Duke in DC’s latest Congressional Briefing featured discussion about the future of the Consumer Financial Protection Bureau (CFPB) following its recent United States Supreme Court hearing. The CFPB is an independent agency created after the 2008 financial crisis with the role of writing and enforcing rules for financial institutions, examining both bank and non-bank financial institutions, monitoring and reporting on markets, and collecting and tracking consumer complaints. Its most recent challenge in front of the Supreme Court is questioning whether the CFPB’s funding structure, which funnels through the Federal Reserve rather than Congress, is constitutional.
Our panel of Duke experts, including the Sanford School of Policy’s Mallory SoRelle, PhD, and Vicki Bogan, PhD, the Fuqua School of Business’ Manuel Adelino, PhD, and moderated by Duke Law’s Stuart Benjamin, J.D., discussed the implications of these challenges for consumers, particularly those with lower incomes, including their real estate and household finances, as well as the legal implications for administrative law and regulatory agencies.
Recommendations to policymakers as conversations continue about the CFPB:
Mallory SoRelle
“It’s not enough to think about the substance of of regulations, but to think about the implementation, and how visible how visible is an organization like the CFPB is role in implementing these things to the public, because the only way that the public is able to express in a systematic way problems that they have with these products is through an organization like the CFPB. Right? And they can’t do that if they don’t know that the CFPB is responsible. So I would really encourage policymakers and sort of regulators to focus on the ways that we make those points of access.”
Vicki Bogan
“FinTech, you know, the landscape for how consumers engage with financial products is also changing. Products are more complex, but how they access them has been changing as well. And I think that the CFPB has been uniquely positioned to address how that landscape is changing. And it’s not just focused on certain kinds of banks. It’s not just focused on certain financial institutions. And it can look more broadly at how households are engaging through FinTech and what additional protections may be needed in that context as well. And so the fact that, again, we’ll go back to a point that we’ve all made, that there is a kind of central body that’s responsible for looking at the big picture, and developing specific expertise in consumer finance regulation, I think is an important key for people to recognize.”
Manuel Adelino
“Think about where is the what are the priorities in terms of financial products, and then I have to return to this point about priorities in terms of groups that are being potentially harmed. And so here, you know, and this depends now on how you think about your constituency. But indeed, thinking about which demographic groups out there are being harmed by the absence of rule-making and by the absence of protection?”
The CFPB as a legal matter.
Stuart Benjamin
“My own take on this case, is that as a legal matter, it’s not terribly significant. Because it would be so easy for Congress to have annual appropriations. There’s no if tomorrow. I think it’s unlikely the Court were to say that none of these funding mechanisms, you know, for the Fed, for the FDIC for the CFPB was constitutional, Congress can pass legislation responding.”
The CFPB as a political matter.
Mallory SoRelle
“It would present a real challenge for the CFPB. Because what would likely happen if the court sides with the payday lending lobby, in this case, is they would probably say, ‘We’re going to essentially toss this back to Congress and say, you need to come up with another funding mechanism, we will give you some amount of time, maybe a year to do that, we’re not going to go back and sort of get rid of all the regulations the CFPB has done, but you’re gonna have to fix this moving forward.’ The reason that is likely to be really problematic is because of how polarized Congress is right now.
How exactly does the CFPB benefit consumers?
Vicki Bogan
“If you look at some of the key actions that they’ve taken, since inception, they’ve been the CFPB has been very active in enforcement and supervision, which results in has resulted in billions of dollars in monetary compensation, principal reduction, canceled debts and other consumer relief. They have imposed billions in civil money penalties on companies and individuals that have violated laws. They have collected millions of consumer complaints that they pass on to firms on behalf of the consumers. And they have served as a key source of financial education with, you know, a huge database of financial education information, and also answering sort of hundreds of financial questions from people that are just trying to navigate the landscape.”
Manuel Adelino
“If I have to make three decisions over my lifetime, and you’re asking me to how do I choose the right interest rate for me at what loan to value? And what should I do if someone has offered me a hybrid mortgage? It’s unlikely that I will know and I won’t have a chance to learn because the next time I’ll make that decision is 10 or 15 years from now. So the fact that they are very infrequent makes them especially hard to learn about. And the last point I want to make is these decisions matter… making the right choice can be very productive for the household making a wrong choice is very costly. So when you combine these three things, that your decisions are complex, they are infrequent, so they’re hard to learn about. And they really matter. You need to think about whether how do how do you then put this under one agency?”
What makes the CFPB unique?
Mallory SoRelle
“It was the first financial regulator whose primary mission was consumer protection. And it’s centralized a lot of that regulatory authority into one agency. So what ends up happening is not only are the folks in the CFPB, actually, they have expertise in protecting financial institutions. And that’s what they’re supposed to be doing. But it also meant it lowered the cost for public interest groups and sort of ordinary consumers to engage in regulatory politics, because now instead of having to do that, across multiple institutions, there was one very visible institution that you could go to.”
Why so many challenges to the CFPB?
Vicki Bogan
“You might ask yourself, why is there such opposition to the CFPB, kind of in concept, and I think there’s often been kind of confusion on the clientele of the CFPB. Right? the CFPB was designed to serve the public, not the banks, per se. And so Unsurprisingly, the banks and financial institutions often push back on some of the initiatives of the CFPB. You know, the banks, you know, don’t like additional regulation, don’t necessarily don’t welcome additional regulation. And it’s interfere with their ability to satisfy their mission of maximizing shareholder value, and especially when they’re, you know, regulated by an outside firm. So you see, quite a bit of opposition from financial institutions.”
Communication is key.
Mallory SoRelle
The CFPB more recently has started to add language, for example, on the Schumer box of credit card applications. A simple line that just says the CFPB is a regulatory agency that deals with this. If you need help, you can contact us. So I have some work that shows that even something as simple as that making visible, the presence of this agency makes consumers more likely to say they would proactively seek out that agency if they needed information if they needed to file a complaint, right. So something as simple as just being visible in the type of material that’s disclosed to consumers around financial products, makes it easier for them to get information.
Vicki Bogan
“I think, because it’s still new, one of the challenges is I don’t think everybody’s clear on sort of what the CFPB role is, what exactly they do, how they make decisions. And so I think, to the extent that the CFPB seemed as if they were spending a lot of time trying to get their message out about, you know, their goals in how the, you know, their mission, and how they want to make a difference. I mean, I think that at my time there and granted, I would work primarily with the Office of Research, there is quite a bit of energy enthusiasm for kind of communication and reaching out and interacting as much as possible.”
Manuel Adelino
“I think part of this, it certainly is about providing information to consumers. But a lot of it is about designing the products and designing the way they are offered to consumers in a way that allows them to make proper decisions it is about So how do I design, for example, a modification program that allows households to send back the documents, sign them and understand them? How do I design a credit card contract. So you should not have in mind necessarily, the household actively looking for information, but rather a household reacting to things that are offered to them and being able to then make adequate financial decisions.”
Mallory SoRelle, PhD, Assistant Professor at the Sanford School of Public Policy
Vicki Bogan, PhD, Professor at the Sanford School of Public Policy
Manuel Adelino, PhD, Professor of Finance at the Fuqua School of Business
Stuart Benjamin, JD, William Van Alstyne Professor of Law and co-director of the Center for Innovation Policy at Duke Law School