On Wednesday of last week, the House Committee on Financial Services held a hearing entitled “Legislative Proposals to Improve Transparency and Accountability at the CFPB” to examine bills and discussion drafts of potential bills that are designed to promote greater transparency and accountability at the CFPB. In addition to the three witnesses that were scheduled to appear, Ed Mierzwinski of US Public Interest Research Group (US PIRG) also testified before the committee.

Andrew Pincus, a partner at Mayer Brown, Hester Peirce, Senior Research Fellow at the Mercatus Center at George Mason University, and Rob Chapman, President of the American Land Title Association testified in support of the bills and discussion drafts listed below, which, according to the Republican leadership, are intended to bring the CFPB in line with requirements that are in place at other federal agencies.  Mr. Mierzwinski expressed opposition to all of the bills, stating that they are unnecessary because the CFPB is a work in progress and  in the process of making changes. He also stated that the CFPB is a “remedial agency” and thus, different from the other federal agencies.

  • H.R. 3389, the CFPB Slush Fund Elimination Act of 2013, would mandate that civil money penalties paid by CFPB targets would be remitted to the Treasury to pay down the national debt, providing a more direct benefit to taxpayers. Committee chairwoman Capito expressed her dismay that the CFPB had used $1.5 million from the civil penalty fund for administrative purposes, when it already has a budget of $600 million.
  • H.R. 3770, the CFPB-IG Act of 2013, would create a separate and independent Inspector General for the CFPB. Currently, the CFPB and the Federal Reserve share an IG, and witnesses expressed concern that the IG was not able to diligently carry out its purpose because it was overseeing two separate agencies with differing and sometimes conflicting purposes. Ms. Peirce opined that the discrimination issues that the CFPB is currently facing may not have taken this long to address, had the CFPB had its own IG.
  • H.R. 4262, the Bureau Advisory Commission Transparency Act, would require the CFPB to open its advisory council meetings to the public. Despite the CFPB recently announcing that it was ending its closed-door meeting policy, Ms. Peirce argued that this legislation is still necessary. Because the CFPB’s policies are determined by a single director, witnesses expressed concern that the CFPB could again change course without a legislative mandate.
  • H.R. 4383, the Bureau of Consumer Financial Protection Small Business Advisory Board Act, would mandate the creation of a Small Business Advisory Board, in addition to the Consumer Advisory Board, Community Bank Advisory Council, Credit Union Advisory Council, and the Academic Research Council. Of the bills discussed at the hearing, H.R. 4383 was the least controversial and contested proposal.
  • H.R. 4539, the Bureau Research Transparency Act, would require the CFPB to include all studies, data and other analyses on which the paper was based when releasing or issuing a research paper.
  • H.R. 4604, the CFPB Data Collection Security Act, would limit the data the CFPB was able to collect, and give consumers an opportunity to opt out of data collection by the CFPB.
  • H.R. 4662, the Bureau Advisory Opinion Act, would mandate that the CFPB issue advisory opinions regarding the permissibility or legality of a certain product or practice. Mr. Mierzwinski expressed his concern that this bill would open up the CFPB to a mountain of litigation over the advisory opinion process.
  • Discussion Draft of the “Bureau Arbitration Fairness Act” would repeal the authority of the CFPB to restrict mandatory pre-dispute arbitration. Mr. Mierzwinski found this bill to be the most problematic, as he claimed that arbitration favors corporate wrongdoers, and the CFPB should limit the use of arbitration in consumer financial services contracts. On the other hand, Mr. Pincus argued that arbitration is important because it is a quicker, cheaper and more efficient way to handle individualized claims than the court system. He stated that arbitration is in fact beneficial to consumers because it gives them a way to get their claims actually heard. He also testified that the section of Dodd-Frank granting the CFPB the power to restrict arbitration represented a significant departure from longstanding federal policy of fostering arbitration. As previously reported, the CFPB is expected to complete its study of arbitration by the end of this year.
  • Discussion Draft of the “Bureau Guidance Transparency Act” would require a notice and comment period before the CFPB issues guidance. Based on questioning and testimony during the hearing, this bill seems to be aimed at preventing the CFPB from engaging in informal and de facto rulemaking. Committee members expressed their dissatisfaction with the CFPB for not making the methodology behind its disparate impact analysis available to the public, and stated that this methodology amounted to de facto rulemaking.
  • Discussion Draft of the “Preventing Regulatory Abuse Act of 2014” would require the CFPB to issue regulations defining the term “abusive” under Dodd-Frank.
  • Discussion Draft of the “Bureau Examination Fairness Act” would impose certain requirements on the CFPB when carrying out examinations, such as the non-inclusion of enforcement attorneys and adhering to an examination time period. As previously reported, the CFPB has already discontinued the former practice.

While covering a broad range of topics, at their core, the bills and discussion drafts discussed at the hearing are all aimed at increasing the transparency and accountability of the CFPB. While some committee members and witnesses argued that the CFPB is a new agency experiencing growing pains, the majority of committee members and witnesses argued that these bills were necessary to prevent the CFPB’s current “adolescent” bad practices from becoming permanently ingrained into the agency. We would welcome increased transparency on the part of the CFPB, and will follow and report on any developments relating to the bills and discussion drafts. While these bills and discussion drafts might pass the House, they have little chance of passing the Democratic-controlled Senate.