The arrival of the Consumer Financial Protection Bureau’s (“CFPB’s” or “Bureau’s”) Taskforce on Federal Consumer Financial Law Report (the “Report”) in January 2021[2] was muffled by the pandemic and the anticipated departure of CFPB Director Kathy Kraninger. However, the Report raised some important issues that should stay on the agenda even as the Bureau moves forward with new leadership.
At the outset, congratulations are due to the Taskforce members,[3] who engaged in a serious study of the increasingly complex web of laws and regulations that make up consumer financial services law. While practitioners are required to focus on the investigation or regulation before them, the Taskforce was able to look towards the horizon. The result was an eclectic set of recommendations that should not gather dust merely because the administration has changed hands.
The Taskforce also ably handled the additional burden of criticism focusing on the makeup of the Taskforce. To be sure, it would have been far better if the Taskforce had included a lawyer or academic who is routinely identified as a consumer advocate. However, the work and meetings of the American Bar Association’s Consumer Financial Services Committee routinely demonstrate that lawyers who represent financial institutions can and do articulate and advance the interests of consumers on issues ranging from equal access, to the fairness of disclosures, to redress for consumer harm. The ideas in the Report should be judged by their merits, not their parentage.
The Report consists of two volumes: one providing a historical and economic overview of consumer finance, and the other providing recommendations to improve and strengthen the application of financial laws and regulations. Key recommendations include:
- Authorizing the Bureau to issue licenses to non-depository institutions that provide lending, money transmission, and payment services;[4]
- Expanding access to the payment system by unbanked and underbanked consumers, ensuring consistent treatment by applying the same rules to similar financial products;[5]
- Considering the benefits and costs of preempting state law where conflicts can impede the provision of valuable products and services, such as the regulation of FinTech companies engaged in money transmission;[6]
- Establishing independent review of the Bureau’s regulatory cost-benefit analyses by staffing an office of cost-benefit analysis at the Bureau and or by submitting its analyses to the Office of Information and Regulatory Affairs for review;[7]
- Exercising caution (a recommendation for the Bureau, Congress, and other federal and state regulators) in restricting the use of nonfinancial alternative data;[8]
- Creating a unified regulatory regime for new and innovative technologies providing services similar to bank services;[9]
- Evaluating potential effects on inclusion as part of the Bureau’s cost-benefit analyses;[10] and
- Facilitating creditor access to immigrants’ credit information prior to their arrival in the United States in order to use that information in credit decisions.[11]
There are more than a hundred recommendations. This article will highlight three of the critical issues raised.
First, the Report reflects and advances the critical need to think further about how disclosures can best assist consumers in making decisions. Following in the footsteps of the seminal work, More than You Wanted To Know: The Failure of Mandated Disclosure, by Omri Ben-Shahar and Carl E. Schneider,[12] the Taskforce notes that more disclosure is not always better disclosure.[13] Instead, regulators and financial institutions alike sometimes add disclosures to already complicated documents without recognizing that the resulting proliferation of information can mean that consumers fail to read, much less absorb, critical information. In response, the Taskforce proposes a principles-based approach to provide more financial institutions with greater flexibility in what and how information is provided.[14] While that is one of several potential solutions that warrant further discussion, the Taskforce deserves credit for shining a spotlight on an issue that will only grow in importance as our mobile devices shrink the space available for disclosures.
Second, the Report offers a host of useful recommendations that relate to the fairness and transparency of the CFPB. For example, the Report endorses the use of a Civil Money Penalty (“CMP”) matrix at the Bureau,[15] similar to the approach taken by the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency.[16] Such a matrix, which would describe the factors and weighting of those factors in the Bureau’s CMP decisions, would give consumers, Congress, and regulated entities some visibility into how important enforcement decisions are made.[17] Likewise, the Taskforce proposes reforms to the Bureau’s Supervisory Appeal process.[18] In both cases, the Report appropriately seeks to ensure that the Bureau is more accountable and transparent.
Third, and most importantly, the Report contributes to our national discussion of what the Taskforce calls “the moral imperative to promote greater financial inclusion.”[19] To be sure, the Report could and should have done more to document the facts and implications of our noxious national history of discrimination in consumer financial services. Instead, the Report curiously claims that “[h]istorically the most notorious obstacle to financial inclusion was usury ceilings.”[20] However, the Report does offer important and welcome recommendations on expanding the availability of consumer financial services. In particular, the Reports calls for the Bureau to devote new attention:
- to whether the Equal Credit Opportunity Act should be amended to include disability as a prohibited basis for discrimination;[21]
- to rural populations, which have the highest rate of credit invisibility;[22]
- to furthering access to financial services by recent immigrants by making their credit histories outside the U.S. more accessible;[23]
- to addressing the unique challenges, such as identity theft, faced by the incarcerated and formerly incarcerated. [24]
In proposing additional focus on these underserved populations, the Taskforce most clearly fulfills its mission of helping the CFPB, the financial services industry, and all who work on consumer financial issues, to look more deeply into the question of what needs to be done to improve the quality and availability of financial services to consumers.