house financial services committee

The House Financial Services Committee has released the witness list for the hearing it will hold this Wednesday, April 26, 2017, to discuss the Financial CHOICE Act.

The witnesses will be:

  • John Allison, Former President and Chief Executive Officer, Cato Institute
  • Dr. Norbert J. Michel, Senior Research Fellow, Financial Regulations and Monetary Policy Institute for Economic Freedom and Opportunity, The Heritage Foundation
  • Hester Peirce, Director of Financial Markets Working Group and Senior Research Fellow, Mercatus Center
  • Alex J. Pollock, Distinguished Senior Fellow, The R Street Institute
  • Peter J. Wallison, Senior Fellow and Arthur F. Burn, Fellow in Financial Policy Studies, American Enterprise Institute

The Committee also released a memorandum that includes a summary of the discussion draft of the bill previously released by the Committee.

On February 6, House Financial Services Committee Chairman Hensarling circulated a memorandum to the House Financial Services Committee Leadership Team describing key revisions to the Financial Choice Act.  Last week, he issued in outline form a so-called “Summary of Bill Changes” which identified further revisions to the Choice Act, which he referred to as “Choice 2.0”, some of which address subjects not covered in his February 6 revisions, which he referred to as “Choice 1.0.”

Choice 2.0, which addresses a wide range of issues, includes the following provisions that affect consumer financial services:

  1. De novo review of agency regulations would be required two years after a regulation’s enactment. This would call on more agency resources.  (Last week, we blogged about a former CFPB attorney’s comment that the CFPB’s Regulations Division is severely understaffed.)  Under Dodd-Frank, the CFPB is required to conduct a review of a regulation it adopts five years after the regulation’s effective date.  Indeed, the CFPB recently announced that it will initiate a five-year review of its regulation dealing with international money remittances.
  2. The President could remove the FHFA Director at will. The governance of the OCC and the NCUA would be unchanged.  The FDIC would be reorganized as a bipartisan commission with all five commissioners appointed by the President.  The Comptroller of the Currency and the CFPB Director, who currently serve on the FDIC Board, would not be members of the FDIC commission.
  3. Financial agencies would be required to “(1) when promulgating a rule with $100 million or more a year in impacts of state/local governments or the private sector to prepare and file a written statement on their process and evaluation and to select the least costly, most cost-effective, or least burdensome alternative, unless otherwise explained; and (2) provide state and local government and private sector with an effective process to provide input on proposals with significant mandates.”
  4. Financial agencies would be required to “implement policies to (1) minimize duplication between federal and state authorities in bringing enforcement actions; (2) determine when joint investigations and enforcement actions are appropriate; (3) and establish a lead agency for joint investigations and enforcement actions.”
  5. A financial agency, DOJ, and HUD would be prohibited “from entering into a settlement that provides payments to any person who is not a victim of the alleged wrongdoing.” The prohibition seems to be directed at certain ECOA settlements in the auto finance industry involving disparate impact.
  6. The Second Circuit’s controversial opinion in Madden v. Midland Funding would be overridden. Madden held that a non-bank transferee of a loan from a national bank loses the ability to charge the same interest rate that the national bank charged on the loan under Section 85 of the National Bank Act.  Under Choice 2.0, “a loan that is valid when made as to its maximum rate of interest should remain valid regardless of whether the loan is subsequently sold, assigned or transferred.”  While such a statutory amendment would be welcome, I believe that the OCC could more simply and quickly accomplish the same objective by issuing a regulation, as I pointed out in my recent article for American Banker’s BankThink.
  7. The CFPB, renamed the “Consumer Financial Opportunity Agency” would be governed by a sole Director (Choice 1.0 provided for a bipartisan independent commission with staggered terms) removable at will by the President. Also, the Deputy Director would be appointed by the President instead of by the Director as provided under Dodd-Frank.  The Deputy Director would also be removable at will by the President.  Under Dodd-Frank, the CFPB Director is only removable by the President for cause.
  8. The CFPB would be an enforcement agency only. It would be stripped of its supervisory authority.
  9. The CFPB would only be authorized to enforce the enumerated consumer protection laws. It would have “no UDAAP authority of any kind.”  Under Choice 1.0, the CFPB would have retained the authority to enforce the “unfairness,” and “deception” prongs of UDAAP, but not the “abusive” prong.
  10. The consumer complaint database could not be published. Under Choice 1.0, the database could be published to the extent that complaints were verified.
  11. The CFPB would be stripped of its authority to monitor markets. Under Choice 1.0, it could continue to engage in market monitoring as long as such monitoring is “separate from enforcement.”

