How CFPB Develops Policy:  The Way Forward


This is the final post in a series on how CFPB develops policy: the vision, the reality, recent changes, and the future.

CRREA Project offers recommendations on what can be done to course correct and build a CFPB that can serve consumers and the public for the next 100-years.

In creating the CFPB, in what was and is a radical departure from the structure and mandate of other federal agencies, Congress sought to give prominence to the voices and experiences of marginalized, or, in the language of the statute, “traditionally underserved”  communities, through research, consumer complaints, market monitoring, and what are known as the “special populations offices”–Servicemembers, Students, Older Americans, and Fair Lending.   In this blog series, we explore:  

  • How was CFPB uniquely designed to listen to the voices of the “traditionally underserved”?  
  • How have recent reorganizations at the CFPB have undermined this congressional mandate?
  • What could be done to course correct and build a CFPB that can serve consumers and the public well for the next 100-years? 

Current demands for racial and economic justice make this conversation, about how the CFPB can fulfill its charge to listen to the voices and experiences of traditionally underserved communities, more pressing than ever.

The Way Forward

In our series on how the Consumer Financial Protection Bureau (CFPB) develops policy, and the inclusion of marginalized communities’ perspectives in that policy development, we’ve talked about the  vision as set forth in the Dodd-Frank Act,  the reality of how the statutory structure was implemented,  and changes to the organizational chart under the Trump administration.  In this blog post, CRREA Project considers how future CFPB leadership could realize the Dodd-Frank Act mandate to listen and be responsive to traditionally underserved communities and consumers. 

We urge the agency to center the voices of marginalized communities as a necessary adjunct to promoting accountability under the statute.  The exigencies of the current moment, the demand for racial justice, the recognition that racial and economic justice are linked and that the pandemic is amplifying and embedding existing racial disparities, all call for us to move beyond the generalities of the statutory language.  Poor, rural, and immigrant communities, across racial differences, are all both underserved and poorly served by financial institutions.  Black people in particular have always been excluded from the financial mainstream in this country.  The CFPB should explicitly re-center its antidiscrimination mandate and address itself squarely to fostering racial and economic equity.

Recommendation 1:  Name it!  Identify Who Is Served by the CFPB’s Mission

What’s In a Name?

As a first step to re-dedicating itself to its statutory mission, the CFPB should take a public stance acknowledging the centrality of consumers and traditionally underserved consumers.  We should put behind us the  fight over the name of the CFPB, and whether “consumer” or “bureau” should come first.  Regardless of how often the statute put which one first, Congress was clearly focused on a certain set of concerns in the creation of the CFPB: consumer concerns and particularly those of traditionally underserved communities and consumers.  Consumer interests always come first in the Dodd-Frank Act, and so they should in how the CFPB understands its work and presents it to the public, whether through the website, the logo, or consumer education materials.  

The Strategic Plan

The CFPB’s current strategic plan runs through 2022.  In developing the new strategic plan, the CFPB will have the opportunity to revisit its mission and vision statements, as well as the overall goals for its work, including specific measurable goals to be reported on annually.  The CFPB should seize this opportunity to center consumers, and a recognition of the CFPB’s special responsibility to traditionally underserved communities, in its work. 

Recommendation 2:  Lay the Foundation! Regularize Public-Facing Research on Consumer Financial Products and Services and Traditionally Underserved Communities

The Office of Research

The Office of Research is the first of the statutorily mandated Dodd-Frank Act offices .  Its mandate includes research and reports on risks to consumers, access to credit for traditionally underserved communities, and the experiences of traditionally underserved consumers.  It has both world-class economists and access to datasets covering all consumer financial markets, in many cases with only a month’s lag time.  The CFPB also has the authority, in section 1022(c)(4) of the Dodd-Frank Act , to collect additional information from financial institutions. 

Foundational Research Questions

Those resources should be focused on foundational work on the role of consumer financial products and services in traditionally underserved communities.  When is disclosure effective and for what risks?  How do consumers view tradeoffs in access to credit versus risk?  How can we untangle when the benefits of credit to traditionally underserved communities outweigh the costs of credit?  For example, the subprime lending boom of the early 2000s promoted access to credit and led directly to both the foreclosure crisis  and the  loss of more than a generation of wealth accumulation for Blacks and Latinx.  Credit can open doors and it can close them. 

Making Research Visible

The Office of Research has done significant work in all of these areas and more.  The CFPB should follow the precepts of the bipartisan Foundations for Evidence-Based Policymaking Act and adopt a public “learning agenda .”  A public research agenda, coupled with a regular cadence of reports on issues of importance to traditionally underserved communities, could bring public accountability to this aspect of the CFPB’s statutory mandate.  For example, researchers look to the CFPB for its annual release of the HMDA data and accompanying reports analyzing that year’s data.  Changes to the user interface for accessing the data have brought congressional scrutiny.  The CFPB could also expand its discussion in its semiannual report to Congress of the “significant problems faced by consumers in shopping for or obtaining consumer financial products or services.”  That discussion could explicitly center the experiences of marginalized communities in accessing credit on fair and non-discriminatory terms.   

Recommendation 3:  Build It! Create a Structure that Reflects the Statute and Makes Visible Traditionally Underserved Communities

The Organizational Chart

The Trump-era CFPB organizational chart has moved four of the Dodd-Frank mandated offices and special units off the public-facing organizational chart.  The offices of community affairs, financial education, service members, and older Americans are now all housed inside the consumer education office, itself housed inside a new division of external affairs and consumer education.  Offices important enough for Congress to name are important enough to be visible on the public-facing organizational chart.  The public should know who leads those offices.  

