CFPB head defends record to Republicans

The head of the Consumer Financial Protection Bureau defended its record Thursday to critical Republican senators, who charged it with preferring punitive action over transparent rules and stifling the country’s credit market through unaccountable actions.

CFPB Director Richard Cordray told the Senate Banking Committee that the agency’s actions to crack down on allegedly discriminatory auto loans and predatory lending were helping the economy and consumers, not limiting access to financial products.

{mosads}“I don’t want to be viewed as some happy talker who see the glass half-full when there’s just a few drops in it,” said Cordray. But “we see credit beginning to expand again in the mortgage market and the credit card market.”

Republicans have been critical of the CFPB’s action on indirect auto lenders, which the agency claimed discriminated against minority customers with unfair borrowing prices. The agency settled for more than $300 million in restitution funds for borrowers identified through zip codes and last names to see if they were among the customers “disparately impacted” by the practice.

Republicans hammered Cordray and the CFPB for what they claimed was a faulty and fraud-susceptible crackdown based on flimsy evidence. 

“It’s my understanding that the lender can’t discriminate on the basis of race because the race of the customer is unknown to them,” said Chairman Richard Shelby (R-Ala.). “Some believe that y’all are after money instead of justice. What do you make of that?”

Cordray countered that the CFPB was simply enforcing the law and following its mandate from Congress, and the actions based on disparate impact — or unintentional discrimination — have been upheld by the Supreme Court.

“If people are not following the law, they should pay,” said Cordray. “Disparate impact is the law of the land.”

For Republicans, the bureau’s actions on indirect auto lenders speak to their bigger issue with how the CFPB regulates the financial industry. GOP critics insist the CFPB is too quick penalize banks and lenders without first going through a rule-making process. That, they say, leaves industry without clear answers and subjects consumers and lenders to opaque and undemocratic regulation.

“This would be a posterchild for rule-making as opposed to an enforcement action,” said Shelby of the auto lending action. 

Cordray insisted that the agency must punish those who break the law and doing so sends a clear signal to industry members who could be engaged in the same illegal activity.

Cordray also insisted that the CFPB’s actions were not limiting consumer choices, pointing to increases in mortgage issuances, credit union memberships and auto loans since the bureau’s opening in 2011. That earned him praise from Democrats, who applauded the CFPB’s work and fought back Republican criticism.

“The issue of accountability is bewildering to me,” said Sen. Sherrod Brown (Ohio), the committee’s ranking Democrat, who charged Republicans with trying to turn the CFPB into “ideological roadkill.”

“The CFPB has exposed bad behavior by financial companies that previously had no federal regulator,” added Brown, “And we finally have strong mortgage rules and disclosures designed for the people who have to pay the mortgage.”

Democrats also pressed Cordray on CFPB’s pending rule on payday lenders, which is geared toward protecting customers from endless debt, and how emerging financial technology could impact how the bureau regulates the industry.

Cordray said the CFPB was doing its best to stay on top of developments to make sure their regulatory effort keep pace with technology.

“It may be that banking system and the fintech system will converge in some ways,” said Cordray. “If we fall behind it, this will dramatically affect markets over time.”

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