It has been reported that the changes outlined above will be reflected in a new Choice Act bill to be introduced before the end of this month.

While there is a reasonable likelihood that the Choice Act will pass the House, its fate in the Senate is very uncertain.  In light of the proposed changes to the CFPB’s structure and powers, one might ask why lawmakers have not proposed to combine the FTC and the CFPB. The proposed cutbacks on the CFPB’s powers would result in the two agencies having largely overlapping enforcement powers for non-banks.

Rep. Hensarling’s proposal for the CFPB to continue to be managed by a sole Director is contrary to the CFPB governance desired by many in the banking industry.  In a letter dated April 13, 2017 from Richard Hunt, President and CEO of the Consumer Bankers Association (CBA) to Senator Mike Crapo, Chairman of the Senate Committee on Banking, Housing and Urban Affairs and Senator Sherrod Brown, Ranking Member of that Committee, the CBA strongly advocated in favor of a bipartisan five-member commission.

Despite its long duration (over five hours including a recess for a vote), the House Financial Services Committee’s hearing on April 5 at which Director Cordray was the sole witness provided a strong dose of political theater but little in the way of new information or substance.   Although there were many important questions that Committee members could have asked Director Cordray (we suggested several in a prior blog post), members mostly returned to familiar themes in their questions and remarks.  For Republican members, those themes included CFPB overreach and unaccountability to Congressional oversight, damage to credit availability and community banks resulting from CFPB guidance and regulations, excessive spending, and mistreatment of CFPB employees.  Familiar themes of Democratic members included how the financial crisis gave rise to the CFPB and how the CFPB serves consumers by protecting them from discrimination, fraud, and other unlawful practices.

The hearing’s battle lines were drawn during the opening remarks of Chairman Hensarling and Ranking Member Waters.  Chairman Hensarling began his remarks by referencing press reports that Director Cordray intends to run for Ohio governor, expressing surprise that he had not returned to Ohio to do so, and was still serving as CFPB director given that President Trump had the right to dismiss him at will.  He then called on the President to immediately dismiss Director Corday, claiming that the PHH decision allowed the President to do so without the need to show cause.   He also asserted that even if the President needs cause to dismiss Director Cordray, there are numerous grounds on which President Trump could rely.  According to Chairman Hensarling, such grounds include the harm inflicted on consumers by the CFPB’s auto lending guidance (as well as the illegality of the CFPB’s attempt to regulate auto dealers through such guidance) and Director Cordray’s unilateral reversal of well-settled RESPA guidance in the PHH case.

In her opening remarks, Ranking Member Waters praised Director Corday for fighting for “hard working Americans” and thanked him for his continued leadership of the CFPB.  She referenced how much money the CFPB has recovered for consumers and assessed in civil money penalties and mentioned her efforts and those of other Democrats to defend the CFPB’s constitutionality in the PHH litigation.

In addition to Chairman Hensarling’s comments, several other committee members, in their questioning of Director Cordray, raised the issue of his resignation.  Rep. Duffy asserted that because Director Cordray had served as a recess appointee from January 2012 until his Senate confirmation in July 2013, he has already effectively served a five-year term as director and  “consistent with the spirit” of Dodd-Frank, should step down voluntarily now.  In response to Rep. Zeldin’s question whether Director Cordray intended to serve the remainder of his term, Director Cordray stated that he had “no insights to provide.”  When asked by Rep. Hollingworth if he would resign if requested to do so by President Trump, Director Cordray responded that he would follow the law.

