Consumer bureau draws fire for pro-business tilt during crisis

The Consumer Financial Protection Bureau is relaxing rules designed to shield Americans from abuse during the coronavirus crisis, saying the moves are necessary to give businesses flexibility during the pandemic.

But with the agency facing an unprecedented wave of consumer complaints as millions of laid-off workers deal with their creditors, lawmakers and consumer advocates charge that the bureau is exploiting the crisis to further a pro-industry agenda. They’re demanding that it set aside all rulemaking unrelated to the crisis and take a more forceful stance toward businesses that could use the chaos to rip off consumers.

“The CFPB under President Trump has used this pandemic as an excuse to weaken protections for consumers — enabling predatory lending, watering down credit reporting protections and fair lending laws, and making it easier for credit card and debit card companies to rip off their consumers,” Senate Banking Committee ranking member Sherrod Brown (D-Ohio) told POLITICO.

The consumer bureau – conceived during the financial crisis by Elizabeth Warren to help individuals fight back against abuse by companies – has long been detested by many Republicans, who complained that it repeatedly overstepped its bounds with aggressive enforcement during the Obama years. As a result, the Trump administration has continually sought to slash its budget and scale back its ability to go after wrongdoers.

The bureau’s director, Kathy Kraninger, a former Trump budget office official, says the agency is doing everything it can to protect consumers from bad actors. She has touted its education and outreach efforts during the crisis, pointing to increased attempts to inform consumers of the assistance available to them.

Yet the coronavirus crisis has underscored the dangers that Americans face from financial crime: A record number of consumer complaints have already been filed with the bureau — more than 42,000 in April alone, greater than in any other month since it opened in July 2011. The Justice Department recently brought its first fraud charges related to a small business lending program. More will follow.

The bureau, for its part, has not brought a single enforcement case during the crisis, and its enforcement actions fell by 80 percent from 2015 to 2018, according to an analysis by the Consumer Federation of America. Its staff has been reduced by more than 14 percent under President Donald Trump, and the agency is filled with political appointees to keep an eye on the career employees.

The bureau, which was formed in the ashes of the 2008 financial crisis, has instead repeatedly highlighted the “flexibility” it is giving the industries it regulates during the crisis, saying that benefits consumers.

In March, the agency announced that it would relax or postpone various reporting requirements for mortgage lenders, credit card companies and other financial institutions. Kraninger said the move would allow financial companies “to focus their resources on assisting consumers” rather than on complying with CFPB rules.

Last month, the bureau issued guidance signaling that it would not enforce a requirement that credit reporting companies review consumer disputes within 30 days and would instead consider the companies’ “good faith efforts to investigate disputes as quickly as possible.”

Democrats were incensed, arguing that credit reporting disputes will likely explode as consumers navigate loan modifications during the crisis.

Sen. Warren, a Massachusetts Democrat who spearheaded the effort to set it up the bureau after the financial crisis, accused Kraninger of spending her 17-month tenure “making it easier for consumers to get ripped off.”

“The CFPB has a crucial role to play during this crisis to protect families,” Warren said in an email. “It must use its supervisory authority to monitor and detect consumer abuses and use its enforcement powers to punish companies that violate the law.”

She warned that “Congress will be watching — and I will use every tool available to me to hold the agency accountable to its mission.”

Republicans, for their part, have embraced Kraninger‘s stewardship of the agency during the crisis.

“Attacking business is not consumer protection,” Rep. Blaine Luetkemeyer (R-Mo.), a member of the House Financial Services Committee, said in a statement. “Giving flexibility to businesses so they can help families in need is exactly what they should be doing to look out for consumers. Punitive actions that unnecessarily raise the costs of housing or completely eliminate housing options only serves to satisfy certain people’s need to inflict pain on businesses, and it’s done at the expense of consumers.”

Kraninger herself maintains the agency is doing everything it can to protect consumers from bad actors. She dismissed charges that the agency is not being assertive enough, during a May 1 conference call with reporters.

