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House Committee on Financial Services Concerned with Decreased Consumer Choice

Posted in CFPB General, CFPB People, Payday Lending

As we previously reported, the House of Representatives Financial Services Committee held a hearing on the effects of regulatory “red tape.” In her opening statement, Meredith Fuchs, General Counsel of the Consumer Financial Protection Bureau, spoke about the goals of the CFPB in seeking input from impacted entities. Before enacting a rule, she said, the CFPB considers the costs and benefits to consumers and financial institutions, particularly the compliance burdens associated with a particular rule as compared to less burdensome alternatives.

Several Committee members were concerned with the CFPB’s disparate impact analysis. Chairman Hensarling started with a question regarding the CFPB’s failure to answer multiple letters to Director Cordray regarding the CFPB’s methodology in identifying whether there is a “disparate impact” on certain groups of consumers. Several other Congressmen, including Congressman Neugebauer, expressed their concern that the CFPB was actually making it harder for consumers to access credit.

Committee members were also concerned about Operation Choke Point, a Justice Department initiative aimed at scrutinizing banks that fail to meet their obligations as gatekeepers to the financial system, allowing easy access to predatory lenders and dubious online merchants. Congressman Meeks (D-NY) expressed his concern that the attempts to prevent fraudsters from accessing consumer bank accounts by cutting off their access to the payments system were essentially throwing the “baby out with the bathwater.” He related a story of a major financial institution that notified its customers that it was going to terminate the bank accounts of all check cashers. Richard Osterman, Acting General Counsel of the FDIC, responded that the FDIC focuses on helping institutions deal with the risk associated with working with third party payment processing companies, but did not address the Congressman’s underlying concern that legal entities were being pushed out along with entities with an illegal purpose. Mr. Osterman, in response to questions from Congressman Clay (D-MO) referenced a letter from September 2013 which reiterated that the FDIC’s supervisory efforts are focused on safety and soundness. Financial institutions should continue to keep these accounts open, he said, so long as the risk is acceptable to them. Mr. Osterman also stated that while Director Cordray is on the FDIC’s board, the FDIC and CFPB have no plans to release coordinated guidelines or rules on this issue. Rather, he repeated that financial institutions should be conducting their own due diligence to ensure that they are acting in a safe and sound manner.

Committee members and Congressman from both sides of the aisle raised concerns that excessive regulatory burdens could negatively impact consumers by taking away access to financial products on which they rely. Congressman Stivers (R-OH) expressed concern that Operation Choke Point was shutting down properly licensed businesses, and suggested that there be a safe harbor in place for businesses that are properly licensed by a state.

It is clear that the Committee is continuing to grapple with what it views as government overreach on the part of regulators. This is particularly true when the regulatory standards and rules are unclear, making it impossible for financial institutions and entities to conform their behavior to the law. Congressman Duffy (R-WI) stated that like tap water and glasses, the CFPB is better when it is transparent, and suggested that it amend its closed-door meeting policy for its advisory groups. We previously reported on Congressman Duffy’s efforts to open the CFPB’s advisory committee meetings, including H.R. 4262. Introduced by Congressman Duffy, H.R. 4262 would specifically apply the requirements of the Federal Advisory Committee Act to the CFPB and require the advisory meetings to be open to the public. Given the Committee’s continued emphasis on the importance of transparency, we hope that Director Cordray takes the Committee’s comments to heart and amends the CFPB’s policy on this issue.