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. 

 

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.”

 

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?

 

Agenda

What Can We Learn from CFPB’s Spring 2020 Unified Agenda Entries?


A version of this blog was previously posted in the American Constitution Society Expert Forum Blog and the Economic Policy Institute’s Working Economics Blog .

The week, Director Kraninger of the Consumer Financial Protection Bureau (CFPB) is slated to appear before the Senate Banking Committee and the House Financial Services Committee in connection with the CFPB’s Semi-Annual Report.  As we go into these hearings, it’s worth reviewing what we know about the CFPB’s current regulatory agenda.  As a reminder, the CFPB is the regulator that oversees all of the consumer financial regulations in the marketplace—everything from credit cards to payday loans to mortgages to debt collection to credit reporting.  If you have a bank account, a credit card, a student loan, or a mortgage, or if you have tried to get or want one of those, the CFPB’s rules impact you. 

At the end of June, the CFPB, along with all of the other federal agencies, released its  rulemaking agenda on the rulemaking that the agency plans to undertake through April 2021.  As we at the Consumer Rights Regulatory Engagement and Advocacy Project (CRREA Project) discuss in Decoding the Unified Agenda , everything is in the Unified Agenda—what an agency is working on, what it plans to do next, and when it anticipates taking that next step.  Rules are characterized as significant or nonsignificant, the agency contact for the rule is listed (in the CFPB’s case, this is almost always the attorney designated as the team lead on the rulemaking), and the history of the rulemaking project are all laid out.

Looking at an agency’s Unified Agenda also tells the reader something about the agency’s current priorities and rulemaking philosophy.  The CFPB, in addition to its agency rule list , issues a  blog post, which updates the Unified Agenda to reflect what the CFPB has done between when it submitted its Unified Agenda entries and when the Unified Agenda was released, and a preamble , which the CFPB is unique among agencies in doing twice a year.

The CFPB’s Regulatory Response to COVID-19

The CFPB seems to have understood its job during the pandemic as completing pre-assigned priorities on time rather than responding flexibly and creatively to the crisis.  Comparing the Unified Agenda entries with the blog, the CFPB showed impressive discipline in sticking to its rulemaking schedule, despite COVID-19.  (As noted in the blog post, this year the time lag between when the Unified Agenda entries were submitted and when they were published straddled the pre- and post-COVID worlds).  The CFPB mostly met its pre-COVID target dates, seldom falling more than a month behind.  For example, although the CFPB’s repeal of an Obama-era regulation requiring payday lenders to determine borrowers’ ability to repay loans  was  widely rumored to be scheduled for issuance in late April, the Unified Agenda set June 2020 as the month for its  issuance.  In the end, the CFPB released the rule on July 7, shortly after the Supreme Court upheld the constitutionality of the CFPB in Seila Law v. CFPBHolding tight to a rulemaking schedule requires discipline in the best of times, and the transition to remote work plus the general strains of pandemic life must have made sticking to the calendar even harder this year. 

 

Reviewing the blog post, and the CFPB’s actions, suggests the tunnel vision necessary to maintain that discipline.  The blog post’s nod to COVID-related work is a  link to a generic supervisory bulletin page.  While many items on that page post mid-March 2020 are styled as COVID-related, they read like a grab bag of mostly minor regulatory adjustments.  The actions taken show a consistent bent towards favoring flexibility for industry and encouraging faster access to credit, regardless of price or terms, but lacking is a sweeping regulatory adjustment to COVID-19, either favoring consumers or industry

Moreover, the two congressionally mandated, consumer protective rulemakings, on Property Assessed Clean Energy (PACE) loans and small business lending data collection, both remain in  pre-rulemaking status and have not advanced since the Fall 2019 Unified Agenda .  Among the very first responses the CFPB took to the pandemic was to suspend  the data collection necessary to advance those rulemakings.  The small business lending data collection remains slated for the release of an outline of the rule in September,  thanks no doubt at least in part to the settlement of the lawsuit  brought by the California Reinvestment Coalition and others to force the CFPB to restart that rulemaking.  But the only next step listed for the PACE rulemaking is “pursuing quantitative data,” and no further mention of PACE is made in the blog.  Apparently then, PACE will have to wait behind other, deregulatory rulemakings, such as the CFPB’s “reconsideration” and limitation of the data points collected under the Home Mortgage Disclosure Act . 

I have elsewhere laid out a comprehensive agenda for the CFPB in responding to COVID-19 and argued specifically for the need for action on debt collection, both as a public health matter and as a matter of consumer protection.  But the CFPB chose, by in large, to ignore the crisis and proceed with rulemaking as if hundreds or thousands of people weren’t dying every day.  For those pushing for the Trump administration’s deregulatory agenda, this tunnel vision was surely a victory.  For the rest of us, it was at best a missed opportunity.

The CFPB’s Regulatory Philosophy

What is most striking—and most useful to advocates—is what is revealed about the current agency’s rulemaking philosophy.  Partway through the CFPB’s  blog post announcing the Unified Agenda comes the tell:  “[W]e have continued to move forward with our other regulatory work, prioritizing activities intended to protect the stability of the financial sector and enhance its recovery . . . .”  Consumer protection is an “as well” afterthought, but not the central mission of this CFPB.  The  preamble  expands on this, explaining, “If the Bureau has discretion, the Bureau will focus on preventing consumer harm by maximizing informed consumer choice, and by reducing unwarranted regulatory burden which can adversely affect competition and consumers’ access to financial products and services.” 