Fair Lending

Any new leadership of the CFPB will have to consider the location of the Office of Fair Lending.  The move of the fair lending office from its initial home in the same division with supervision and enforcement to the Director’s Front Office was meant to refocus the fair lending office’s work on “advocacy, coordination, and education” instead of supervision and enforcement.  We at CRREA Project believe that leaving the Office of Fair Lending in the Director’s Office could be used to signal its cross-cutting importance to the work of the CFPB, if coupled with the necessary formal and transparent decision rights and processes. 

For example, the CFPB could publicly commit to a formal role for the Office of Fair Lending in priority setting across the agency. The CFPB could update its written procedures related to decisionmaking to embark on specific actions that would normally rise to the Director for final decision, such as authorizing specific enforcement actions.   Establishing formal and transparent decision rights and processes would provide accountability to Congress and the public.  Such actions could provide reassurance that fair lending was a central consideration in supervisory and enforcement actions without disclosing confidential internal CFPB deliberations. 

Other Structural Reforms

Other steps could include explicit roles for outreach connected to rulemakings to facilitate input from marginalized communities or a designated role for the statutory offices in providing input into policymaking.  Clarifying the role of the Community Advisory Board would assist both the CAB and staff in understanding the purpose and nature of their interactions.  Other agencies, such as the Environmental Protection Agency have, from time to time, published detailed guidance for staff and guidance for rulewriters about the agency’s policy decision processes.  This kind of work is foundational to consistent management across administrations and could contribute to the development of a culture and identity for the CFPB that lasts for generations.

Conclusion

Accountability to the underserved and poorly served consumers and communities the statute repeatedly calls out is critical.  Public-facing documents, like the strategic plan, a research agenda, or an organizational chart, afford one level of accountability.  They explain what the agency intends to do and offer a point of engagement for the public.  Future leadership should go further and embrace the statute’s emphasis on consumers and traditionally underserved consumers and communities to apply an explicit racial and economic equity lens to decisionmaking across the agency.  Doing so would build a CFPB robust and resilient enough to serve the public well for the years to come. 

 

CRREA Project Is Recruiting for Law Student Interns

Download our Recruitment Flyer 


CRREA Project is seeking interns for the Spring 2021 semester.  Will you help us get the word out?

CRREA Project has relied on law student interns since the day we launched this site.  Law students draft our regulatory advocacy materials, they conduct research that informs our reports on CFPB, and they gather input and feedback about CRREA Project materials by interviewing and engaging with all types of experts and stakeholders.  The contributions made by law students to CRREA Project cannot be overstated.

Internship Experience

We do our best to make the experience enjoyable and valuable for our students.   We endeavor to offer students flexibility to work on what they are passionate about.  We can tailor the experience to what a student needs most given their stage in law school and their career path.  Whether a student needs to leave this internship with a writing sample, a few professional contacts, or more subject matter expertise in a particular area, we work with students on their professional development goals.

The internship is fully remote, and the work schedule is determined by the student’s availability.  We have worked successfully with students in a range of time zones.

Qualifications and Preference Criteria

CRREA Project is seeking law student candidates with: (1) demonstrated interest or experience in public policy and government and (2) experience with plain language writing for a mass audience. 

We prefer to work with students who can obtain academic credit or a stipend through their law school for this experience, and who are generally available for 10+ hours per week.

How to Apply

Students should send a cover letter and resume to diane@crreaproject.org and kate@crreaproject.org.  Applicants are encouraged to apply by November 6.

Questions or Suggestions

Contact Us with any questions, and also let us know if you have any suggestions about law schools we can contact who may have particular interest in supporting their students to intern with CRREA Project.

Thanks for your help!

Diane and Kate

 

Introducing the Regulatory Advocacy Glossary;

Examples of Acronyms in Action 


You may find the glossary useful if you have questions about the nuts and bolts of setting up a meeting with an agency. Or the difference between an NPRM and ANPRM. Or what all these acronyms even stand for!

As we’ve developed the resources on this site, we’ve received questions about some of the terms we use to describe regulatory advocacy. We’ve created a glossary  to explain what we mean (and we link to it on the Quick Guide to Regulatory Advocacy). 

You may find the glossary useful if you have questions about the nuts and bolts of setting up a meeting with an agency. Or the difference between an NPRM and  ANPRM. Or what all these acronyms even stand for!

This glossary is a living document. As we identify new terms that need clarification, we’ll be working to add them. Please reach out if you think of something you’d like to see added to the glossary or you see something we’ve gotten wrong.

Why Should I Care About SBREFA?

The glossary explains why SBREFA (Small Business Regulatory Enforcement Fairness Act) shows up in the pre-rule stage along with the more familiar RFI (request for information) or ANPRM (advanced notice of proposed rulemaking). The Small Business Regulatory Enforcement Fairness Act (SBREFA) requires the Consumer Financial Protection Bureau (CFPB), the Environmental Protection Agency (EPA), and the Occupational Health and Safety Administration (OSHA) to take certain steps before issuing a rule that is likely to have a significant impact on a substantial number of small businesses.  Those steps include preparing materials about the proposal and reviewing those materials with a panel of small business representatives. After the panel review, a report on the panel’s recommendations is made public. The panel report must be made public, usually in conjunction with the release of the proposal.

These three agencies differ in what they make public when, but all three have mechanisms that allow for some public review of the agencies’ thinking at this pre-rule stage. Engagement at the pre-rule stage is particularly powerful and can help shape the proposal. Advocates can engage during the SBREFA process even if they don’t represent small businesses, whether by reviewing SBREFA panel materials, listening to the SBREFA panel meetings, or asking questions of the agency about the SBREFA process and opportunities for public engagement. The panel report can provide a particularly clear roadmap to likely business opposition to the rule.

An Example:  Do You Care About Financial Inclusion?  Comment by December 14th!

