The resignation of Richard Cordray as director of the Consumer Financial Protection Bureau presents an opportunity. I hope the new director of the bureau focuses on under-regulated sectors of the financial services industry, leaving banks to the regulatory oversight of the Fed, OCC, FDIC and/or state regulators.
During the last five years, I have found many of the actions of the CFPB to be surprising. For example, I think its case against TCF Financial is totally unfounded. The CFPB is suing TCF over practices the bank uses to encourage customers to sign up for overdraft protection. It argues the bank paints worst-case scenarios to promote a need for its product. If that’s illegal then every life insurance agent in the country ought to go to jail for inviting prospects to imagine the consequences to spouse and kids of an untimely death.
Or, I think of the PHH case where the CFPB is fining a company for non-compliance with its reinterpretation of Section 8 of RESPA, including activities conducted before the reinterpretation was announced. The CFPB is attempting to apply a huge fine for activities that were legal when they were conducted.
I also think of the CFPB’s consumer complaint database where unsubstantiated complaints are made public. The database is a tool for intimidation and it should be modified or discontinued.
Traditional banks are amply regulated without the CFPB, and I believe the bureau has the greatest likelihood of success focusing on non-bank financial institutions, most notably the online lenders and peer-to-peer lenders. This is an area that is attracting the attention of thousands (perhaps millions) of consumers. This is a true consumer finance concern, where people are vulnerable to paying hidden fees, high interest rates and compromising their personal data. The CFPB should be all over this.
Furthermore, consider the burgeoning field of person-to-person payment processing. Who’s regulating Venmo, PayPal, Google Wallet and the others? The CFPB should get into the backrooms of these organizations, test for security, verify processes and mandate better consumer disclosures. This is where the CFPB could do some real good.
I never understood the “gotcha” mentality that seemed to pervade the CFPB. Hitting a company with a big fine out of the blue seems like a recipe for more lawsuits, not more consumer protection. The opportunity to name new leadership to the Consumer Financial Protection Bureau is an opportunity to refocus where and how the powerful bureau works.