House Committee Chairs Blast CFPB’s "Virtually Limitless Power"


Shortly before recessing for the holidays the Chairmen of
the House Committee on Oversight and Government Reform and of its Subcommittee on TARP, Financial Services and Bailouts of
Public and Private Programs issued a report titled The Consumer Financial Protection Bureau’s Threat to Credit Access in
the United States
.   The creation of
CFPB was a central fixture of the Dodd Frank Wall Street Reform and Consumer
Protection Act and has been the target of both the banking and finance
communities and Republican members of Congress 

The report by Committee Chair Darrell Issa (R-CA) and
Subcommittee Chair Patrick McHenry (R-NC) claims that the Dodd-Frank Act gave
the Bureau “virtually limitless power” and “the real potential
to severely reduce credit access for American consumers.”  

Unlike other independent financial regulators like the
Federal Reserve or the FDIC, they say, CFPB is run by a single director instead
of a bipartisan or nonpartisan commission (Ed. note:  the FDIC is an independent agency run by a
chairman and Board of Directors) and is not subject to annual congressional
appropriations nor are its regulations reviewed by the office of Management and
Budget.  This allows the CFPB to be a rogue financial
regulator with potential to
create uncertainty for providers of
consumer financial
products and services.

It slams the appointment of its first director, Richard
Cordray as “controversial and legally questionable and says it generates
uncertainty for financial service providers and American consumers because a
court could invalidate that appointment.  
Cordray was given a recess appointment by the President after the Senate
refused to allow the confirmation of anyone to the position.  The two representatives find further
unsettling that the Bureau has no “Plan B” for operating effectively should
a court find the appointment illegal.

They question the Bureaus “development as an
independent regulatory agency” and claim the Obama Administration is
attempting to use it to further a partisan agenda, calling a visit by the
President to the Bureau a few days after Cordray’s appointment, a “victory
lap,” and citing meetings and emails between Bureau and Administration
staffers as evidence the Administration is using the Bureau for partisan

Issa and McHenry
say that their committees have closely monitored
the CFPB
since its creation
and have become increasingly concerned
its rulemakings
enforcement actions could
diminish credit access for eligible consumers.  This access has already declined for both
consumers and small businesses they charge as banks have tightened lending
standards in response “to burdensome Dodd-Frank regulations and an
uncertain business environment.”

“Other than student
loans, which are almost completely now backed
the government,
auto loans, our credit markets remain constrained.  Furthermore, as a result of
the Credit Card Accountability
Responsibility and Disclosure Act
the CFPB is in charge of
implementing, interest rate spreads
for credit card loans
have increased, making it
more difficult for eligible borrowers to access the
capital they need for their businesses.  Mortgage lenders are reportedly requiring the highest
scores in a
decade to approve home mortgages, with
an average credit score of 737
borrowers approved
a home loan in 2011.

Small banks
and community lenders are especially overwhelmed by the
onslaught of “red tape”.  Issa and McHenry blame the regulatory requirements
of Dodd-Frank Act for the closing or sale of many small
. “More alarmingly, because only 33 percent of the 400
rulemakings required
the Dodd-Frank
Act have been implemented fully, the total extent
of the Act’s effect on credit
cannot yet be accurately
measured.”  The report
quotes the Cato Institute that CFPB’s actions have already raised the cost of
consumer credit by at least two full percentage points or $17 billion and
depressed job creation by about 150,000 jobs.

The report
says that the Bureau’s
mandate and structure have predisposed
it to tighten restrictions
without considering the affect consumer lending.  “This
could decrease credit availability, make credit
more expensive,
hurt small businesses, stunt job creation, and jeopardize a full economic recovery.”

The Bureau’s Dodd-Frank mandate empowers
it to prevent “unfair, deceptive, or abusive” financial services or
products.  The chairmen devote a lot of
attention to what it calls the Bureaus refusal to define “abusive” in
this context,  The terms “unfair” and “deceptive” have established
meanings in case law and regulation,
they say, but “abusive” has no
well-established definition and
the CFPB has shown no willingness to define the term.

“This uncertainty creates a chilling
on financial institutions that
reluctant to lend due
to the litigation
risk that could follow from the amorphous definition of “abusive.”  The
refusal to define the term “abusive” “raises
a lot of doubt and uncertainties
in the minds of financial
institutions,” causing lenders
to restrict
credit products and

According to the
chairmen, CFPB
poised to enact burdensome
that will restrict consumer credit
access. Noted was a rule to regulate
international remittance transfers sent by individuals to consumers overseas.  A Texas bank (which also sued over the abusive
definition issue) has stopped overseas remittances and has sued CFPB.  The report estimates that 3,000 to 4,000
other community banks and possibly that many credit unions will exit the
remittance transfer business over the rule.

Issa and McHenry say that recently proposed
forthcoming mortgage regulations

have received significant negative
feedback especially a proposed rule to integrate mortgage
disclosure forms required
by two different regulatory acts.  A credit union representative said that it
would be difficult to review the 1,100 pages of the proposal and thus some
smaller credit unions may “simply throw up
their hands and quit making mortgage loans.”

CFPB is currently considering another mortgage rule that would require a
lender to verify a borrower’s
ability to repay a mortgage that does not satisfy the
definition of a “qualified
.”  The report said this rule could increase the cost of
mortgage lending,
reduce consumer choice, and
make it harder for consumers to compare mortgage options.

Another rule to supervise large debt
collectors may make it more costly for lenders to collect debts owed by
consumers.  Thus lenders will become more
hesitant to extend credit in the first place.

Finally, Issa and McHenry charge that
CFPB has a weak reliance on economics that prevents an evenhanded examination
of its regulatory actions.  “Whereas
other independent agencies like
the SEC have an independent
division dedicated to methodical and
unbiased economic
CFPB relies on a tiny office led by a part-time director with an
predilection toward restrictive regulations” This makes it likely that CFPB would
be unaware of harm its actions might do to credit
access among some segments
of the population.”

The Bureau also does
not perform adequate cost-benefit
analyses in its rulemakings
and has failed to adequately assess reduced credit access
a cost to its regulations. While other independent financial regulators have improved
their cost-benefit analyses,
“the CFPB has given
no indication that it would
consider enhancing its own

there is concern
that the Bureau
could regulate informally – bypassing traditional notice-and-comment
requirements – by coercing
institutions to act “voluntarily.”   Without the
certainty of thorough notice-and-comment rulemaking, lenders
will be less likely to extend

The report concludes by saying the CFPB has been
given carte blanche authority to
the offering of consumer financial products
and services in the United States, “but it lacks the necessary institutional and
controls typically found in an
independent agency.  As a
result, the CFPB is uniquely positioned
to drastically – and
perhaps unalterably – affect
the consumer credit
market for American
families and small
businesses. With a growing divide
between American consumers
businesses with
and without adequate access
to credit, the CFPB must be
mindful to ensure that the United States retains a vibrant,
robust, and fully accessible credit

MND has asked
CFPB for its response to the report but has not yet heard from the agency.

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