Right now, the Consumer Financial Protection Bureau (CFPB) is preparing for a SBREFA panel later this month  on its implementation of Section 1071 of the Dodd-Frank Act. It has published both the outline of the proposed rule it is providing to the SBREFA panel and a  high-level summary of that outline, along with other materials. Anyone can review them and comment on them. The National Community Reinvestment Coalition (NCRC) has already published an initial summary of the outline, headlined, “ A Step in the Right Direction, But Improvements Needed.

This rulemaking has particular significance for our historical moment. Small business development can buffer Black and Brown communities against discrimination and serve to build wealth in the face of centuries of financial exclusion, but only if credit is available on non-discriminatory terms. Entrepreneurs of color are often discouraged from even applying for a loan. One study on the Paycheck Protection Program, using matched-pair testers, found that none of the tested banks encouraged any of the Black female testers to apply for a Paycheck Protection Program loan.\

Section 1071 of the Dodd-Frank Act: Making Visible Racial and Gender Discrimination in Small Business Lending

Section 1071 of the Dodd-Frank Act was meant to make visible the discrimination against small business owners based on gender or race. Section 1071 requires financial institutions to collect data on application for credit from women-owned, minority-owned, and small businesses. It also requires annual reporting to the CFPB. This data would let us see where and how discrimination is occurring. Data would help us fashion a remedy and hold discriminatory actors to account.   

The outline contains proposals the CFPB is considering to implement Section 1071, many of which could significantly impact its efficacy in protecting business owners from racial or gender discrimination. For instance, while the definition of a covered lender under 1071 is relatively broad and inclusive, the CFPB is considering exempting financial institutions “from any collection and reporting requirements based on either or both a size-based and/or activity-based threshold.” Should we be concerned about predatory behaviors by smaller lenders? What evidence do you have either way to raise to the CFPB?  

The comments submitted on the outline, as well as comments from the small business representatives at the panel, will form part of the rulemaking record.  They will influence what rule the CFPB proposes.

Conclusion

We hope this detour has helped make clear some of the power regulatory advocacy has for racial and economic justice.  The glossary is just one of our tools to help with making your regulatory advocacy easier and more effective.  Please check out all our regulatory advocacy tools and let us know what you think.

 

– Sarah and Diane

 

Where Did All the Statutory Offices Go?


This is an additional post in a series on how CFPB develops policy: the vision , the reality, and the future.

In prior blogs, we’ve reviewed what the Dodd-Frank Act had to say about the structure of the Consumer Financial Protection Bureau (CFPB) and  how the CFPB has implemented those statutory requirements.  Before we go on to discuss our vision of what a CFPB that fully centered the voices of marginalized communities would look like, we want to look more closely at changes to the organizational chart under the Trump Administration.

2017 CFPB Organizational Chart

The CFPB’s November 2017 public-facing organizational chart is below.  The statutory offices and functional units are in green. Included in the green are the Advisory Boards and Councils office, responsible for the statutorily-required Consumer Advisory Board, and both the Community Affairs office and the Financial Empowerment office.  Community Affairs and Financial Empowerment each performed some of the functions of Dodd-Frank § 1013(b)(2). 

Click on image to view detail

The 2017 organizational chart provided both visibility and accountability to the Dodd-Frank Act’s “special populations” and other interested parties.  For example, major consumer advocacy groups across the country as well as faith-based coalitions and legal services organizations knew they could contact the Office of Community Affairs if they had questions about a CFPB initiative.  Groups working on student lending, financial education, or with older Americans or servicemembers could also see at a glance whom they were supposed to call.

2020 CFPB Organizational Chart

Advocates looking at the current organizational chart, below, would have difficulty discerning if they have a voice inside the CFPB.  Less than half the statutorily-mandated offices are visible now—the green has shrunk.  In its place, we have yellow—representing positions filled through external hires since 2017 (or vacancies, where the yellow is cross-hatched with blue)—and purple—new offices created under the Trump Administration.   

Click on image to view detail.

The offices of Advisory Boards and Councils, Community Affairs, Financial Empowerment, Financial Education, Older Americans, Servicemembers, and Students and Young Consumers are no longer on the public-facing organizational chart. These offices still exist, all suboffices inside the new Consumer Education and External Affairs division.  But, unlike the offices shown on the organizational chart, the leadership of the new suboffices is not named.  Even if a diligent advocate clicks through every link on the CFPB’s organizational chart, the advocate won’t discover who heads the office or if it is staffed. 

All but Advisory Boards and Councils are now suboffices of the Consumer Education Office.  The website informs us, “The Consumer Education Office provides information for American consumers to consider in their financial decision-making process .”   Providing information to consumers is not the same, for example, as “providing . . . technical assistance regarding the offering and provision of consumer financial products or services to traditionally underserved consumers and communities,” as Dodd-Frank Act § 1013(b)(2) requires of Community Affairs, or coordinating state and federal efforts to protect servicemembers, as the Dodd-Frank Act § 1013(c)(1) requires the Office of Servicemember Affairs to do.  There is no recognition in this formulation that the statutory offices have obligations beyond consumer education, as every statutory office or functional unit does.  There is also no invitation in this formulation to marginalized communities, as distinct from the general public, to engage with the CFPB. 

This de-emphasis on marginalized communities and vulnerable consumers is carried through in other changes, as well.  The former External Affairs office called Community Affairs, now located within the Office of Stakeholder Management, has been re-named “Public Engagement,” subtly shifting its focus from traditionally underserved communities into something much less targeted.  And, while we have lost visibility into the statutorily-mandated functions of financial education, older Americans, and servicemember affairs, among others, the new Office of Innovation, reporting to the Deputy Director, which grants applications for waivers of statutory requirements in order to promote competition, innovation, and consumer access, is clearly visible on the organizational chart.

CRREA Project’s Take

Looking at these charts, it’s indisputable that the leadership structure of the CFPB has been fundamentally reshaped over the last three years.  Both structure and personnel have shifted significantly.  A new administration will face significant time and resource challenges if it wants to “turn back the clock.”

