On April 7, 2016, the Senate Banking Committee held a hearing on the Consumer
Financial Protection Bureau’s (“CFPB”) Semi-Annual Report
to Congress and featured testimony from CFPB Director, Richard Cordray.
This hearing followed Director Cordray’s appearance before the House
Financial Services Committee in March, but unlike the House hearing, exchanges
between Republican Senators and Director Cordray remained civil despite
vehement disagreement on some issues.
During his opening remarks, Republican Committee Chairman Richard Shelby
highlighted concerns regarding the “CFPB’s current structure
and lack of accountability.” Ranking Member Sherrod Brown (D-OH)
defended the CFP and pointed to the fact that Director Cordray has testified
before Congress on 61 occasions as evidence of vigorous congressional
Not surprisingly, much of Director Cordray’s testimony focused on
defending CFPB enforcement actions and responding to other criticisms
of its activity. There were several CFPB rules and activities discussed:
Shelby criticized the CFPB’s reliance on disparate impact theory
to bring enforcement actions against indirect auto lenders. Director Cordray
pointed to the U.S. Supreme Court’s decision in
Inclusive Communities to vindicate the CFPB’s position but neglected to address whether
disparate impact claims are cognizable under the Equal Credit Opportunity
In June 2015, the U.S. Supreme Court held that disparate impact claims
are cognizable under the Fair Housing Act (“FHA”). The decision
means that the FHA permits a plaintiff to establish liability without
proof of discriminatory intent by challenging business practices that
have a disproportionate effect on minorities and are otherwise unjustified
by legitimate rationale. The Supreme Court’s
Inclusive Communities decision, however, does not resolve whether disparate impact claims are
cognizable under ECOA.
Senator Cotton discussed the flaws in the CFPB’s eligibility criteria
for individuals entitled to relief for discrimination and referenced a
Wall Street Journal tool that generates estimates of minority status based
on the CFPB’s disparate impact theory. Director Cordray defended
the CFPB’s methodology for establishing disparate impact and identifying
consumers entitled to redress for discrimination.
Regulation by Enforcement
Shelby added that CFPB enforcement actions against auto finance companies
have become the “poster child” for regulation by enforcement.
He then questioned remarks Director Cordray recently made at the Consumer
Bankers Association where he described the CFPB’s approach as “a
thoughtful strategy for how to deploy [the CFPB’s] limited resources
most efficiently to protect the public.” Cordray had also stated
that consent orders are “intended as guides to all participants
in the marketplace to avoid similar violations and make an immediate effort
to correct any such improper practices.” He did not back down from
those statements. He repeated, “This is good solid law enforcement”
and that consent orders function as a signal to companies to improve their
Senators questioned whether consumers would be able to access small-dollar
loans after the CFPB’s proposed restrictions on payday lending take
effect. Director Cordray explained that consumers would be able to rely
on a “reformed” payday loan industry, including Fintech companies,
community banks and credit unions, for their small-dollar credit needs.
Concerning Fintech, Senator Warner (D-VA) cautioned that the CFPB must
be careful not to stifle innovation while performing its regulatory oversight
duties. Director Cordray explained that the CFPB will be “mindful”
of that balance but also mentioned that Fintech companies should not be
able to gain advantages over banks by exploiting the regulatory system.
Senator Rounds (R-SD) expressed concern regarding the CFPB’s policy
on no-action letters and questioned why the CFPB would produce so few
letters each year in comparison to other agencies that provide hundreds.
Director Cordray acknowledged concerns and said that he was “not
satisfied” with the policy. He indicated that the CFPB would reconsider
the policy but also mentioned that he is “leery” of how much
volume the agency can handle.
If you would like to set up a free consultation with
Jaspreet Kaur, Esq., please call our office at (949) 298-8050.