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Lending

GOP wants CFPB merged with other regulators

Democrats think cost-benefit analysis is 'dangerous'

stormy congress

The House Financial Services Committee hearing on the economic consequences of regulatory rulemaking and enforcement on Tuesday got heated early and often.

The House committee hearing examined the cost to businesses in terms of money and productivity of federal agencies like the Consumer Financial Protection Bureau, the Federal Reserve, the National Credit Union Administration and others.

While the hearing focused on all the regulators, the CFPB was the focus of discussion for a great deal of the hearing time.

The committee also discussed products and services that are no longer being offered because of agency actions, and the standards agencies follow in determining whether to engage in formal rulemaking under the Administrative Procedure Act. 

Meredith Fuchs, CFPB general counsel, was among the witnesses. Fuchs was questioned CFPB employee allegations of discrimination and retaliation by the CFPB’s leadership. 

The committee also raised questions about the CFPB’s use of consent orders, through which the bureau has extracted commitments from financial institutions far greater than existing statutes and regulations. 

Committee Chair Jeb Hensarling, R-Texas, said that agencies like the CFPB need to adopt cost-benefit analysis in their regulatory activities – an approach that ranking minority members on the committee have opposed.

“Likewise, many Democrats have harshly criticized cost-benefit analysis. Looking at the pluses and minuses of a rule, the impact on jobs, asking the question whether a rule on balance helps or harms hardworking, struggling American families. The ranking member, for example, declared that legislation requiring cost-benefit analysis is ‘dangerous.’  I believe what is ‘dangerous’ is sweeping under the rug the mounting evidence that many rules promulgated under Dodd-Frank Act and its ideological precursor, the CARD Act, are harming consumers,” Hensarling said. 

“The Federal Reserve now reports that one-third of black and Hispanic borrowers would be hurt by the Qualified Mortgage rule. In the American Banker Association’s most recent lending survey of banks, one-third of respondents said they plan to reduce their mortgage lending only to QM loans. Perhaps that is why QM is rapidly becoming known as the ‘Quitting Mortgages’ rule," he added.

“It is time for all to take off partisan blinders and acknowledge the truth that Washington regulators aren’t always right and more red tape is not always the solution to every problem.  It is time to hold Washington accountable,” Hensarling said.

U.S. Rep. Maxine Waters, D-Calif., the ranking Democrat, defended federal bureaucrats and regulators, who she said put the financial system on more stable footing after the worst economic crisis in a generation. Waters called the committee for what she said is “continuing to push an ideologically-driven agenda focused on deregulation.”

Also at the committee hearing examining how burdensome regulations cost jobs, Waters said the committee was avoiding “real, serious issues that need the immediate attention of the committee, issues that grow our economy and create jobs.”

“Rather than accuse ‘Washington’ of restricting ‘economic freedom’ we should be taking up bills that grow our economy and create good jobs for U.S. workers,” she said.

Waters is a vocal defender of the CFPB.

U.S. Rep Scott Garrett, R-N.J., upped the ante on reform, saying that most of the regulatory agencies before the committee should be merged into an agency with more accountability to the people.

“Dodd-Frank bestowed almost limitless powers to the banking regulators and especially to the Federal Reserve.  Unfortunately, all of these agencies continue to operate with little, if any, accountability.  Instead of technocrats implementing the directives given to them by Congress, the banking agencies now operate as policymakers on steroids—carrying out their own regulatory ambitions and even blatantly defying clear Congressional directive.  Mr. Chairman, this is completely unacceptable,” Garrett said. “Given this lack of accountability to Congress, I believe this Committee should seriously examine the appropriateness of merging and reforming these agencies to ensure a greater level of accountability and responsiveness to Congress.” 

Frequent CFPB critic and committee member U.S. Rep. Sean Duffy, R-Wis., said regulatory oversight may be necessary to protect citizens, it’s a bigger threat to the citizenry when the regulatory body itself won’t regulate itself.

“Dirty water is annoying, dirty glasses are annoying, and a dirty CFPB is really annoying,” Duffy said.

In its comments on the hearing, the National Association of Federal Credit Unions stressed that credit unions did not cause the economic downturn yet remain in the crosshairs of regulations created under the Dodd-Frank Act to address the activities of those entities that did.

“Today, credit union lending continues to grow at a solid pace, up about 6.8% at the end of 2013 compared to 2009,” the NAFCU statement says. “In short, credit unions didn’t cause the financial crisis, they helped blunt the crisis by continuing to lend during difficult times, and perhaps most importantly, continue to play a key role in the still-fragile economic recovery.”

In a 2012 NAFCU survey of association members, 94% of respondents said they saw their compliance burdens grow since the 2010 passage of the Dodd-Frank Act. In a March 2013 survey, nearly 27% of respondents had increased their full-time equivalents  for compliance personnel from 2012 to 2013; and more than 70% of respondents said they have had non-compliance staff members take on compliance-related duties to address the growing burden.

Scott Alvarez, general counsel for the Federal Reserve Board, said that the Fed has kept apace with Dodd-Frank.

“The Federal Reserve has made significant progress in implementing the Dodd-Frank Act and other measures designed to improve the resiliency of banking organizations and the financial system,” Alvarez said. “The Federal Reserve will continue to work with other U.S. financial regulatory agencies and the institutions we supervise to ensure that these institutions operate in a safe and sound manner and are able to provide credit even during economic downturns.”

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