 

Taking Stock at CRREA Project


Whether you have just found us, or you have been with us since the beginning, we invite you to take stock with us of all of our regulatory advocacy materials.  Let us know how we can improve, and what you think we should do next!

With the release of the Regulatory Advocacy Quick Guide, our one page mapping tool for regulatory advocacy, we wanted to stop a minute and take stock of our first three months at CRREA Project and to share our upcoming plans.

Regulatory Advocacy Materials

Under Regulatory Advocacy Materials, we now have up:

Taken together, these materials walk you through how to engage in everything from commenting on a rule to developing a multi-pronged regulatory advocacy strategy focusing on the issues core to you and your community.  They are also, as far as we know, unique in their focus on practical tips geared to busy people.  Both Decoding the Unified Agenda: A Guide for Advocates and Decoding the Unified Agenda: A Guide for Advocates are focused on helping you translate what you know into the language of regulators.

We’ve also got a few short videos (40 seconds to just over two minutes) up on a You Tube channel of Diane earnestly explaining our core philosophy at CRREA Project.  Simply by telling our stories, conveying to regulators what we already know, we have great untapped power to change the rules that do so much to shape the possibilities in our lives and in our communities.  Some of you may have seen them on Twitter or watched them in a training.    

We expect we’ll have a longer guide on effective commenting up in the next few weeks, and there are other materials in the pipeline.  With any of these materials, we encourage you to use them, share them, and let us know how we can improve.  Our goal is to help you do more effective advocacy on behalf of racial and economic justice; we can only do that if you let us know what works and what doesn’t.  If you have been a fan of our work, consider signing up for our newsletter, using the application on our blog.

We’ve done a few trainings so far and are looking forward to our three-session extravaganza at the NCLC Consumer Rights and Litigation conference this November.  With NCLC, we are hosting a session on why and how to do regulatory advocacy, a Q&A on regulatory advocacy with former CFPB officials, and a strategy summit on economic justice regulatory advocacy.

CFPB Specific Materials

The website also has CFPB specific materials, including a  list of every regulatory action the CFPB has taken since the beginning of COVID, updated through September 15, and our rating as to whether the regulatory action was consumer-protective or advanced fair lending.  We’re in the middle of a  blog series now that is exploring the question of what the Dodd-Frank Act said about centering the voices of marginalized communities at the CFPB, what the CFPB did, and what more we can do to make sure the voices of marginalized communities are centered at the CFPB.  If we want racial justice, we have to listen to what marginalized communities have to say, and we have to act on that information. 

The need to listen to and act on the experiences and views of marginalized communities was apparent in the wake of the subprime foreclosure crisis and the Great Recession when the Dodd-Frank Act was passed.  The disparate impact of COVID-19 on Black and Brown communities, as well as Native American and immigrant communities, in terms of health, mortality, and financial well-being, has only made the need for the CFPB to center the voices of marginalized communities more evident and more pressing.

Kate and I are very grateful that we’ve been able to work so closely with Sarah Brandon, Travis Doyle, and Nikka Pascador.  Each of them has offered amazing contributions and helped us re-imagine this work.  We also couldn’t have done it without all the people who’ve been so generous with their time in reviewing materials and encouraging us.  Thank you.  We’re looking forward to seeing what the coming months bring.

 

Diane and Kate

 

Introducing a Quick Guide to Regulatory Advocacy

Read the Quick Guide

What should advocates consider when developing a regulatory advocacy strategy? How can advocates maximize their impact?  Does it matter where a rule is in its life cycle, from pre-rule to proposed rule to final rule?  Our new quick guide to regulatory advocacy helps you map out your approach and choose the tools best suited to where you are in the process and what your goals are.

CRREA Project Recommendations

No matter what your goals are or where you are in the rulemaking process, we have a few recommendations:

  • Because agencies are required to consider evidence and weigh the costs and benefits of their rules carefully, lead with facts and information, rather than opinions or arguments.
  • While it is not always necessary to reference the law, tying in the agency’s statutory mandate can be very powerful, whether the statute that created the agency (like the Dodd Frank Act and the CFPB) or a statute that delegates legislative authority for a specific rule.
  • Finally, ask questions. You might illuminate what additional information from you an agency would find valuable or use an isolated observation to prompt the agency to conduct further investigation into a potential pattern.

This quick guide to regulatory advocacy follows the lifecycle of a rule to illustrate the full menu of opportunities to engage and work with an agency. Geared to the federal level, it is designed to help advocates map out their goals and intentionally use tools that will best influence regulators at each stage of a rulemaking.

Regulatory Advocacy in the Pre-Rule Stage

The pre-rule stage is a particularly powerful place to engage. By engaging at the pre-rule state, community groups and advocates can help set the agency’s agenda. For example, an agency may put out a request for information (RFI) to gather more information about an issue before issuing a notice of proposed rulemaking (NPRM). Comments on an RFI shape how a rule is eventually drafted and whom it protects. The impact at the RFI stage can be even greater than at the proposed rule stage because the agency can still choose to propose or not propose anything it wants. At the pre-rule stage, the agency is not yet constrained to stick to a “logical outgrowth” of what it has proposed in finalizing the rule.

We can see how significant an RFI can be in terms of setting the agenda with the Consumer Financial Protection Bureau’s current RFI on the Equal Credit Opportunity Act (ECOA). In ten short questions, the CFPB is raising fundamental questions about the future of fair lending. The CFPB asks about the treatment of disparate impact under ECOA, for example, as well as the relevance of the Supreme Court’s Bostock decision to the fair lending protections afforded LGBTQ people. These are questions of wide-reaching importance and are wide open for comment. What we tell the CFPB now will help determine whether and what rulemaking the agency proposes in the future. Our comments now help determine what we get to comment on in the future. The comments may also shape the agency’s approach to supervision and enforcement. (If you want to comment, the deadline is December 1. We have a How to Comment checklist you can use.)