While its substantive content was slim, the hearing did produce the following noteworthy information:

  • Somewhat surprisingly, Chairman Hensarling criticized the CFPB for not proceeding more quickly to issue a regulation to implement Section 1071 of Dodd-Frank (which amended the ECOA to require financial institutions to collect and maintain certain data in connection with credit applications made by women- or minority-owned businesses and small businesses such as the race, sex, and ethnicity of the principal owners of the business).  He commented that the CFPB had engaged in discretionary rulemaking but had not completed the Section 1071 rulemaking mandated by Dodd-Frank.
  • Rep. Lukemeyer criticized the provision in the CFPB’s proposed rule concerning the disclosure of confidential supervisory information (CSI) that would restrict a company’s disclosure of either the receipt or the content of a CID or NORA letter.  Director Cordray indicated that, after considering comments received on the proposal, the CFPB is “going back to the drawing board,” and that Rep. Lukemeyer would  be “happy” with the outcome.   (The proposal would also expand the CFPB’s discretion to share CSI with state attorneys general and other agencies that do not have supervisory authority over an entity.)
  • In response to Rep. Maloney’s question whether the CFPB plans to propose an overdraft rule, Director Cordray noted the CFPB’s long-standing interest in overdrafts, stated that overdrafts continued to be  “on our minds very much,” and said he could not speak to the timing of any rulemaking.  With regard to the timing of other pending rulemakings, when asked about the timing of a final payday/small dollar loan rule and clarifications to the TILA/RESPA integrated disclosure rule, Director Cordray was unwilling to give an estimated date for either item, noting the unprecedented number of comments received on the payday/small dollar loan proposed rule.  Although the CFPB’s arbitration rule is the furthest along in the rulemaking process, Director Cordray was not asked about the timing of a final rule and was only asked about the rule’s application to insurance premium financing agreements.
  • Director Cordray was unwilling to respond directly to Rep. Posey’s question as to how many no-action letters the CFPB has issued.  (None have been published on the CFPB’s website.)  However, he stated that the CFPB’s no-action policy has “not yet generated a lot of demand” which could indicate the policy is not working properly.
  • Several Republican committee members criticized CFPB press releases about consent orders for containing conclusory statements that a company had violated the law despite language in the consent order stating that the company neither admits nor denies the order’s findings of fact and conclusions of law.  In an exchange with Rep. Huizenga, Director Cordray defended the press releases, stating that “the facts are the facts.”   He commented that a consent order’s “neither admit nor deny” language does not matter for the truth of the facts recited in the consent order but matters for whether the facts have been established for follow-on lawsuits by private attorneys.  He was also unwilling to concede that a company might enter into a consent order because it is intimidated by the CFPB’s authority and instead insisted that the main reason a company enters into a consent order is because the CFPB has completed a thorough investigation, “we know the facts,” “they know the facts,” and “they don’t have a leg to stand on.”
  • Director Cordray indicated that the CFPB is looking at possible changes to the prepaid card final rule dealing with the linking of credit cards to digital wallets and error resolution procedures for unregistered cards.

The Subcommittee on Oversight and Investigations of the House Committee on Financial Services has scheduled a hearing for tomorrow entitled “The Bureau of Consumer Financial Protection’s Unconstitutional Design.”  The memo from the Committee’s Majority Staff to Committee Members states that “the [h]earing will examine whether the structure of the Bureau violates the Constitution as well as structural changes to the Bureau to resolve any constitutional infirmities.”

The hearing will undoubtedly cover the same constitutional issues that are being briefed and will be argued on May 24, 2017 by the parties and their amici before the en banc D.C. Circuit in PHH Corporation v. Consumer Financial Protection Bureau, September Term, 2016, No. 7151177.

The following witnesses will testify:

  • Ted Olson, Partner, Gibson, Dunn & Crutcher, LLP
  • Professor Saikrishna Prakash, James Monroe Distinguished Professor, University of Virginia School of Law
  • Adam White, Research Fellow, Hoover Institution
  • Brianne Gorod, Chief Counsel, Constitutional Accountability Center

Mr. Olson is lead counsel to PHH.

According to his bio on the website of the University of Virginia School of Law, Professor Prakash “focuses on separation of powers, particularly executive powers.”  As his 2013 law review article underscores, Professor Prakash strongly advocates in favor of robust Presidential powers. He is a colleague of Aditya Bamzai, an Associate Professor of Law at the same law school.  Professor Bamzai drew attention to himself when he posted a blog on November 22 of last year in the Yale Journal of Regulation and the ABA Section of Administrative Law & Regulatory Practice entitled “The President’s Removal Power and the PHH Litigation.”  We blogged about Professor Bamzai’s blog in which he argued that President Trump could lawfully remove Director Cordray without cause and need not await the outcome of the PHH case.

