Fizzle Of The Week: The Activist CFPB

It seems an era has drawn to a close at the Consumer Finance Protection Bureau (CFPB) as that under Mick Mulvaney, interim director and Office of Management and Budget (OMB) head, gets underway in earnest. Though there is still some drama about who should rightfully be in the driver’s seat at the federally mandated consumer protection organization — a federal appeals court has agreed to expedite a hearing on Leandra English’s appeal of Mulvaney’s appointment — Mulvaney has won the first two rounds in court and is expected to ultimately win the third.  

And, under his leadership, the new CFPB seems bent on doing things very differently than it has in the past.

In fact, this week, Mulvaney circulated a new mission statement for the organization, which was later leaked to The New York Times. It reveals that Mulvaney won’t shutter the CFPB entirely — possibly because he is prevented by statute from doing so — but will instead change the way it operates going forward.

“When I arrived at CFPB, I told folks that despite what they might have heard, I had no intention of shutting down the Bureau,” Mulvaney wrote. “Indeed, the law doesn’t allow that, and as members of the Executive Branch, we are charged with faithfully executing the laws.”

In the 1,800-word memo, Mulvaney laid out his vision of a CFPB that is more “humble,” more “data-driven” and takes a more holistic look at the economic impacts of its regulatory activities.

“If a company closes its doors under the weight of a multiyear Civil Investigative Demand, you and I will still have jobs at the CFPB,” he wrote. “But, what about the workers who are laid off as a result?”

He also critiqued predecessor Richard Cordray’s approach to the job as a moral crusade wherein he was “new sheriff in town” leading the righteous “good guys” in their quest against the predatory “bad guys.” Mulvaney said the CFPB would instead introduce more quantitative rigor when deciding to investigate and fine.

“In 2016, almost a third of the complaints into this office related to debt collection,” he wrote. “Only 0.9 percent related to prepaid cards and 2 percent to payday lending. Data like that should, and will, guide our actions.” 

In fact, that kind of data is already guiding the CFPB’s actions. A few days after the change of direction memo went public, the CFPB announced it was pressing pause on its 2016 prepaid card rules, pushing back the implementation deadline and rethinking some of the strictures as written — particularly in regards to cards attached to digital wallets.

The new movement on the pre-paid card rule followed news last week that the CFPB will also take another look at the payday lending rule put into place during Corday’s final days as executive director.

“The Bureau intends to engage in a rulemaking process so that [it] may reconsider the payday rule,” he said.

The CFPB also announced that in the meantime, it would be providing waivers to banks hit by the implementation deadline so that compliance efforts would not be complicated by rule changes. That decision drew markedly mixed reactions.  

Industry groups applauded the move, as the payday rule was widely criticised for being too restrictive and a backdoor attempt at banning short-term lending by creating impossibly high regulatory barriers. Richard Hunt, president and CEO of the Consumer Bankers Association, expressed his hopes that reconsidering the rule would lead to a better, more level playing field for all players.

“The CFPB’s decision to revisit its small-dollar rule is welcomed news for the millions of American consumers experiencing financial hardship and in need of small-dollar credit,” said Hunt. “Under the current rule, many banks are forced to sit on the sidelines and [are] prevented from offering affordable and popular small-dollar credit options to help meet the needs of their customers. As the CFPB reconsiders this rule, we encourage the Bureau to work with bank regulatory agencies to examine the use of bank-offered small-dollar lending products, such as deposit advance products, and ensure [that] any final rule treats all banks equally.”

But critics, notably Massachusetts Senator and CFPB architect Elizabeth Warren, have accused Mulvaney of shuttering the CFPB in all but name only, and doing so by defanging its ability to actually protect consumers. Warren has been particularly critical of Mulvaney’s December decision to put a freeze on the collection of any personal data by the CFPB staff, the result of security issues that were highlighted in reports from both the Federal Reserve and the CFPB inspector general.

“The CFPB cannot fulfill its core functions without collecting personally identifiable information,” Warren stated in a letter. “Given how integral these data are to these basic CFPB functions, I fear that the freeze in data collection has, in practice, fundamentally changed how the CFPB interacts with its regulated entities, particularly in the Division of Supervision, Enforcement and Fair Lending. My staff has obtained internal CFPB documents that confirm these fears.”

Those fights can be expected to continue.  

While one can like the new direction the CFPB is taking or dislike it quite passionately, it is impossible to argue that this isn’t the same CFPB we were writing about a year ago. That CFPB — the highly activist group that struck fear into the hearts of bankers and financial service providers everywhere — has certainly fizzled for now, and possibly for the foreseeable future.

Take a look at a few other sizzles and fizzles of the week.

Sizzle

Speedier Gig Payments: Work hard, get paid fast. Gig economy companies like Uber, Lyft and Postmates, among others, are filling the lag between work performed and paycheck received with Instant Pay and other ways to cash out quickly. Up next? Possibly the blockchain and cryptos as a way to fill (virtual) coffers. When time is of the essence, digital provides the Benjamins. Speed thrills and, as noted in our latest edition of the PYMNTS Gig Economy Index, in an environs where 43 percent of the U.S. workforce may be freelancers by 2020, 84 percent say they would do more gig work if they were paid faster. 

Cannabis Players Light Up: Pot is due to become legal in Canada this year, and financial firms have raised as much as $1 billion in equity offerings.  This is really a case of putting money where your mouth is, and funding rates are, dare we say it, getting high.

Costco for Millennials: Forget the dad jeans. Forget the mom jeans and the giant jars of peanut butter. This “Costco for Millennials” — Boxed.com — sells bulk items and, with a prominent position in the delivery space, is attracting the attention of firms like Kroger, General Mills and Bed Bath & Beyond. Oh, and did we mention Amazon?

Fizzle

Physical Retail: Remember Geoffrey the Giraffe, or trolling the toy-filled aisles looking for the perfect bike? Searching for the giant lego set? Those memories will grow dimmer as they aren’t likely to be refreshed. Toy and game retailer Toys R Us is closing 182 brick-and-mortar stores as part of its restructuring, symptomatic of the pressures physical retailers face when faced with, well, Amazon.  

Biometrics in India: Aadhaar may not be all that was hoped for India, writes an economist in the NYT, noting that fraud has not decreased. But, at the same time, the mandates of relying on biometrics, technology such as phones and the internet — scarcities in rural areas — has kept many from accessing crucial social services such as food subsidies necessary for day-to-day life.

Bitcoin: The cryptocurrency got bitten for the second time in a week, testing and then breaking bad below the $10,000 threshold widely regarded as a psychological support level for the crypto. Traders fled, as did the retail-heavy population of holders. The reason? South Korea is levying heavy duty taxes on trades.