Even before an agency puts out an RFI, though, advocates can reach out to the agency to discuss issues of importance to the advocate and the community she serves. This could be a statute that has been passed but not yet implemented (like the regulation of Property Assessed Clean Energy lenders under the Truth-in-Lending Act) or a concern about implementation of existing regulations. This could be a question about research the agency is doing. For example, the CFPB noted in a blog that it was looking into the “Black-White gap in student loan defaults.” Advocates working on racial equity or student lending might want to inquire what the agency’s research shows and how it plans to address the gap. Arranging a meeting or submitting a letter can draw the agency’s attention to and help frame its understanding of an issue.  With sustained and coordinated effort, pre-rule stage advocacy can move an issue onto an agency’s regulatory agenda.

Thanks for Feedback

We thank Carla Sanchez-Adams, Linda Jun, Sarah Lamdan, Marissa Jackson-Sow, and Kelly Cochran for their invaluable input and feedback on this guide. We know you will have questions or may want to know more about some of the terms, so we’ve created a  glossary to go along with it. We’ll have more to say on that soon. In the meantime, we hope this framework is useful for your advocacy—please let us know your thoughts!

Sarah and Diane

 

 

How CFPB Develops Policy:  A Fragile Cross-Matrix


This is the second post in a series on how CFPB develops policy: the vision, the reality, and the future.

In creating the CFPB, in what was and is a radical departure from the structure and mandate of other federal agencies, Congress sought to give prominence to the voices and experiences of marginalized, or, in the language of the statute, “traditionally underserved”  communities, through research, consumer complaints, market monitoring, and what are known as the “special populations offices”–Servicemembers, Students, Older Americans, and Fair Lending.   In this blog series, we explore:  

  • How was CFPB uniquely designed to listen to the voices of the “traditionally underserved”?  
  • How have recent reorganizations at the CFPB have undermined this congressional mandate?
  • What could be done to course correct and build a CFPB that can serve consumers and the public well for the next 100-years? 

Current demands for racial and economic justice make this conversation, about how the CFPB can fulfill its charge to listen to the voices and experiences of traditionally underserved communities, more pressing than ever.

Early Organizational Decisions

In our prior post in this series, we reviewed the congressional direction to the CFPB to listen to the voices and experiences of traditionally underserved communities in the CFPB’s policy making.  How did this congressional direction play out?

Let’s start at the beginning.  If you had been a member of the team making early operational decisions about standing up the CFPB in 2011, you would be forgiven if you did not know where to start in sketching out a Bureau organizational chart.  

The Dodd-Frank Act did mandate some specific offices and functional units,  but was mostly silent on how the CFPB’s rulemaking, supervision, and enforcement functions should be structured or where the special populations offices, the consumer complaint function, the Office of Research, or other functions ensuring CFPB accountability to traditionally underserved communities were housed.  The statute provided no guidance about whether the 17 federal consumer financial laws the CFPB inherited should influence its organizational chart.  For example, the Federal Reserve Board had an organizational unit dedicated to administering and enforcing the Home Mortgage Disclosure Act: should the CFPB do the same?  

Early CFPB leaders settled on six “Divisions,” led by “Associate Directors.”  The Supervision, Enforcement and Fair Lending Division spurred efforts to integrate the strategies and operations of its component offices.  This integration sent a powerful message to industry that supervision and enforcement were linked strategies, and that fair lending would be a core focus of the CFPB in exercise of its supervisory and enforcement actions.  The Research, Markets and Regulations Division grouped the statutorily-mandated Office of Research with markets teams and rulewriters in a single division, similarly signaling a commitment to data-driven policy, and integration of diverse expertise, at every stage of the rulemaking process, including the establishment of rulemaking priorities.

Figure 1 CFPB’s Divisions in 2017 and FY 17 Headcount 

 

Under this organizational chart, offices with a specific focus on traditionally underserved communities were, in many cases, placed in Divisions without a primary policymaking mandate.  The complaint function, named “Consumer Response,” reported to the Associate Director for Operations Division.  The Office of Community Affairs was housed in the External Affairs Division, while its statutory functions, providing technical assistance on the needs and assistance of traditionally underserved communities, were given to the Office of Financial Empowerment, housed in the Consumer Education and Engagement Division.  The offices for financial education, older Americans, service members, and students were also housed in the Consumer Education and Engagement Division.  

With the exception of the Office of Consumer Response, these offices mandated by Dodd-Frank to focus on traditionally underserved communities and certain specific populations were quite lightly staffed.  Offices such as Servicemember Affairs, Students, and Older Americans each had fewer than 15 team members.  Altogether the offices focused on traditionally underserved communities constituted a trivial fraction of the CFPB’s budget.

Most critically, under this organizational structure, there were no explicit racial or even consumer-centric inputs formally embedded into the CFPB’s rulemaking process, although certainly the CFPB worked to fulfill its statutory mission to protect consumers.  Instead, the voices of the “traditionally underserved” were funnelled into the Research, Markets, and Regulations Division via “cross-matrix” engagement.

Cross-Matrixed Policy Making in the Obama Era

Under the tenure of Director Cordray, policy making was intentionally, sometimes exasperatingly, cross-matrixed.  Teams on policy initiatives might be led by a manager from one office with staff from other Offices and Divisions.  As described in a 2018 GAO report, policy was developed through a “One Bureau” initiative, which brought together subject matter experts from across the CFPB to set policy priorities and design and develop policy initiatives.   Representatives from every office in the CFPB were expected to attend weekly “Policy Committee” meetings and invited to weigh in on policy matters great and small. Teams would spend weeks preparing for Policy Committee meetings with decks and slides.  Objections raised during a Policy Committee briefing could derail a proposal and require cross-division negotiations before the matter proceeded to the Director for approval.   

