Hester Peirce is a senior research fellow at the Mercatus Center at George Mason University. Prior to that, she served as counsel for the Securities and Exchange Commission and the Senate Banking Committee.
Richard Cordray on April 23 will present the semiannual report of the Bureau of Consumer Financial Protection (CFPB) to the Senate Banking Committee. Cordray, who was appointed by President Obama to be the bureau's director, will likely use the opportunity to remind the senators how frequently he appears before them to testify. However, neither the Senate nor the American people should be duped into believing that, by virtue of his frequent trips to the Hill, he is accountable to them or anyone else.
Although the CFPB has more than one thousand employees, all of the bureau's broad powers over providers of consumer financial products and services ultimately reside with its director. He has the authority to set the budget, write rules, issue guidance, guide examinations, and bring enforcement actions.
The president is only able to remove the director for inefficiency, neglect of duty, or malfeasance in office. All Congress can do is ask the director questions and hope he answers them.
Suggestions that the bureau's structure be revisited to ensure that its structural abnormalities do not harm consumers have been rejected. According to some opponents of change, holding the consumer agency accountable would be anti-consumer. But a few examples drawn from the semi-annual report suggest the opposite – failing to have structural accountability mechanisms in place is not actually serving consumers well.
The report emphasizes the bureau's interest in data, particularly consumer-level data. In fact, the CFPB "continually gathers data and information about consumers' behaviors, choices and experiences when they shop for financial products." As a recent Bloomberg article explains, these data collection efforts include asking banks for information about their customers, buying supplemental consumer data from credit reporting companies, and collecting consumer-level mortgage data. Entrusting these records to an unaccountable regulator raises concerns for consumers.
Consumers should also be concerned about the bureau's examinations, which are likely to lead to higher prices for financial products. The semiannual report touts the CFPB's "highly qualified and diverse examination staff that has broad experience in planning and conducting examinations of financial institutions and businesses." However, a recent letter from the U.S. Chamber of Commerce to Cordray states, "While several companies have reported good experiences with individual examiners or examination teams, the majority have reported that the examination process is confusing, unnecessarily duplicative, inconsistent, and open-ended." Even more troubling, the chamber's letter reported that regulatory obligations are being imposed on the fly during routine examinations of firms.
The semiannual report included another instance of backdoor rulemaking, this time in the form of an enforcement action and guidance announced by tweet. On July 18, 2012, Cordray hinted on Twitter at an enforcement action related to credit card add-on products: "We are putting companies on notice that these deceptive practices are against the law and will not be tolerated." A bulletin released the same day set forth the bureau's "expectations" that credit card issuers would implement the specified procedures to limit "the potential for statutory or regulatory violations" in connection with credit card add-on products such as identity theft protection.
According to one subsequent report, the result of the CFPB's new standards may be fewer options for consumers, a consequence that could have been identified if the standards had been developed through a rulemaking process.
Consumer finance providers, confronted by the bureau's undisciplined, non-transparent approach to regulation, will be too busy trying to figure out how to please the unpredictable and quixotic CFPB to meet the needs of consumers. Periodic appearances before Congress are no substitute for the real accountability that serious structural changes – such as a balanced board and an appropriated budget – would provide.