Dueling Trump and CFPB Regulatory Agendas

Posted on December 18, 2017 by David Reiss

The Office of Information and Regulatory Affairs, a bureaucratic-sounding but very important office within the Office of Management and Budget, released the Trump Administration’s Introduction to the Fall 2017 Regulatory Plan last week. While Trump’s plan is heavily focused on deregulation, the Consumer Financial Protection Bureau’s Fall 2017 Statement of Regulatory Priorities is marching to the beat of a different drummer.

Trump’s plan opens,

Following statutory directions, the Executive Branch implements many federal policies through regulatory action in areas as diverse as homeland security, environmental protection, energy policy, transportation, federal land management, education, and commerce. Over many decades, federal agencies have imposed countless regulatory requirements on individuals, businesses, landowners, and state and local governments. Some of these regulations serve important public purposes. Other regulations, however, are outdated, duplicative, or unnecessary, yet they continue to impose costly burdens. President Trump has committed to reducing the regulatory burden on the American public in order to promote economic growth, job creation, and innovation.

This Fall 2017 Regulatory Plan reflects a fundamental shift. The Trump Administration recognizes that excessive and unnecessary federal regulations limit individual freedom and suppress the innovation and entrepreneurship that make America great. Starting with confidence in private markets and individual choices, this Administration is reassessing existing regulatory burdens. In the 2017 Plan, Agencies have identified regulatory actions ripe for reform and are working to eliminate or modify them. This Administration also approaches the imposition of new regulatory requirements with caution to ensure that regulations are consistent with law, necessary to correct a substantial market failure, and net beneficial to the public. Furthermore, the Plan, along with the Unified Agenda of Regulatory and Deregulatory Actions (“Agenda”), identifies the Administration’s priorities in manner that is transparent and accessible to the public.

Our regulatory philosophy and approach emphasize the connection between limited government intervention and individual liberty. Regulatory policy should serve the American people by staying within legal limits and administering the law with respect for due process and fair notice. The 2017 Plan sets forth the Administration’s roadmap for a more limited, effective, and accountable regulatory policy. (1)

This deregulatory plan is consistent with one of President Trump’s first Executive Orders, #13771 (Reducing Regulation and Controlling Regulatory Costs).

The CFPB’s Statement of Regulatory Priorities, likely drafted prior to Director Cordray’s departure and the ensuing battle for control of the Bureau, reflects an active regulatory agenda, including possible rules regarding payday loans, debt collection and overdraft programs on checking accounts.

The contrast between Trump’s Regulatory Plan and the CFPB’s Statement of Regulatory Priorities provides a clear contrast to what is at stake in the battle for control of the Bureau.

How We Feel About Credit Scores

Posted on June 21, 2016 by David Reiss

WalletHub conducted its 2016 survey of American knowledge and opinions of credit scores and interviewed me about their findings:

What is your reaction to one-third of survey respondents believing that anyone can access their credit score/report, as if it is public information?

Given the complexity of the consumer finance industry, it is not surprising that many consumers operate in a fog of ignorance and misunderstanding about their rights and how the industry operates. Some people may be aware that many businesses can access their credit report and that many businesses contribute to their credit report, both without the clear consent of the consumer. This all leads to a sense that their financial profile is out of the consumer’s hands. And while that is not technically correct, there is a lot of truth to it. Decisions are being made about you — what interest rate will be offered to you, whether you will receive a loan, will a bank open a checking account that you applied for — and you only have a partial sense of the criteria upon which they are being made.

Why do you think 49% of people would not marry someone with bad credit?

People understand that bad credit can have a big impact on life choices — can we buy a house or a car? That can influence decisions about the suitability of a spouse as much as other financial concerns, like the job the potential spouse has. Credit scores are also being used for decisions other than whether to extend credit to someone — for instance, by landlords deciding whether to rent an apartment. These expansive uses of credit scores foster a sense that credit scores act as a broader judgment of the potential spouse, like a gauge of moral worth.

Why is money our leading societal stressor?