In this cross-matrixed environment, offices without formal decision rights in CFPB rulemaking, supervisory, or enforcement actions, such as the Office of Community Affairs or the Office of Older Americans, were able to raise concerns regarding the impact on traditionally underserved communities and other groups of consumers.  Dozens of fair lending supervision activities opened in each fiscal year, even though the Office of Fair Lending staff constituted less than 10% of the total staff of the Supervision, Enforcement, and Fair Lending Division.  The Office of Research built a credit card database of de-identified loan-level data covering over 80% of the credit card marketplace, as well as a mortgage database with a sample of mortgages representative of up to 95% of the market, and began issuing regular reports on a range of consumer credit topics.  This unprecedented research capability was made possible by cross-Bureau support, while the formal resources of the Office of Research remained modest, with a headcount of less than 45 staff.

Structural Changes in a Trump-Controlled CFPB

The ability of the special populations offices to influence policy was dependent on these internal cultural “cross-matrix” norms and practices.  Policy meetings with Director Cordray would often include tens of people, including managers and staff, from across the CFPB.  Acting Director Mulvaney, however, preferred a more streamlined and hierarchical approach.  Meetings shrank.  The One Bureau initiative and Policy Committee meetings were discontinued.  Institutional channels for cross-divisional consultation and collaboration vanished.  A two-year hiring freeze left the smaller special populations offices particularly depleted, further impeding cross-CFPB consultation.   

The first, and perhaps most visible, change to the organizational chart was moving the Office of Fair Lending out of the Supervision, Enforcement and Fair Lending Division.  While the CFPB’s  spokesman proclaimed that the move was not intended to reduce the number of fair lending cases, but only to increase “efficiency and consistency,” it would be more than two years before the CFPB would bring another fair lending enforcement case, other than actions based solely on errors in Home Mortgage Disclosure Act reporting.  This was the longest absence of fair lending referrals in the agency’s history.  

Other, less notorious, changes to the CFPB’s organizational chart also damaged the CFPB’s ability to be responsive to traditionally underserved communities and consumers.  Four offices with a mandate related to traditionally underserved communities and consumers have disappeared from the most recent CFPB organizational chart: the Offices of Community Affairs, Financial Education, Servicemember Affairs, and the Office for Financial Protection of Older Americans.  All are now housed, along with the Office of Students, as  offices within the Office of Consumer Education, itself now partt of a new Division of Consumer Education and External Affairs.  According to the organizational chart, “The Consumer Education Office provides information for American consumers to consider in their financial decision-making process.” Absent is the statutory mandate to twin education with empowerment.  Instead, traditionally underserved communities and consumers become the passive recipients of information, without the visible, formal channels for engagement with the CFPB that their prior prominence on the organizational chart afforded.   

As we can see with the sharp drop-off in fair lending cases, structure both reflects leadership priorities and facilitates certain outcomes.  The decline in visibility of statutory offices designated  to ensure the visibility of special populations and traditionally underserved consumers similarly both reflects leadership de-emphasis on racial and economic justice and further impedes the ability of those offices to do their statutorily-mandated work.

In the next blog post, CRREA Project considers how future CFPB leadership could center traditionally underserved communities and consumers.

Dodd-Frank Act’s Mandate to the CFPB to Center Traditionally Underserved Communities


This is the first post in a series on how CFPB develops policy:  the vision, the reality, and the future.

In creating the CFPB, in what was and is a radical departure from the structure and mandate of other federal agencies, Congress sought to center the voices and experiences of marginalized, or, in the language of the statute, “traditionally underserved”  communities.    In this blog series, we explore:  

  • How was CFPB uniquely designed to center the voices of the “traditionally underserved”?  
  • Have recent reorganizations at the CFPB undermined this congressional mandate?
  • What could be done to build a CFPB that can serve consumers and the public well for the next 100 years? 

Current demands for racial and economic justice make this conversation more pressing than ever.

Why the CFPB Was Created

When the CFPB was created in the wake of the 2008 financial crisis, legislators understood that predatory subprime lending had taken down the U.S. financial system, and the hard-earned wealth of many families, particularly Black and Brown families, along with it. The Senate Report  on the Dodd-Frank Act cited a Federal Reserve Board study, which found that 54% of African-Americans and 47% of Hispanics received high-cost mortgages in 2006, compared to the only 18% of non-Hispanic Whites who had received high-cost mortgages. Borrower-related factors other than race, such as income, accounted for only one-sixth of this disparity.  

To this day, African American families, in particular, have not recovered from the economic fallout of the subprime lending boom and bust. 

Because Congress believed inconsistent application and enforcement of consumer protection and fair lending laws had enabled the crisis, a new agency was created. This agency, the CFPB, was charged with being consumer focused, with special attention to “traditionally underserved consumers.”  A focus on racial and economic equity was embedded in the CFPB’s creation.

The use of the term “traditionally underserved consumers” reflected an understanding that many consumers are not, and have never been, well served by traditional financial service providers.  This understanding crossed the aisle during the years leading up to the CFPB’s creation: President Bush’s Advisory Council on Financial Literacy , for example, used the expansive definition of “credit underserved” to reference the unbanked and underbanked.  In committee hearings following the financial crisis, “underserved” was frequently used to describe low-income communities, communities of color, and, occasionally, older people.

The CFPB’s Structure, as Mandated by the Dodd-Frank Act

Whether in the enforcement authority given the CFPB for fair lending or in the expectation that market monitoring would include the risks of consumer financial products or services to traditionally underserved consumers, Congress charged the CFPB with seeing, hearing, and acknowledging those marginalized and discriminated against communities whose exploitation had led directly to the Great Recession.  This mandated focus on the “traditionally underserved” is woven into the CFPB’s mission, authorities, and statutory organizational structure.  