Regardless of what one thinks of this approach to the CFPB’s mission, this nonetheless provides a roadmap for advocates:  Focus your arguments on competition, access, and choice.  Draw attention to places where market practices result in consumers’ lacking adequate information to make decisions or where competition fails.  This framework makes revisiting the payday lending rule hard, but suggests fruitful engagement in debt collection and mortgage servicing where consumer choice is irrelevant as consumers have no choice over their debt collectors or mortgage servicers.  Arguments about stability in the financial markets are likely to carry more weight than petitions for equity or consumer protection against mainstream financial practices.  Access will trump protection at this CFPB, so what are the arguments about how the proposals on the table will affect access or impose costs on business interests?  Are there places where streamlining regulations results in consumer benefits?  Now is the time to focus on those areas.

Effective regulatory advocacy requires sustained engagement, year after year, and meeting the agencies on their own terms.  Within the current CFPB agenda, there are places for advocates to advance racial and economic justice, if they focus on the arguments the agency is open to hearing.  In Working with Cost-Benefit Analysis, we at CRREA Project lay out some strategies for doing this.  We highlight the importance of quantifying what you can, whether through surveys or case file reviews, and situating problems in the broader context.  And, while commenting on proposals is always important, and our  How to Comment one-page checklist should help with commenting, meetings with staff, engagement with Congress on oversight, including in connection with the upcoming hearings, letters to the CFPB, press attention, and even litigation remain important tools for advocates.

Will CFPB Leadership Follow Where the Data Lead and Protect Debt-Laden Consumers from Predatory Settlement Companies?


The CFPB’s own debt settlement report suggests consumers are in trouble.  The CFPB could, if it chose, get to the bottom of who is in trouble and why. 

The Consumer Financial Protection Bureau’s (CFPB) career economists have again put up a red flare, warning of heightened risk to consumers in the current economy.  The CFPB’s recent report on debt settlement shows that consumer delinquencies on credit cards and other unsecured debt were increasing in 2019, while the many consumers facing financial distress were more exposed than ever to predatory debt settlement companies.  Whether the CFPB will follow those warning lights to do more than pursue a few bad actors remains to be seen.  Congress should take advantage of its upcoming hearings with the Director of the CFPB to push for more data as a necessary first step to provide meaningful consumer protections against predatory settlement companies

Debt settlement, as the report explains, happens when creditors agree to write off a portion of the debt.  Generally, creditors only do this when they see no realistic prospect of recovering the money.  In 2019, the total amount of debt settled was again increasing above the 2007 levels, at the inception of the Great Recession.  At the same time, the share of consumers working with credit counseling agencies (CCAs) has shrunk to a fraction of what it was in 2007, leaving consumers increasingly to either settle their debts on their own or pay debt settlement companies (DSCs) to do so for them.  

CCAs are generally nonprofits that provide a range of tools, including individualized counseling, to help individuals manage their debt burden.  The CFPB actively encourages consumers having trouble paying their debts to contact a CCA .  In contrast, the CFPB’s consumer education materials warn, “Dealing with debt settlement companies can be risky” and “Debt settlement may well leave you deeper in debt than you were when you started.”  But CCAs, like  other nonprofits serving distressed consumers, including housing counselors and legal services programs, saw a drop in their funding levels in the wake of the Great Recession as both government and foundation funding meant to combat the foreclosure crisis moved on. 

There is so much more we should know before deciding on how and if to intervene:

  • Have delinquency rates and debt settlement rates continued to climb post-COVID? Are consumers maxxed out on debt or are they, as the CFPB has suggested,  seeking more credit?
  • Do debt settlement rates vary by income or race? The dataset relied on by the CFPB doesn’t include demographic information, but it does include location information that allows observation at the neighborhood level
  • Are low-income communities or communities of color more or less likely to use CCAs for help managing their debt burden or to turn to DSCs?
  • How much has the shift from CCAs to DSCs cost consumers and how does that cost vary by the income and racial composition of a neighborhood?

That this work has not yet been done is not a criticism of the report or its methodology.  Good research always points to the next set of questions.  But the CFPB, as an institution, has an obligation to do more.  Congress charged the CFPB with researching and reporting on the risks to consumers and particularly on the experiences of traditionally underserved consumers—the low-income communities and communities of color that were so disproportionately harmed by the Great Recession. 

The CFPB’s failure to advance a research agenda here, as with its stalling on the small business lending data collection rulemaking and its clawback of mortgage data used for fair lending analysis , has the result of hiding from view both the problem and the potential solution.  As long as we shroud the exact contours of the problem, we can continue to pretend that cases against individual bad actors (even if they settle for  less than one-hundredth of the consumer harm identified), convenings to discuss debt relief options for consumers, and consumer education are sufficient.  But none of those will protect most consumers. We must know who is harmed and how.  

We see now a renewed urgency to questions about our collective accountability for racial justice and equity and widespread uncertainty and strain due to the COVID-19 pandemic.  Adopting an aggressive, public-facing research agenda to look at the intertwined questions of race, access to credit, and economic justice in the time of COVID could do much to advance the public discourse and allay questions about the commitment of the current leadership, notwithstanding legitimate policy differences, to the CFPB’s statutory mission. 

The CFPB’s own debt settlement report suggests consumers are in trouble.  The CFPB could, if it chose, get to the bottom of who is in trouble and why.  If it continues to leave unanswered the fundamental questions of who is harmed and by how much, Congress must hold it to account.  

– Diane