Banking

CFPB director is supposed to be an apolitical job

Since its inception a decade ago, the Consumer Financial Protection Bureau has been a political hot potato — tossed from director to director, and interims along the way.

Meanwhile, consumers, small businesses and financial institutions have struggled to navigate a web of constantly changing rules.

This uncertainty often deterred banks from developing new products to serve consumers — especially those in low- and moderate-income areas — leaving an uneven patchwork of consumer protections depending solely on the size and type of financial institutions selected. Even worse, some consumers lost access to the financial products they depended on because of the regulatory uncertainty created by the CFBP’s revolving leadership.

President Biden recently nominated a Federal Trade Commission member and former CFPB official, Rohit Chopra, to lead the bureau.

To upright the CFPB ship, there are a number of things Chopra, pending Senate confirmation as director, can do to help achieve the shared goal of improving the nation’s banking industry, protect consumers equally across institutions and finally, put an end to the political pendulum swing.

First, the bureau must ensure its actions preserve consumers’ access to credit.

Americans need efficient and responsible access to credit, and the bureau should ensure any action it takes does not constrain banks’ ability to serve customers in their time of need. The nation’s regulated banks provide services to customers in the safest manner possible, ensuring protections and credit access not as equally found at payday lenders, pawn shops and similar nonbanks. Access to credit and consumer protection initiatives are not mutually exclusive.

Second, the bureau must develop long-term, consistent consumer protection laws across the board. Some politicians might just look to the next election, but the CFPB should strive for financial regulations that last longer than a power shift in Washington.

Consumers are best served when regulators put politics aside and draft regulations with input from all stakeholders to create a stable and well-regulated financial marketplace. Stability between presidential administrations is vital for consumers as it provides banks assurances when developing new products or implementing customers protection practices, especially for the most vulnerable Americans.

Ever-changing rules of the road are like speed traps on the highway — eventually banks will have little choice but to stop offering a product because the regulatory burden becomes too risky. The CFPB’s brief history has already shown how constant changes in leadership can disrupt the entire financial services marketplace when agency actions are repealed and rescinded between directors.

Next, the CFPB should implement a clear, transparent rulemaking process, which includes input from all involved parties. A consumer-protection framework grounded in proper education of consumers, comprehensive supervision of banks, and thoughtful regulation of products and services will create a financial marketplace that encourages compliance and protects consumers’ financial interests. Conversely, establishing rules and financial policies solely based on enforcement actions will greatly harm the consumers banks aim to serve. Enforcement actions should be the result of failures at an institution, not the standard to which the bureau sets rulemaking and supervision policy.

The CFPB must also engage in transparent and open processes to ensure clear and objective compliance standards for regulated institutions. Too often, the bureau’s sole-director structure does not allow for feedback from dissenting opinions, both within and outside the agency to effect better policy.

Since 2012, more than a handful of the bureau’s 85 Consumer Advisory Board members have been from the depository institutions it regulates. As such, there is little opportunity to raise or discuss the real-world implications of a proposed rule.

The CFPB also cannot regress to the days of releasing embargoed news at midnight, as a way to announce rules and significant actions to fewer eyes in the dead of night. It signals those actions are too fragile to survive the light of day.

Instead, all the bureau’s rulemaking efforts should include opportunities for stakeholder feedback and review in a more timely manner. Then, it should release actions when people are watching, showing confidence in the rule or regulatory action being taken.

Feedback from all stakeholders in an open and transparent manner will help improve the longevity and reliability of bureau’s rules.

And finally, consumers deserve a level playing field across all financial institutions.

The world of financial services is constantly evolving, with new players entering the space every day. Many emerging stakeholders are exempt from the same rules and oversight as the well-regulated banks the CFPB oversees.

To ensure the most thorough consumer-protection initiatives are upheld, the bureau should strive to create a level playing field for all financial institutions. Every consumer deserves consistent and equal protections.

The CFPB has an obligation to apply consumer regulations across the board so Americans using a fintech or nonbank lender are assured the same protections as those using a well-regulated bank.

While the bureau is one of the newer U.S. financial regulatory bodies, its scope and power is unprecedented, with reach over almost every financial product consumers use and decisions they make. Ensuring the rulemaking process is transparent and open, allowing for thorough stakeholder feedback, helps banks continue to improve on already strong consumer protections.

Now more than ever, banks need this transparency, and American consumers deserve it as the economy climbs out of the effects from the coronavirus pandemic.



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