuehn, a Partner in Hudson Cook LLP’s Washington, D.C. office, chairs the Credit Reporting, Privacy, and Data Security Practice Group. Her practice focuses on consumer financial services and consumer protection matters, where she counsels financial institutions, consumer reporting agencies, service providers, and others in complying with consumer financial laws and prohibitions against unfair, deceptive, or abusive trade practices.
Prior to joining Hudson Cook, Kuehn was Assistant Director with the Division of Privacy and Identity Protection, Bureau of Consumer Protection for the Federal Trade Commission (FTC) from May 2006 to September 2011, supervising attorneys and other staff in the Division of Privacy and Identity Protection, oversees issues related to consumer privacy, credit reporting, identity theft, and information security. She led the Fair Credit Reporting Act program, and oversaw the Commission’s enforcement, outreach, and rulemaking activities in that area.
“In order to provide regulatory certainty to the market, but still provide the CFPB with the flexibility and ability to address new or rising threats to consumers, two changes should be implemented,” said Kuehn. “First, the CFPB should be required to set forth more clearly the standard for finding an act or practice ‘abusive,’ preferably through a notice and comment rulemaking. Further, the CFPB should only be permitted to seek monetary relief where either it has defined a practice as an unfair, deceptive, or abusive act or practice through formal rulemaking or where a company has violated a prior order of the CFPB. H.R. 6789 would revise the Bureau’s practices to provide for rulemaking and appropriately restrict the CFPB’s ability to obtain monetary relief to those circumstances where the company has been fairly put on notice of the conduct. These revisions would provide more regulatory certainty while allowing the CFPB the ability to address new or emerging issues.
In Defense of Americans
Frotman, Former General Counsel and Senior Advisor at the CFPB, defended the operations of the Bureau and the vital role the Bureau plays in protecting Americans.
“Over the last four years, the CFPB cracked down on junk fees that make life more expensive for everyday Americans, tackled the crushing impact of medical debt, protected military families from fraud and widowed spouses from scams, and took on Big Tech’s relentless stampede into consumer finance,” explained Frotman. “We stood up for hundreds of millions of Americans—the same ones this Administration promised to fight for—who aren’t rich enough to buy a house without a mortgage or to send their kids to school without loans, or who rely on increasingly ubiquitous financial products to make it through the end of the month. That’s who the CFPB protects. The CFPB stands up to dubious and deceptive products that unscrupulous corporations and billionaires deploy to rip off working families. In the decade since its creation, the CFPB has gotten back more than $20 billion for working people, on a budget that is a fraction of that size. It has made markets from mortgages to international money transfers more ‘fair, transparent, and competitive.’ It has made sure that honest businesses can compete on a level playing field with companies that try to thrive on tricks and traps.”
Click here for more on the House Financial Services Committee hearing, “A New Era for the CFPB: Balancing Power and Reprioritizing Consumer Protections.”