We live in a society that has become more divided between haves and have-nots over the last few generations. The gap shows up in the big difference between the number of people at the top (a small percentage) and the bottom (a large percentage) of the distribution of income and wealth. It also shows up in the difference in the amount of money that puts you at the top and bottom — the rich have gotten richer and the poor still have very little in terms of wealth and income. Money gets seen as being able to determine destiny and thus it stresses people out, particularly because the American safety net is not as tightly woven as those of other developed countries.

Why do you think people would prefer to be overweight, to have bad eyesight and to be going bald than to have bad credit?

Henry Kissinger has said that power is the ultimate aphrodisiac and Marilyn Monroe (in “Diamonds Are a Girl’s Best Friend”) has sung that “A kiss may be grand/But it won’t pay the rental.” Money is power, and in the age of Matthew Diamond’s “Evicted,” being able to pay the rental is a pretty attractive quality.

Unruly Arbitration

Posted on May 26, 2016 by David Reiss

I had blogged earlier about the Consumer Financial Protection Bureau’s proposed rule regarding arbitration. Along with 209 other law professors, I submitted a comment letter regarding it. The letter opens,

We write to strongly support proposed regulation CFPB-2016-0020, RIN 3170-AA51. We are 210 law professors and scholars who teach and write in such disciplines as civil procedure, contracts, consumer law, financial services law, and dispute resolution. This regulation would accomplish two important goals. First, it would bar companies that provide consumer financial products and services from imposing pre-dispute arbitration clauses combined with class action waivers. Second, the proposed regulation would require regulated parties to collect and transmit to the Consumer Financial Protection Bureau (“CFPB”) information regarding use of arbitration in the consumer financial context.

As a group of experienced legal academics, we approach the issues of pre-dispute arbitration clauses and bans on class proceedings from a myriad of different perspectives and political sensibilities. Nonetheless, based on our varied scholarship and teaching backgrounds, we all agree (1) it is important to protect financial consumers’ opportunity to participate in class proceedings; and (2) it is desirable for the CFPB to collect additional information regarding financial consumer arbitration.

The benefits and detriments of both forced arbitration and class actions have been debated vigorously for over twenty years in academia, as well as in litigated cases, Congressional hearings and among the general public. Although some good empirical work has been done on these issues, scholars have consistently asserted the need for more and better data-driven studies. Too often, heated discussions have been based on speculation, rather than data; this is especially problematic given the largely private world of confidential arbitration. Accordingly, we were very pleased when Congress, in enacting the Dodd-Frank Wall Street Reform and Consumer Protection Act, mandated in Section 1028(a) that the CFPB study “the use of agreements providing for arbitration of any future dispute . . . in connection with the offering or providing of consumer financial products or services. . . .” After soliciting suggestions on how to conduct such a study, receiving and incorporating ideas from many corners, and spending three years collecting and analyzing massive amounts of data, the CFPB produced a comprehensive and impressive report in March 2015.The results of this study support the proposed regulation, as discussed below.

CFPB’s study clearly shows that pre-dispute arbitration clauses are extremely common in the consumer financial context, and, indeed, are becoming standard practice across a number of different industries. While the incidence of pre-dispute arbitration clauses varies substantially depending on the consumer product or service, CFPB found that mobile wireless and payday loan contracts virtually always compelled consumers to resolve future disputes through arbitration, and that checking account and credit card contracts mandated arbitration roughly half of the time.2 The CFPB study also found that almost all of the studied arbitration clauses precluded affected consumers from participating in class actions. Yet, despite the prevalence of these clauses, the CFPB found that the majority of financial consumers are not entering into these arbitration clauses knowingly. Based on a national telephonic survey of credit card holders, the CFPB determined, unsurprisingly, that most consumers simply did not focus on dispute resolution clauses when deciding on a credit card, and the vast majority did not understand the implications of forced arbitration. Less than seven percent of consumers whose credit card agreements included arbitration provisions understood that they were precluded from suing the company in court should a dispute arise.

As a group, we have varying perspectives on whether the CFPB regulation goes far enough. Some among us believe the agency should issue a broader regulation banning forced arbitration clauses altogether in consumer financial contracts, whether or not these clauses contain class action waivers. Others among us believe that using pre-dispute arbitration agreements in the consumer context may not be harmful, or may even be beneficial, apart from the class action prohibition. And, still others among us are not sure where they stand on the desirability of banning forced arbitration in this context. Nonetheless, these differences in our perspectives do not undercut our strong agreement that the CFPB is right to both prevent companies from using arbitration to take away financial consumers’ opportunity to participate in class proceedings and require the submission of additional data and information that will allow the agency to further study this important area. We believe that the proposed regulations are critically important to protect consumers and serve the interests of the American public. (1-2, footnotes omitted)

Jean Sternlight at UNLV led the effort to get this letter to the CFPB.

