The CFPB’s Rigged Rulemaking
October 30, 2017
Congress recently took an important step towards reining in the Consumer Financial Protection Bureau (CFPB), its unchecked authority and its biased rules, overturning its arbitration rule.
The move in the Senate to reject the arbitration rule comes on the heels of a report from the U.S. Treasury Department that concluded that the CFPB “failed to meaningfully evaluate whether [the CFPB’s rule] would serve either consumer protection or the public interest.” While this report is about the arbitration rule, this statement could just as readily be applied to its final short-term lending rule, which will effectively eliminate a popular, regulated credit option in favor of the CFPB’s preferred, competing providers.
Congress has taken a meaningful step towards holding this rogue agency and its politically ambitious director to account by overturning the arbitration rule. Now, this same standard must be applied to all of the CFPB’s misguided, partisan rules, including the short-term lending rule.
THE CFPB RIGS ITS RULEMAKING PROCESS
While proclaiming to be an independent, impartial government agency committed to fact-based rulemaking, the CFPB’s rules are more often based on its leaders’ personal ideology than empirical evidence. The Treasury Department’s recent analysis found that the Bureau manipulated data in order to reach a conclusion consistent with its agenda, and similar allegations of flawed research have emerged in other rules and guidance. For instance, a report from the House Financial Services Committee revealed that CFPB officials knew their research on auto-loan racial bias was deeply flawed and worried it would be deemed “junk science.”
The CFPB’s short-term lending research and rulemaking process were even more egregiously biased:
- During the public comment period on the rule, the CFPB disregarded nearly all of the 1.4 million comments received because the vast majority primarily from actual short-term loan borrowers opposed the rule. This continues the CFPB’s habit of ignoring positive experiences with short-term loans, from those shared at field hearings, in letters, or via submissions to the CFPB’s website.
- In its white paper on short-term, small-dollar loans, the CFPB used a methodology that intentionally overcounted repeat borrowers to affirm its narrative.
- The CFPB has repeatedly alleged that its research is not required to conform to federal research standards under the Information Quality Act, because it does not inform policy, even as it is used to justify rules.
- After pro forma completion of the legally-mandated small business review, the CFPB was rebuked by the Obama Small Business Administration’s Office of Advocacy for underestimating the impact of its burdensome regulation on small businesses and their customers.
- The CFPB never conducted a real cost-benefit analysis for the rule to quantify the impact of the rule on consumers and the industry.
THE CFPB COLLUDES WITH CONFLICTED PARTIES
The CFPB has continually allowed outside influence to disproportionately sway the final outcome of its rulemakings. The arbitration rule seems designed with the clear intent to benefit trial lawyers generous donors to Democratic political campaigns. In the case of the short-term lending rule, this influence was more on the order of complete collusion, as the Bureau worked intimately with the short-term lending industry’s fiercest critics liberal activists masquerading as consumer advocates to draft, write and revise the rule before, during and after the public comment period, including through ex parte meetings. Numerous CFPB employees, including some that worked on this rule, have passed through the revolving door of employment with the Bureau and activist groups, further reflecting the CFPB’s inherent bias against non-bank lenders and their offerings.
THE CFPB REQUIRES ACCOUNTABILITY AND REFORM
CFPB Director Richard Cordray and other leaders launched the CFPB six years ago with short-term lending in the crosshairs, and have sought to ensure that the Bureau only considered evidence that supported this attack on the industry, regardless of actual data or input from consumers. This rampant government overreach will continue to go unchecked unless the Bureau is brought under proper accountability and oversight through Congressional reforms.