At the time of Professor Bamzai’s post, the D.C. Circuit had not yet granted the CFPB’s petition for rehearing en banc. The order granting the petition vacated the panel decision that held that the CFPB was unconstitutionally structured and severed the language from Title X of Dodd-Frank which enables the President to remove the Director only for cause, thus enabling the President to remove the Director without cause

It is unknown whether Professor Banzai still adheres to his opinion in light of the fact that the panel opinion has been vacated and, more importantly, whether Professor Prakash shares Professor Bamzai’s opinion.

Adam White’s bio describes Adam as a research fellow at Hoover Institution “writing on the courts and the administrative state for such publications as The Weekly Standard, The Wall Street Journal, Commentary, the Harvard Journal of Law & Public Policy…”  According to its website, “Hoover Institution seeks to improve the human condition by advancing ideas that promote economic opportunity and prosperity, while securing and safeguarding peace for America and all mankind.”  It is fair to characterize Hoover Institution as a conservative think tank.   Mr. White recently testified before the Senate Committee on Commerce, Science, and Transportation at a hearing entitled:  “A Growth Agenda:  Reducing Unnecessary Regulatory Burdens.”  In his testimony, he mentioned that he and his then law firm colleagues were co-counsel to a small community bank in State National Bank of Big Spring v. Lew which in a federal lawsuit challenged the CFPB’s structure as being unconstitutional.  We have blogged about that case on numerous occasions.

It seems clear that Brianne Gorod was chosen as a witness by the Democrats in order to balance the views of the other witnesses.  According to its website, the Constitutional Accountability Center “is a think tank, law firm and action center dedicated to fulfilling the progressive promise of our constitution’s text and history.  We work in our courts, through our government, and with legal scholars to preserve the rights and freedoms of all Americans and to protect our judiciary from politics and special interests.”

We will watch the hearing with interest and blog about it later this week.

The House Financial Services Committee will hold a hearing tomorrow, March 3, entitled “The Semi-Annual Report of the Bureau of Consumer Financial Protection” at which Director Cordray is expected to testify.  The most recent report was issued in December 2014 and covered the period from April 1 through September 30, 2014.  The report itself typically serves only as a backdrop, with Committee members using the hearing as an opportunity to question Director Cordray about items of interest to their constituents.

This Wednesday, May 21, the House Financial Services Committee will hold two hearings discussing the CFPB. The first hearing, held by the Oversight and Investigations Subcommittee, will continue the Committee’s previous hearing on alleged CFPB employee discrimination. Entitled “Allegations of Discrimination and Retaliation within the Consumer Financial Protection Bureau, Part Two,” the Subcommittee will continue its investigation into the allegations of racial discrimination in performance reviews used to grant raises and issue bonuses. Liza Strong, Lead of Employee Relations at the CFPB and Benjamin Konop, Executive Vice President of the National Treasury Employees Union are slated to testify. M. Stacey Bach, the Assistant Director of the CFPB’s Office of Equal Opportunity Employment, will not appear due to a medical condition, but Ms. Bach will be required to submit a transcribed interview with committee staff within a month of tomorrow’s hearing. Given the recent American Banker article outlining the other characteristics (race, age, and participation in a union, to name a few) on which an internal report found disparities in employee reviews, we expect this hearing to be lively and well-attended.

The second hearing, entitled “Legislative Proposals to Improve Transparency and Accountability at the CFPB” will examine bills and discussion drafts that are designed to promote greater transparency and accountability at the CFPB. 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 are expected to testify. The hearing will cover the following bills and discussion drafts:

  • H.R. 3389, the CFPB Slush Fund Elimination Act of 2013
  • H.R. 3770, the CFPB-IG Act of 2013
  • H.R. 4262, the Bureau Advisory Commission Transparency Act
  • H.R. 4383, the Bureau of Consumer Financial Protection Small Business Advisory Board Act
  • H.R. 4539, the Bureau Research Transparency Act
  • H.R. 4604, the CFPB Data Collection Security Act
  • H.R. 4662, the Bureau Advisory Opinion Act
  • Discussion Draft of the “Bureau Arbitration Fairness Act”
  • Discussion Draft of the “Bureau Guidance Transparency Act”
  • Discussion Draft of the “Preventing Regulatory Abuse Act of 2014”
  • Discussion Draft of the “Bureau Examination Fairness Act”

Committee members have reiterated the need for greater transparency at the CFPB in previous hearings, and we look forward to hearing an in-depth discussion of legislation aimed at this goal.