“I really don’t understand where that is coming from, except perhaps there is a desire to see different kinds of relief provided that we don’t have the authority to provide and Congress needs to act on,” she said. “We are absolutely first and foremost informing consumers about what they’re entitled to and protecting them in the marketplace from unfair, deceptive, abusive acts and practices as we always have.”

The CFPB declined to comment further.

The defense that the bureau only has so much authority does not wash with consumer advocates, who point out that even the agency’s biggest Republican detractors have always said it is too powerful.

The target of many of those criticisms, former CFPB Director Richard Cordray, says there’s plenty more the agency could be doing for consumers. Cordray released a white paper last month detailing 16 actions the bureau could take, from using its supervisory authority to make sure lenders comply with the mortgage relief measures contained in the $2 trillion economic rescue package Congress passed in March to pressuring financial firms to waive overdraft fees.

“The biggest issue right now is they haven’t had the right frame of mind about the emerging crisis,” he said in an interview, accusing the agency of focusing on “giving businesses more leeway” rather than protecting consumers.

It’s during a crisis that “protections are needed the most, not the least — that’s when we can least afford to relax the enforcement of these laws, because they aren’t just self-executing,” Cordray said. “It takes oversight and action by the people in charge.”

Derek Martin, director of the consumer advocacy group Allied Progress, agreed, saying the agency is sending the wrong signals to businesses.

“There’s sort of hard power and soft power,” Martin said, referring to the CFPB’s enforcement powers and its ability to pressure businesses with public statements.

“Soft power isn’t irrelevant — being out there signaling to the market saying, ‘we are watching.’ When the top consumer protection regulator in the country speaks, the market listens,” he said. “Even just flagging a concerning trend in consumer protection during this crisis, that is a signal to the market.”

Kraninger suggested on the call with reporters that the agency is taking a more aggressive approach behind the scenes.

“Law enforcement agencies, when they’re engaged in investigations, when they’re engaged in confidential supervisory activity, that is confidential for a reason,” she said.

“So until that becomes a public action, that’s something that people can’t necessarily see, so you’ll have to take my word for it until we have any public actions that we can release, but we are continuing to be on the job and doing everything that we can to protect consumers,” she added.

Consumer advocates have called on the agency to halt all rulemaking unrelated to the crisis.

“The bureau has a lot of work that it needs to do now to provide guidance and assistance to creditors and consumers, and as a result they surely don’t have the bandwidth to continue with all of their current rulemaking processes, so we hope that they’ll halt any nonessential rulemaking immediately,” said National Consumer Law Center attorney Alys Cohen.

“The CFPB was born out of the prior financial crisis and so I think in some respects now is the time the agency should be stepping up,” said the Center for Responsible Lending’s Lisa Stifler. “Unfortunately we haven’t seen that, and in fact they’ve done the opposite by protecting industry actors.”

The agency issued a final rule last month exempting more mortgage lenders from reporting requirements under a law meant to track racial bias in lending, even as it delayed a rule to collect data on banks’ loans to businesses owned by women and minorities.

Nineteen Democratic senators urged Kraninger to reverse course , writing that the CFPB “should not use the current public health and economic crises as an opportunity to roll back critical protections for borrowers who may be at risk of discriminatory lending.”

The CFPB’s joint statement with other regulatory agencies in March encouraging financial institutions to offer “responsible small-dollar loans” also irritated Democrats, who want the agency to cap interest rates for those loans.

“Your recent guidance lacks any mention of the necessary consumer protections needed to prevent predatory lending practices,” Brown and Sen. Dick Durbin (D-Ill.) wrote in a letter to the heads of the five agencies.

House Democrats, meanwhile, are requesting an inspector general investigation into allegations reported by The New York Times that the political appointees the Trump administration has installed throughout the agency manipulated career staff’s research to lay the groundwork for a proposal rescinding key provisions of a 2017 rule cracking down on payday lenders.

The bureau is expected to release the revised rule, which will no longer require lenders to determine whether a borrower can repay a loan, as soon as this month.