CFPB Knows Abuse When It Sees It

Richard Cordray appeared before the House Financial Services Committee on Thursday to present his Semi-Annual Report on the Consumer Financial Protection Bureau (CFPB).  One of the biggest questions of the day was how Cordray interprets one of the CFPB’s ambiguous objectives under Dodd-Frank -- protecting consumers from abusive acts and practices.  According to Cordray, it depends. 

Cordray, true to his prosecutorial training, shies away from clear lines that would place reasonable limits on the CFPB’s ability to go after businesses that offer consumer financial products.  The meaning of abusive depends on facts and circumstances, including who the consumer is.  A shifting standard of this sort opens the door to abuse of authority by the CFPB, which (as Todd Zywicki and others have explained) lacks the usual constraints on the agency’s authority. 

Cordray asserted that good businesses ought to know what is abusive and avoid doing it.  Yet, he also suggested that a practice that is perfectly fine with respect to one consumer may be abusive with respect to the next.  Acknowledging that there are gray areas, Cordray said the CFPB will “tread carefully,” but declined to promise to avoid enforcement actions in these  areas.  Consumers can expect businesses simply to avoid offering products to consumers, in fear that the CFPB enforcers will show up if the product does not work out as well as a consumer had hoped.  As a result, consumers will not get the financial products that they need.

Cordray’s cheerful promises of open lines of communication with Congress do not solve the problem of the lack of accountability of the CFPB.  Similarly, his assurances that the CFPB will use its ambiguous authority wisely are cold comfort for the businesses that will be punished according to shifting standards of what is acceptable and the consumers who will suffer as a result.  Cordray told Congress that he “wants a thousand flowers [of financial product innovation] to bloom,” but the CFPB’s ad hoc enforcement program will be the poison that kills that growth.