Inside Financial Services

The CFPB Whiffs

Its rules ought to apply to everyone

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It’s no secret I’m no fan of the Consumer Finance Protection Bureau, and think it’s an unaccountable, unconstitutional monstrosity that will create havoc in the banking industry even as it drives up the cost of credit for consumers. I won’t bore you with my full tirade. Let’s just say that any agency that’s self-funded (via direct profits from the Federal Reserve, in this case), subject to very limited congressional oversight, and controlled by a single un-fireable individual rather than a bipartisan board is an agency that will sooner or later be out of control. There are a lot of things I don’t like about Dodd-Frank; the creation of the CFPB is near the top of my list.

Having said that, I’m very much in favor of government regulation of consumer finance. Opportunities for financial services companies to abuse their customers are nearly endless–by, say, concocting bogus fees or failing to adequately explain the terms of their products. The government has a role to play in keeping the playing field level.

Given this, you can perhaps imagine my dismay when I read this week that the CFPB, with all its awesome powers singleness of purpose, has already begun to punt on doing its job. The issue in this case has to do with a new rule the agency has put in place regarding fee disclosure related to sale of remittances. Remittances are of course a hot-button issue for consumer advocates, since their fees often seem high and the people who buy them tend to be financially unsophisticated. Under Dodd-Frank, the CFPB is required to write a rule mandating disclosure of fees, exchange rates, and final payment amounts in international money transfers. Very sensible. The agency finalized the rule in February. And yet as it moves to implement it, the agency is considering exempting small institutions, which it is thinking of defining as those that send 100 or fewer remittances per year.

Wait a minute. Is the CFPB supposed to protect consumers or not? If it writes a rule (at least a disclosure-related rule as simple and straightforward as this one seems to be), the rule ought to apply to everybody. Carrying it out won’t be burdensome, so why should small institutions get a pass? Alternatively if carrying out the rule will be unduly burdensome the agency might re-think it in the first place.

I’m at a loss to see how it’s okay for one set of consumers get the benefit of the CFPB-promulgated transparency while another set of consumers, through no fault of their own, do not. If the CFPB thinks its new rule helps remittance buyers, then the new rule ought to help all of them.

As I say I’ve never been a fan of the CFPB. Now that I see how it’s implementing even a sensible rule, I’m less of a fan than ever.

What do you think? Let me know!

7 Responses to “The CFPB Whiffs”

  1. Ole Holsti

    Yes, all financial institutions should be covered–even your one-time favorite: First Marblehead. Are you still plugging that one?

  2. rivvir

    “Let’s just say that any agency that’s self-funded (via direct profits from the Federal Reserve, in this case), subject to very limited congressional oversight, and controlled by a single un-fireable individual rather than a bipartisan board is an agency that will sooner or later be out of control.” Sounds like a lot of companies i know of, private and public (those with boards packed with ceo cronies). So, obviously, i’m glad to see you are “…I’m very much in favor of government regulation of consumer finance” and “… government has a role to play in keeping the playing field level.” I know you’ve in the past professed some positives on gvt regulation, including the need to properly enforce what’s in effect now, but those words seemed to me to be lip service. You might just have started on the path toward convincing me otherwise. I don’t oppose you on the fact regulation needs improvement, both in intent and enforcement, but it has to start somewhere and honestly worked at to improve what’s in place, not weaken the protections it’s intended to provide. Unfortunately, congress has proved it can’t work when one side won’t work with the other unless it gets all it wants. I imagine if the right wing gets in the left wing will work the same way as long if they have enough power to stall initiative. The key is to work together for the betterment of all, not one work to get the other out of power. No one has all the answers, no one is always correct. Not even you, not even dimon, certainly not the right wing. What’s the whale’s loss up to now? I stopped keeping track. Just happy to see jpm’s given me a decent profit off his mistake so far. By the way, what do you think of mtg? I picked some up at 74 cents, sold that today at 1.11 and with some of the profit picked up some far out of the money march options in place of the stock. Small gamble, and pure gamble, but fun.

  3. FSDA

    Rules are rules. But the CFPB feels that it must pander to the community banks, who were so screwed by Dodd-Frank and especially the Independent Community Bankers’ Association, which so supported that dreadful legislation. The CFPB owes its life to the ICBA’s support.

    Can anyone explain how those assocation bureaucrats (Camden Fine comes most to mind) keep their jobs after having served their members so poorly?

  4. SW Pilgrim

    I.E. — reward the non-transparent inefficients and come down on the capitalized, transparent others. Makes a lot of sense if you went to Paperpushers’ U. More third world behavior from DC. SWP

  5. CB

    Tom, have you printed out and read the rule? Be sure you have a fresh ream of paper in your printer when you do. In addition to more complicated procedures for a bank to implement, there is risk that a bank that makes an error will be liable not only for the amount of the fees involved but for the entire amount of the transfer. Many banks are waiting for their foreign wire vendors to develop a solution for us to comply with the disclosure and timing requirements, but clearly the costs of offering these services will have to increase. With the added risk of chargeback loss, banks that offer this type of service as a customer convenience such as those with 100 or fewer remittances per year will likely exit the business if they have to comply. The end result will be fewer options for consumers.

  6. Kade

    The CFPB seems to think that exempting very small banks would solve the major issue with their proposed rules- that of disclosing the rate/fees/delivered amount to the sender. Clearly it does not. Given the network of correspondent banks at play throughout the world, providing the disclosure is not even possible in an open network of institutions. Even the jumbo U.S. banks do not know who the second or third correspondent banks in a payment chain are in most countries and what fee they may assess.

    The CFPB will kill consumer remittances for banks and/or force them or their customers to closed loop networks (think Western Union). CFPB now regulates them. Perhaps there is a method to their madness.

  7. Kade

    The CFPB seems to think that exempting very small banks would solve the major issue with their proposed rules- that of disclosing the rate/fees/delivered amount to the sender. Clearly it does not. Given the network of correspondent banks at play throughout the world, providing the disclosure is not even possible in an open network of institutions. Even the jumbo U.S. banks do not know who the second or third correspondent banks in a payment chain are in most countries and what fee they may assess.

    The CFPB will kill consumer remittances for banks and/or force them or their customers to closed loop networks (think Western Union). CFPB now regulates them. Perhaps there is a method to their madness.

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