CFPB confusing ‘freedom of choice’ with ‘freedom to be fleeced’

Thursday, the House Financial Services Committee will convene a hearing to review the Consumer Financial Protection Bureau (CFPB). They have a difficult task in front of them.

Some Americans may doubt Trump-appointee Kathy Kraninger’s qualifications and commitment to consumer protection. After all, the Senate confirmed the new agency director with a 50-49 vote and over the opposition of at least 57 different consumer groups, including the NAACP. 

{mosads}Sen. Sherrod Brown (D-Ohio), the ranking member of the Senate Banking Committee, even released a 36-page report opposing her nomination.

Sen. Elizabeth Warren (D-Mass.) released her own report, characterizing her as having “no relevant experience in banking, finance, or consumer protection.” Indeed, Kraninger has no background whatsoever in consumer financial services or in consumer protection more broadly. 

So far, Kraninger’s CFPB appears eager to live up to its critics’ worst fears. It’s signature initiative under her tenure has been to eviscerate new rules to protect the public from predatory payday lending.

The regulation, which was initially issued in 2017 under former Director Richard Cordray, would have been the first nation-wide set of rules for small-dollar loans and included a requirement that lenders verify a borrower’s income and debts to assess one’s ability to repay a loan while still meeting basic living expenses. Under Kraninger, the CFPB has decided to scrap this requirement. 

Despite these events, Kraninger has doggedly proclaimed her independence from her former boss, Mick Mulvaney. So far, however, the largest difference between Mulvaney and Kraninger seems to involve the appropriate logos for the CFPB’s mugs.

When Mulvaney took over, he proclaimed that the agency would be known as the “Bureau of Consumer Financial Protection” rather than the “Consumer Financial Protection Bureau” — seemingly aimed at breaking with the past administration.

Since taking the helm, Kraninger has decided to keep the old name (perhaps largely driven by the tremendous cost of changing it). Beyond this logo-deep difference, observers struggle to see any daylight between Kraninger and Mulvaney.

If only there were a statutory requirement for the CFPB to lay out its true strategic objectives. As it turns out there is such a law — one that requires executive branch agencies to set their goals, analyze their performance management and measure their results.

For 2013-2017, the CFPB issued such a strategic plan addressing these topics. The 2013-2017 plan focused on the agency’s robust efforts to protect consumers from financial harm, to enable better consumer decision-making and to be guided by data-driven analysis in policy-making.

After taking over in 2018, Mulvaney revised the existing plan and issued a new one for 2018-2022, noting that the bureau’s new philosophy was to enforce the federal consumer financial laws and “go no further.”

He explained that the revisions were meant to serve as a “bulwark against the misuse of [the CFPB’s] unparalleled powers.” The new plan not only made changes to the agency’s mission and vision, but it also reoriented several of its strategic goals from being focused on “preventing financial harm” to promoting “access” and “choice.”

The emphasis on data-driven policy-making was replaced by a focus on “operational excellence.” 

To be sure, consumers should have access to a range of products and services. Yet the shift in focus blinkers reality. Vast swaths of Americans are financially illiterate.

A recent study from the Financial Industry Regulatory Authority (FINRA) Foundation found, “Americans demonstrate relatively low levels of financial literacy and have difficulty applying financial decision-making skills to real life situations.”

The CFPB’s misplaced focus on preserving access and choice essentially protects the right for predatory operators to foist bad deals on the public — like one Nevada lender advertising payday and car title loans for persons that “owe on taxes.”  

Protecting the freedom to choose a payday or title loan over an installment plan with the IRS essentially protects the right to pay “somewhere between 40 times to 108 times” rather than coming to terms with Uncle Sam. For the financially illiterate, freedom of choice means the freedom to be fleeced.

At Thursday’s hearing, House committee members should press Kraninger on the agency’s new strategic direction. They should ask for an explanation of each change from the old strategic plan to the new one and for the institutional rationale for each change.

{mossecondads}They should ask for information about the agency’s considered process that led to each change and whether the new plan complies with the letter and spirit of the law.

Members should be particularly interested in the CFPB’s plans to protect consumers in the burgeoning world of online consumer finance or ”fintech” where lines are often blurry and processes can be opaque. 

This 2018-2022 plan will set the stage for the federal government’s involvement in the financial lives of nearly all Americans. Let’s not let such important information get lost in the paper shuffle.

Ben Edwards is an associate professor of law at the University of Nevada-Las Vegas and specializes in business law and consumer protection. Follow him on Twitter: @BenPEdwards.

Chris Odinet is an associate professor of law at the University of Oklahoma where he specializes in consumer finance law and real estate. Follow him on Twitter: @Chris Odinet.