According to a Politico report, the House Financial Services Committee’s Subcommittee on Oversight and Investigations voted yesterday to issue three subpoenas in connection with the Subcommittee’s investigation into alleged CFPB employee discrimination. 

The subpoenas were issued to Stacey Bach, Assistant Director of the CFPB’s Office of Equal Employment  Opportunity, Liza Strong, the CFPB’s Director of Employee Relations, and Ben Konop, Executive Vice President of the National Treasury Employee Union’s Chapter 335. 

According to the report, Representative Patrick McHenry, the Subcommittee Chair, indicated that the three individuals all expressed a preference to be subpoenaed to avoid voluntary testimony.

This Tuesday, April 8, the House Financial Services Committee will hold a hearing entitled “Who’s in Your Wallet: Examining How Washington Red Tape Impairs Economic Freedom.” 

According to the Committee memo, the hearing will examine the economic consequences of recent rulemaking, supervisory, and enforcement actions of the CFPB, FDIC, Fed, NCUA and OCC.  Issues to be explored include (1) how the agencies evaluate the costs and benefits of their actions, (2) whether products or services are no longer being offered because of agency actions,
(3) the steps federal regulators take to measure the impact on consumers if they no longer have access to specific products or services as a result of regulatory action, and (4) the procedures or standards agencies follow in determining whether to engage in formal rulemaking under the Administrative Procedure Act. 

Meredith Fuchs, CFPB General Counsel, is among the witnesses scheduled to appear.  Observers such as Politico think Ms. Fuchs is likely to be questioned about the claims made by a CFPB employee alleging discrimination and retaliation by the CFPB which were the focus of  a Committee hearing last week. 

This is an important topic for a Congressional hearing since we are aware of certain products and services desired by consumers (such as credit card debt cancellation coverage and identity theft protection to name just a few) that many banks have stopped offering because of fear of CFPB enforcement actions.  Through consent orders, the CFPB has extracted commitments from banks that go well beyond the proscriptions of existing statutes and regulations. 

In addition to Ms. Fuchs, the other witnesses scheduled to appear are:

  • Richard J. Osterman, FDIC Acting General Counsel
  • Scott G. Alvarez, Fed General Counsel
  • Michael McKenna, NCUA General Counsel
  • Amy Friend, OCC Senior Deputy Comptroller and Chief Counsel

Follow Alan on Twitter at @AlanKaplinsky

 

 

At yesterday’s hearing on alleged CFPB employee discrimination conducted by the House Financial Services Committee’s Subcommittee on Oversight and Investigations, a CFPB employee is reported to have testified that the agency has “a pervasive culture of retaliation and intimidation that silences employees and chills the workforce from exposing wrongdoing.”   

Angela Martin, a CFPB enforcement attorney, claimed that she experienced gender discrimination and retaliation for filing an Equal Employment Opportunity complaint with the CFPB’s Human Capital Office.  Ms. Martin is also reported to have testified that the CFPB is staffed with inexperienced managers who have adopted an “authoritarian” and “unaccountable” management style that allows them to discriminate against minority and female employees. 

Also testifying at the hearing was Misty Raucci, an outside investigator retained by the CFPB to look into Ms. Martin’s claims.  Ms. Raucci’s report supported Ms. Martin’s claims and in her testimony, Ms. Raucci reportedly charged the CFPB with failing to uphold its own equal employment opportunity policies.  She is also reported to have testified that during the course of her investigation, she was contacted by numerous other CFPB employees who alleged mistreatment by the CFPB. 

The CFPB declined the Subcommittee’s invitations to two of it representatives to participate in the hearing and, according to news reports, has contested the credibility and validity of Ms. Raucci’s report.  It has been reported that Democrats on the House Financial Services Committee are now urging Committee Chair Jeb Hensarling to hold a future hearing featuring senior CFPB officials.  Following the hearing, Director Cordray is reported to have issued a statement in which he apologized to any CFPB staff members who feel they have been unfairly treated and said that he welcomed the opportunity to appear before Congress to discuss the CFPB’s workplace issues. 

A video of the hearing is available here.