Today's Trends in Credit Regulation

CFPB Watch for Auto Dealers
By Michael A. Benoit

Raj Date Speech

Raj Date (pronounced “Dah-tay”) is the Special Advisor to the Secretary of the Treasury for the Consumer Financial Protection Bureau and shows up in the CFPB’s organization chart as the “Associate Director of Research, Markets, and Regulations.” Date spoke in Philadelphia on September 15. His presentation, which you can view or read on the CFPB’s website, was titled “Lessons Learned from the Financial Crisis: The Need for the CFPB.”

My ears perked up when he began to explain what he believed the Bureau’s approach to its mission should be. He said, “First, we are committed to basing our judgments on research and data analysis. We won’t shoot from the hip. We won’t reason from ideology. We won’t press a political agenda. Instead, we’re going to be fact-based, pragmatic, and deliberative.”

If the Bureau operates the way that Date says it will, we can expect that the Bureau will insist on facts and data, rather than anecdotes, from consumer advocates who are pressing for various reforms. That would be refreshing. The challenge, of course, is obtaining accurate and verifiable facts and data. In many cases, empirical facts and data (the only kind with value) regarding many alleged bad practices simply aren’t available. Clearly, the consumer advocates track anecdotal complaints, but who makes a practice of collecting data about practices that might be complained about?

Methinks Date doth protest too much. In other words, who is he kidding? Of course the Bureau will be launching investigations based on anecdotal evidence. The alternative is for the Bureau to wait 10 years to collect sufficient empirical facts and data, analyze the information that it collects, and then craft a complaint. Really?

The Bureau won’t press a political agenda? Does that mean that it will look with an open mind at businesses like title lending, payday lending, and rent-to-own? When pigs fly. Oh, excuse me, did I say that out loud? I meant to say that I’m a little bit from Missouri on that one.

And pragmatic? If a consumer with ruined credit can only turn to the lender of last resort (who, of course, charges a very high finance charge) to manage his cash flow, will the Bureau make rules that will eliminate the business case that made that creditor possible? Will it take a self-righteous, paternalistic approach to regulation, relying on a view that it knows what’s best for consumers? Tell that to the struggling consumer who runs out of funds before the next pay day and can’t afford to put gas in the car to get to work. Frankly, I doubt anyone at the Bureau has established relationships with these folks that the Bureau may be trying to save from themselves. Pragmatic would be to walk in their shoes for a while (and maybe gather some facts) before deciding that the Bureau knows what’s best.

The deliberative part we do buy. If Washington’s good at anything, it’s deliberating things to death.

Sensible action? Not so much.

Military Credit

Hollister K. Petraeus, the Assistant Director for Servicemember Affairs at the CFPB, appeared at the FTC’s San Antonio roundtable on vehicle sales and financing and, during her presentation, sounded like she was being persuaded by the consumer advocates that car dealers are bad guys. Her appearance there makes me suspect that she will weigh in on dealer transactions with the military before long, but, at the moment, her attention appears to be on private schools that, she says, prey on military personnel. If you’re interested in her comments on that topic, check the New York Times September 21 issue for her op-ed column.

CFPB Priorities

The CFPB’s website has, I believe, been simplified. It looks noticeably less “busy” and seems to have less content than before. In snooping around on the site, however, I uncovered a list of things on which the Bureau says it is “hard at work.” The Bureau says it has:

  • Launched “Know Before You Owe,” an effort to combine two federally required mortgage disclosures into a single, simpler form that makes the costs and risks of the loan clear and allows consumers to comparison shop;
  • Brought together industry representatives, consumer groups, academics, government experts, and others for a conference to review data on how the CARD Act, coupled with the recession and its aftermath, have affected supply, demand, and pricing within the credit card marketplace;
  • Released reports on:
    • The impact of the CARD Act of 2009;
    • Variation in credit scores sold by certain consumer reporting agencies;
    • Remittances, specifically remittance exchange rates and the use of remittance histories for credit scores; and
    • The progress it has made in building the CFPB.
  • Reached out to small, independent bankers from all 50 states; and
  • Issued a Notice and Request for Comment seeking public input on issues relevant to defining a “larger participant” in certain consumer financial markets.

In addition, the CFPB also issued its examination guidelines and procedures, focusing first on mortgage servicing. The section on “Unfair, Deceptive or Abusive Acts or Practices” makes for an interesting read. I’m reasonably intelligent and familiar with the industry, and I can’t see any guidance there that would be helpful to the average examiner. Except, of course, the bit about contacting “Headquarters”… that shows up a lot. It’s clear that Headquarters will be making the decisions about what is unfair, deceptive, and/or abusive from its perch in Washington. And it’s clear that the standard will look to control product offerings based on suitability, fiduciary responsibility to consumers, and pricing.

Karl Marx would be so proud. The American people? I bet, not so much.

Michael A. Benoit is a partner in the Washington, D.C., office of Hudson Cook, LLP. He can be reached at 202-327-9705 or by email at

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