The Quest for Consumer Comprehension

Posted on June 17, 2015 by David Reiss

Lauren Willis has posted The Consumer Financial Protection Bureau and the Quest for Consumer Comprehension to SSRN. it opens,

Dodd-Frank tasked the Consumer Financial Protection Bureau with ensuring that “consumers … understand the costs, benefits, and risks associated with” financial products. Despite this ambitious mandate, and despite the Bureau’s self-branding as a “21st century agency,” the Bureau’s pursuit of consumer comprehension has thus far focused on the same twentieth century tool that has already proven ineffective at regulating financial products: required disclosures. No matter how well the Bureau’s “Know Before You Owe” disclosures perform in the lab, or even in field trials, firms will run circles around disclosures when the experiments end, confusing consumers and defying consumers’ expectations. Even without any intent to deceive, firms not only will but must leverage consumer confusion to compete with other firms that do so. While firms are not always responsible for their customers’ confusion, firms take advantage of this confusion to sell products.

If the Bureau wants to ensure that consumers understand the financial transactions in which they engage, then to meet the challenge posed by the velocity of today’s marketplace, the Bureau must induce firms themselves to promote consumer comprehension, either by educating consumers or by simplifying products. To generate this change in firm behavior, the Bureau should require firms to regularly demonstrate, through third-party testing of random samples of their customers, that their customers understand key costs, benefits, and risks of the products they have bought. Rather than attempting to perfect the format of price disclosures, for example, the Bureau should require firms to prove that their customers understand the price at the moment when the customers are deciding whether to take the actions that will trigger it, whether those actions be taking out a mortgage, overdrawing a checking account, or calling customer service to inquire about the balance on a prepaid debit card. Where consumers are confused about benefits rather than costs, such as the benefit of signing up for a credit repair service, buying credit life insurance, or paying off a debt that is beyond limitations, firms should be required to show that their customers understand the actual benefits the firm is offering before the consumer commits to the purchase or action. (1, footnotes omitted)

This paper poses an important challenge to the CFPB — can disclosure regimes be replaced with something better? One hopes that the answer is yes, although Willis’ previous work on financial education makes me somewhat pessimistic.

This new paper does offer some reason for optimism though. Willis argues that comprehension rules may induce firms to simplify products, so such rules may have a positive impact even if the CFPB cannot move the dial on consumer comprehension all that much.

Testing The CFPB’s New Financial Literacy Tools

Posted on August 6, 2014 by David Reiss

The Consumer Financial Protection Bureau has announced the launch of its “new online toolkit called Your Money, Your Goals, a comprehensive guide to empowered financial decision-making that covers topics like budgeting daily expenses, managing debt, and avoiding financial tricks and traps.” The toolkit addresses

Making spending decisions that help reach goals
Ordering and fixing credit reports
Avoiding tricks and traps in choosing financial products
Making decisions about repaying debts and taking on new debt
Keeping track of income and bills
Deciding whether to open a checking account and understanding what’s needed to open one

This sounds like a great initiative and it is central to the statutory mandate of the CFPB. The press release states that the toolkit has been “rigorously field tested.” It sounds from the press release that this means that it had a pilot program launch. But absent from the press release is any discussion of how the success of the program will be measured and why the field test was deemed a success.

I have been critical of the CFPB’s financial literacy agenda before because the scholarship about financial education does not demonstrate that it works all that well. I hope that the CFPB will release the metrics of success by which we should measure Your Money, Your Goals.

Merely providing education is insufficient. The CFPB must demonstrate that the education actually leads to better outcomes for those who receive it.

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Dueling Trump and CFPB Regulatory Agendas

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How We Feel About Credit Scores

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Unruly Arbitration

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The Quest for Consumer Comprehension

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Testing The CFPB’s New Financial Literacy Tools

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