New Bill Seeks to Create Consumer Financial Protection Bureau (CFPB) Inspector General

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The Consumer Financial Protection Bureau (CFPB) was the brainchild of Elizabeth Warren (D-MA). It was designed to be an autonomous bureau, outside the gazing eyes of Congress in terms of oversight. The Bureau is currently run by former Ohio Attorney General Richard Cordray. The Bureau is an independent bureau within the Federal Reserve System and was created under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act).

(Phil Hall) The latest piece of congressional legislation seeking to reconfigure the Consumer Financial Protection Bureau (CFPB) was introduced by Sen. Rob Portman (R-OH), who is seeking to create a new dedicated, Senate-confirmed Inspector General (IG) to monitor the agency.

In its current set-up, the CFPB shares an IG with the Federal Reserve. However, the Fed’s IG is hired by the central bank’s chairman and is not appointed by the president or confirmed by the Senate. Sen. Portman, who introduced similar legislation in the last Congress, stated this new IG would enable greater accountability and transparency at the CFPB.

“Installing a dedicated, Senate-confirmed internal watchdog at the CFPB will provide greater transparency and accountability at the CFPB,” he said. “Given the vast powers of this large bureaucracy and the CFPB’s insulation from congressional oversight, it is critical that it have an independent IG to ensure robust oversight. Every federal agency should be responsive and accountable to the American people, and this bill will help ensure we have an independent IG in place like we do at other federal agencies.”

Joining Sen. Portman as co-sposnors on the bill are Sens. John Barrasso (R-WY), Roy Blunt (R-MO), Thad Cochran (R-MS), Susan Collins (R-ME), Mike Enzi (R-WY), Dean Heller (R-NV), John Hoeven (R-ND) and Johnny Isakson (R-GA).

The problem with the CFPB is that it is autonomous. And their have been previous attempts to reign in the CFPB.

On July 11, 2013, the CFPB Rural Designation Petition and Correction Act (H.R. 2672; 113th Congress) was introduced into the House of Representatives. The bill would amend the Dodd–Frank Wall Street Reform and Consumer Protection Act to direct the CFPB to establish an application process that would allow a person to get their county designated as “rural” for purposes of a federal consumer financial law.  One practical effect of having a county designated “rural” is that people can qualify for some types of mortgages by getting them exempted from the CFPB’s qualified mortgage rule.

On September 26, 2013, the Consumer Financial Protection Safety and Soundness Improvement Act of 2013 (H.R. 3193; 113th Congress) was introduced into the United States House of Representatives.  If adopted, the bill would have modified the CFPB by transforming it into a five-person commission and removing it from the Federal Reserve System. The CFPB would have been renamed the “Financial Product Safety Commission”. The bill was also intended to make it easier to override the CFPB decisions. It passed in the House of Representatives on February 27, 2014 and was received by the Senate on March 4.  It was never considered in the Democratic-controlled Senate.

Hopefully, we will see this modification of the CFPB to allow greater oversight. Independent bureaus like the CFPB pose dangers to the financial system.

On the mortgage side, mortgage originations to borrowers with credit (FICO) scores lower than 660 had already stabilized at a lower level by the time the CFPB opened for business in 2011.

The CFPB was created, in part, to counter HUD’s National Homeownership Strategy under Clinton (1995) that encourage the expansion of mortgage credit to low income households and encouraged streamlined underwriting by its partners (aka, mortgage lenders). The result? A massive mortgage credit bubble that burst leading to a financial fiasco.

Unfortunately, the CFPB goes to the opposite extreme intended by Clinton’s HUD.

Richard Cordray, CFPB Director.

 

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