The Dodd-Frank Act sets forth a radically new vision for how the CFPB, as a government agency,  should orient itself and develop policy.  There are seven offices or functional units the Director of CFPB is required to establish:  The Office of Research is charged with conducting research and reporting on access to “fair and affordable credit” for traditionally underserved communities and, more generally,  “the experiences of traditionally underserved consumers” with credit and other consumer financial products and services.  Next, the Office of Community Affairs is tasked with “providing information, guidance, and technical assistance” on traditionally underserved communities’ experiences with consumer financial products and services.  Then comes the consumer complaint function, itself a radical mandate with a clear purpose of making visible to the agency, and to Congress, consumers’ experiences with credit, in their own voices.   Offices for Fair Lending, Financial Education, Service Member Affairs, and Older Americans all follow. Each of these offices is tasked with “coordinating” with relevant state and federal agencies, and some are tasked with providing reports to Congress.  

Congress added more mechanisms for robust input into the agency’s work.  For example, a private loan ombudsman has duties ranging from receiving and resolving student loan borrower complaints to developing policy recommendations annually for the Department of Education and multiple congressional committees.  Congress also mandated that the Director of CFPB establish a Consumer Advisory Board, whose members are to include “representatives of communities that have been significantly impacted by higher-priced mortgage loans,” as well as members with expertise in fair lending and civil rights.

A Mission of Accountability to Racial and Economic Justice

In short, at the heart of CFPB’s mandated structure is a mission of accountability to racial and economic justice.  The language is broad enough to permit inclusivity and evolution, but pointed enough to be clear.  The CFPB must pay attention to the voices and experiences of Black and Brown communities, of low-income communities, of communities with particular vulnerabilities, such as older Americans or service members.  Congress envisioned fundamental accountability to these specific communities through a specific, mandated structure. 

In the next blog post, CRREA Project will assess how this design played out.  Did Congress fall short in its design? Did the CFPB fall short in its execution?  Or was it just right?

 

 

CFPB’s “Advisory Opinion Program” Proposal Offers Corporations Protection From Consumers


CFPB is accepting comments on this proposal through Friday, Aug. 21.

In mid-June, while the rest of the country was confronting racial injustice, the Consumer Financial Protection Bureau (CFPB) released a notice  offering corporations streamlined, private access to safe harbor interpretations of the laws under its jurisdiction.  Under the CFPB’s proposed “Advisory Opinion Program,” corporations, operating in the gray zone of the law, can, on the basis of a confidential, potentially anonymous submission, ask for the CFPB’s blessing of their business practices.  There is no opportunity for consumers or their advocates to present a dissenting view.  The CFPB has made clear that these advisory opinions will, at least sometimes, offer a safe harbor for legally suspect acts, shielding corporations from liability and depriving harmed consumers of legal recourse. 

The CFPB stated that, because the advisory opinion program is a rule about internal agency procedures, it did not need to take comments on the program.  Nonetheless, it is accepting comments  through the end of the day on Friday, August 21.  The questions it asks point towards a fixed decision to aid corporations at the public’s expense:  How can the CFPB better “accommodate” those who want the safe harbor but don’t want to pay top dollar for a lawyer to prepare the request? How should the CFPB handle “sensitive” information and, presumably, shield it from public view?  

Peeking Behind the Curtain of Internal Agency Procedures

Still, understanding how the CFPB proposes to run its advisory opinion program, like other aspects of internal agency procedure, is an important part of effective regulatory advocacy.  What opportunities does the advisory opinion program hold for advocates, if any?  What internal processes could advocates leverage to promote the interests of consumers and marginalized communities?  What does this peek behind the curtain of “internal agency procedures” tell us about how the CFPB thinks about its work?

 

First and foremost, perhaps, is that this is an agency attuned to business interests.  Businesses, although vociferous in their opposition to guidance  when used to make clear enforceable obligations under the law, have long sought the ability to get public, written guidance from the CFPB that they could rely on in legal proceedings brought by consumers or regulators.  The CFPB itself expects that requestors will be primarily businesses or other for-profit entities.” The promised anonymity, if a requestor goes through a third-party, like a law firm or trade association, and confidentiality of information submitted both speak to business interests, not consumer concerns or the public interest.

The CFPB’s proposed process for its advisory opinion program is strikingly lop-sided.  The Administrative Conference of the United States  suggested the CFPB might find of ACUS Recommendation 2019-1, Agency Guidance Through Interpretive Rules “particularly useful.”  That recommendation highlights the importance of “afford[ing] members of the public a fair opportunity to argue for… analyses other than those set forth in an interpretive rule.”  ACUS urges that, at the least, there be a post hoc opportunity for public engagement.  The closest the CFPB comes to asking for comment on this point is how to make the advisory opinions “available to the public in a useful format.”

Consumers and Industry All Lose in the Long Run

Throughout the Dodd-Frank Act, the CFPB is charged with listening, not just to consumers, but to “traditionally underserved communities.”  The Office of Research, market monitoring, the Office of Community Affairs are all explicitly mandated to gather information on and from traditionally underserved communities, in order to inform the CFPB’s rulemaking and policy agenda.  The CFPB’s advisory opinion proposal not only ignores the administrative law best practices suggested by the ACUS but turns its back on those traditionally underserved communities the Dodd-Frank Act centered.

This proposal also runs the risk of not working well, even for the industry stakeholders it intends to benefit.  The Federal Reserve Board tried a similar ad hoc regulatory approach in the early years of the Truth-in-Lending Act and abandoned it in 1980, judging it an abject failure.  The sheer volume of the more than 1500 interpretations and letters issued over a 12-year period complicated compliance.  The Senate Report on the TILA Simplification bill (S. Rep. No. 368, 96th Cong., 2d Sess.) cited those advisory opinions as a key reason “simplification” of the pre-eminent consumer protection statute was needed, noting, “Creditors . . . have encountered increasing difficulty in keeping current with a steady stream of administrative interpretations . . . .”  The CFPB doesn’t mention this history in its proposal, so we don’t know how or if the CFPB plans to distinguish its approach from the failed approach of the Federal Reserve Board.

