Typically, when we think of governmental regulation, we think about rules, laws and guidelines that are set up in order to ensure best practices, while minimizing misconduct within a certain industry. It seems, however, that there are some who prefer to rule with an iron fist; those who prefer to rule by way of enforcement, instead of creating realistic, practical rules. Richard Cordray, the Director of the Consumer Financial Protection Bureau (CFPB) has been described as such a person. Cordray recently defended his bureau’s way of regulating via enforcement during his presentation to members of the Committee on Banking, Housing and Urban Affairs during the semi-annual report that he gives to Congress.
More than a few senators put pressure on Cordray about the CFPB’s use of enforcement, instead of rulemaking in order to make a standard for the auto-lending industry. He said that enforcing is the CFPB’s best line of action. Recently, the CFPB has been on quite a run of enforcement against big auto lending companies, like Fifth Third Bank, American Honda Finance Corp. and Toyota Financial Services. These enforcements greatly restrict the auto-lenders’ power to adjust retail margins on car loans. The bureau, as one might expect at this point, did all of this enforcement without creating any new rules or adding provisions to any existing rules.
Pat Toomey, a Republican Senator from Rhode Island, in response said, “What concerns me is that the rulemaking is an entire process that requires a level of transparency and gets input. There’s a cost-benefit analysis. My worry is that if we’re using enforcement instead of rulemaking, we’re going to miss those pieces.”
Enforcement against cases of ‘Deception’
Cordray responded to Toomey’s concerns by stating that most of the relief that the CFPB’s recent enforcement actions provided were focused on “cases where one or more of the claims involved deception – lying to customers or prospective customers.” Cordray also went on to note a pattern in the consent orders and said that if other lending companies used practices like Fifth Third, Honda Finance or Toyota Financial, that they would be best off to “stop doing what they’re doing. Signaling the marketplace very clearly around each enforcement action is an important thing. It is compliance malpractice for other institutions not to look carefully at our orders in these cases,” he said, “and not to think, ‘Am I doing the same thing? Am I violating the law? And therefore should I clean that up?’”
Cordray added to this by saying, “That’s a basic of consistent law enforcement. People can call it regulation by enforcement. I call it good, solid law enforcement.”
As much as Cordray likes to defend his stance as a hardline enforcer who is doing what it takes to protect consumers, the bottom line is that American consumers and businesses don’t usually take kindly to officials with nearly limitless amounts of power and seemingly personal axes to grind. To many who are critical of Cordray and the CFPB by proxy, that is exactly how the Director is viewed. It is not just auto lenders that have felt the wrath of Cordray at this point. Payday lenders and even traditional banks have had the CFPB putting undue pressure on them for the last five years. It seems that there may be a big change on the horizon, though, as many prominent Democrat officials are now joining forces with Republicans in order to bring the CFPB to heel, as it were. Combine this trend with a high profile case that is trying to determine if the single-leader structure of the CFPB is even constitutional and it is likely that Cordray is going to be spending his fair share of time defending his actions and those of his bureau for quite a while to come.
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