The Bipartisan Policy Center released a comprehensive study of the Consumer Financial Protection Bureau. While praising some aspects of the CFPB’s first two years, the report expressed concerns about transparency at the federal agency. Of particular concern were the CFPB’s management of the funds it collects via civil penalties, ambiguities over investigations and a lack of openness in guidance and rule making. The full report can be found here.
The Dodd-Frank Act created a new fund for money collected from civil penalties. The money is used to replay victims of violations of consumer financial regulations. According to the Dodd-Frank, funds collected in excess of those payments are to be used for “consumer education and financial literacy programs.” The CFPB has access to these funds without a fiscal-year limit and with absolute discretion as to their use. This fund now holds the $20 million paid by Chase in response to last month’s consent decree. Such loose management of public funds is, according to the report, “unparalleled among other financial regulators.” The report suggests limiting the CFPB’s management of these funds and calls for more explicit reporting of how these funds will be spent.
Another area of concern covered in the report is ambiguity when the CFPB interacts with regulated parties. Financial institutions under examination from the CFPB complain of loose timelines. The CFBP has been slow to inform institutions under its authority of the outcome of examinations, or even if the examination is finished. It has become the policy of the CFBP to bring attorneys and other enforcement staff to even preliminary meetings. The report notes the chilling effect this policy has on the free flow of information. Also, recent examinations have cast doubt on the training and industry experience of the lower-level staff at the CFPB.
Perhaps the most concerning issue raised by the report regards the CFPB’s openness in its regulation. As a federal agency, the CFPB is governed by the Administrative Procedures Act which calls for notification of proposed rules, public comment on those proposed rules, and publication of the final rule with analysis that addresses concerns raised during the public comment period. The report cataloged several instances of short notice for public meetings and closed-door or invitation-only meetings with industry representatives and consumer groups. In addition, the CFPB has evaded the “notice and hearing” provision of the APA by issuing “interim” rules without asking for public comment before the rules become effective.
While the report acknowledges that the CFPB has had some positive impact, its findings suggest that more oversight is needed.