CRREA Project’s Take

An advisory opinion program isn’t necessarily wrong.  Providing clarity on regulations is helpful, and not every issue warrants full notice-and-comment treatment.  But a program cloaked in secrecy, affording confidentiality and anonymity to big business without assuring any input from consumers falls short.  The CFPB should scrap its advisory opinion program until it can develop a proposal that explains how consumer interests will be protected and how the public will receive the benefit of open and transparent processes.

 

CFPB Regulatory Action Post-COVID

Read the Report


In preparation for Director Kraninger’s testimony in the Senate today and in the House tomorrow, CRREA Project has taken a look back at what regulatory actions the CFPB has taken since the start of the COVID-19 crisis in the United States. 

In preparation for Director Kraninger’s testimony in the Senate today and in the House tomorrow, I took a look back at what regulatory actions the CFPB has taken since the start of the COVID-19 crisis in the United States.  To that end, we at CRREA Project have prepared a chart listing every regulatory action the CFPB has taken since the beginning of March.    

What we find will come as no surprise to anyone who has been following the CFPB:  there were more actions reducing consumer protections than promoting consumer protections, and there were zero regulatory actions in support of fair lending, although there were some, such as the request for information on credit discrimination issued on July 28 that were at least neutral or mixed with regard to fair lending.  In line with its stated regulatory philosophy, the CFPB throughout this period prioritized protection of “the financial sector and reducing regulatory burden, not consumer protection.

This was a missed opportunity.  Consumers, and the public at large, could have benefited from a CFPB willing to engage with its mission.  The CFPB could have stopped the garnishment of stimulus payments, or required mortgage servicers to provide homeowners clear notices about their repayment options after a forbearance, or defined parameters for debt collection that protected the public health, to take only a few obvious examples.  Mounting evidence suggests that communities of color, particularly Black, Latino, Native American, and immigrant communities bear the brunt of the health, mortality, and economic impacts of COVID.  Work could and should have been done by the CFPB to protect those communities and live up to its mission.

Methodology

We reviewed the CFPB newsroom clips from the beginning of March forward.  Any policy statement, guidance, notice of proposed rulemaking, final rule, or announcement of regulatory flexibility was added to our list.  We give the date, the title (with a hyperlink to either the underlying document), and a brief description, lifted mostly from the CFPB’s press releases, of the action. 

For every action, we then give it a thumbs up or thumbs down on consumer protection and, where there are significant fair lending implications distinct from general consumer protection issues, on fair lending.  If the action neither reduced nor increased consumer protection or fair lending, we rated it neutral.  Some actions had, in our judgment, both positive and negative impacts, and those we reported as mixed.These thumbs up or thumbs down aren’t scientific, and a thumbs down doesn’t necessarily mean it was the wrong choice for the CFPB to take the given action.  Accommodations for financial institutions during the pandemic were certainly warranted in some cases. 

Because we are focused on regulatory advocacy, we did not review the CFPB’s enforcement, research, or consumer education initiatives for purposes of this survey.  We also did not include blog posts, such as the July 7 Innovation Spotlight, in our counting unless they clearly articulated a regulatory action.

Findings 

Note:  Click on graphics to make them larger.

Since the beginning of March, the CFPB had, by our count, 34 regulatory actions.   None promoted fair lending.  A minority of those actions was consumer protective.

In either press releases or the underlying document, the CFPB claimed 20 of those actions, mostly policy statements relaxing supervision and enforcement of the consumer financial protection laws, as being related to COVID-19.  At least some of the actions characterized by the CFPB as being motivated by the pandemic seem unconnected.  For example, the CFPB in its  press release for the final payday lending rule, rescinding the ability-to-repay underwriting requirements of the 2017 payday rule, linked the rescission of those protections to pandemic relief, a position the preamble to the rule was careful to distance itself from.  Other actions, like relaxing disclosure timing requirements for mortgages or credit card applications, justified as COVID-related on the basis of the need to expedite credit, do not reflect what the CFPB’s own research shows were the actual problems consumers were experiencing.  Of those 20 purportedly COVID-related actions, we rate 10 of them as negative on consumer protection, and three as negative on fair lending.  Four of the CFPB’s self-described regulatory actions in response to COVID were consumer protective, three were mixed, and two neutral.  None of the CFPB’s regulatory actions during this period, either linked to COVID or not, promoted fair lending.

Of the total 34 regulatory actions, whether COVID-related or not, more actions were negative on consumer protection than not.  There were 13 regulatory actions that reduced consumer protections, eight neutral actions, seven actions that supported consumer protection, five mixed, and one unknown regulatory actions in terms of the consumer protections afforded. 

Over this time period, there were no clearly positive regulatory actions in support of fair lending.  Seven of the CFPB’s 34 regulatory actions that raised significant fair lending implications were neutral on fair lending, four mixed, five negative actions, and one unknown action.

Aside from the sheer paucity of consumer protective action are the missed opportunities.  It is standard practice for regulators to remind financial institutions and scammers that there will be consequences for breaking the law.  Financial regulators in states as disparate as New York, Wisconsin, Illinois, and Massachusetts all used their bully pulpits to warn would-be law breakers of consequences.  But not the CFPB.  Instead, its policy statements consistently assured financial institutions that the CFPB would not pursue enforcement action, and that any supervisory action would be corrective only, so long as the institution was making some good faith efforts.  We will likely never know what the cost of that approach was, but those Black small business owners whose small businesses went under during COVID because they could not get a Paycheck Protection Program loan are undoubtedly part of the human toll of the CFPB’s regulatory choices during the time of COVID.