Mulvaney defends record on enforcement, appointees' salaries; Crapo focuses on data collection; Warren says other regulators wouldn't have acted to protect consumers

The Senate Banking Committee on April 12, 2018, held a hearing to receive the semiannual report of the Consumer Financial Protection Bureau. The only witness was Acting CFPB Director Mick Mulvaney, who also serves as director of the Office of Management and Budget (OMB), in his first appearance before the committee since being named the Bureau's acting director. Testimony from the hearing is posted here.

In his opening statement, Chairman Mike Crapo (R-ID) said the fall 2017 semiannual report, which the CFPB released April 2, focuses primarily on its rulemaking, supervisory and enforcement actions between April and September of 2017. "The CFPB recently announced a series of requests for information on various functions, including its rulemaking, supervision, guidance and enforcement processes … I look forward to learning what feedback the CFPB has received from stakeholders with respect to its requests." Crapo said he has "long been concerned about the ever-increasing amounts of big data collected by companies and the government," citing a 2014 GAO report that highlighted "shortcomings" in the CFPB's data collection process and privacy controls. Crapo said the Bureau's data collection "is especially concerning in light of a number of high-profile cyber-attacks, such as last year's Equifax data breach" and actions by third-party Facebook app providers. He commended Mulvaney for "freezing the agency's collection of personal information while the agency reviews the ways it can improve its data security program." Crapo said the Bureau's structure "needs to be reconsidered … I continue to support a bipartisan commission instead of a single director, a congressional funding mechanism and a safety and soundness check."

In his statement, Ranking Member Sherrod Brown (D-OH) attributed the financial crisis to predatory subprime mortgages and said, "The lesson from 2008 is simple: if we don't protect hard-working Americans from powerful Wall Street banks and financial scammers, it can bring down our entire economy. That's why we created the CFPB." He said that before Mulvaney's arrival, the Bureau won $12 billion in relief for 29 million Americans who were harmed by "shady practices … But now, Mr. Mulvaney's trying to convince us that protecting families and prosecuting shady lenders is pushing the envelope. That's simply a lie." He said Mulvaney is "completely failing" at the CFPB's mission: "Not only has the CFPB not initiated a single enforcement action, it has withdrawn lawsuits against four payday lenders that charged consumers triple-digit interest rates." Brown said Mulvaney had marked the 50th anniversary of the Fair Housing Act by "moving to weaken … the office that focuses on discriminatory lending" at CFPB. Brown added that while Mulvaney had announced a hiring freeze, he had actually created new positions at CFPB and "installed his own political appointees. Not only did Mr. Mulvaney replace nonpartisan career staff with his political allies, he gave them enormous salaries." Brown said Mulvaney is "hoping that if he does a bad enough job running the CFPB, Congress will the take away the CFPB's ability to protect consumers. Congress should not fall for it."

In his own statement, Acting CFPB Director Mick Mulvaney did not read from his prepared text, and instead simply submitted it for the record: "I hope that … we can use this time to try and draw attention to ways that the Bureau can be improved, especially as regards accountability and transparency." He said that under the statute that created the CFPB, he is required to appear before the committee but "I don't think I have to answer your questions," though he was happy to do so. He called that "just one example" of mistakes in the statute that need to be fixed — "I think we all maybe could admit that it wasn't perfect the first time." Mulvaney said that independence and freedom from micromanagement doesn't "equate to being free of oversight, free of accountability and free of transparency."

In his prepared text, Mulvaney said the "Bureau's new strategic priorities are to recognize free markets and consumer choice and take a prudent, consistent and humble approach to enforcing the law. This reflects my understanding that consumers and creditors alike gain from mutual exchange, provided that promises are kept, terms are clearly disclosed, and property rights are protected … our focus will be on carrying out only those activities Congress explicitly wrote into law." His statement says the Bureau's recent "Call for Evidence," a series of requests for public comment on how the agency operates, was done because "it is important to learn more about what is working and what needs to improve in the work done by the Bureau." The semiannual report is attached with this Alert and also posted here.

Questions

Request for Inspector General. In his questions, Chairman Crapo asked Mulvaney to explain why he had proposed establishing an Inspector General's office within the Bureau. Mulvaney said the CFPB now shares an inspector general with the Federal Reserve Board, and "I have absolutely no complaints about the service that I have received from them, so this is not a personal attack on the IG … in the long run, it serves this agency better to have our own IG who is dedicated to what we do, who is familiar and focused with what we do exclusively." He added that he believed the new office would save the agency $2 million annually.

Data collection. Crapo asked how the Bureau's data collection process could be "narrowed and enhanced to better protect consumers' personal information" in light of the cyberattacks on Equifax and the Office of Personnel Management. Mulvaney said the Bureau is in the process of asking the same question, that the topic had been raised in a report by the Fed's Inspector General, and upon arriving at the Bureau he had instituted a "data collection freeze, until I can get my arms around what the scope of the difficulty was … We've also changed some of our practices in terms of looking at data but not collecting it … So there's stuff we have to see, but not stuff we have to keep. We've also hired an outside party, I believe with the Department of Defense, to see if they can test the integrity of our systems … We've commissioned a report on data sources and uses that we will make available to you and to the public."

Lack of enforcement actions. In his questions, Ranking Member Brown said Mulvaney had "not initiated a single enforcement action to put money back in the pockets of service members, or veterans, or seniors, or students … Why are you using your power to do favors for shady lenders and Wall Street banks rather than taking decisive action against these bad actors … ?" Mulvaney disagreed with Brown's characterization, saying the Bureau has "over 100 investigations ongoing right now. We have 25 lawsuits, including 10 against short-term, small-dollar or payday lenders … We have another dozen that are in what we call the 'sue or settle' part of the process … my predecessor, in his first six months, never filed a lawsuit … It is a true fact that we have not filed a new lawsuit in the last five months, but I would disagree with the characterization that it means that we're not enforcing the law." When Brown asked why Mulvaney had dropped a lawsuit against four payday lenders, "against the advice of nonpartisan CFPB staff," Mulvaney said the dismissal "is one of 25 that I could have done. I chose to only dismiss one. The dismissal was without prejudice, to bring the action again, and there's a current ongoing investigation against the same entity."

CFPB budget & salaries. Brown wondered why the CFPB would "require more political staff … than worked at the Federal Reserve, the FDIC, and OCC combined in 2016," and asked why Mulvaney had hired eight political appointees during an agency hiring freeze. Mulvaney questioned the accuracy of Brown's statement and said the Federal Trade Commission has "more political appointees than we do … There were no political appointees other than me on the day that I showed up." He said he had created only three "net new" political positions, paid "under the exact same pay system that my predecessor set out." Mulvaney said he has "complete authority under the statute to do exactly what I've done." Later, Mulvaney denied Brown's assertion that the CFPB had "quashed" an analysis by the Labor Department that Brown said "showed employers would pocket hundreds of millions of dollars in tips meant for employees."

Later in the hearing, Jon Tester (D-MT) also focused on this issue, asking what sort of budget figure Mulvaney would seek from the Federal Reserve in October. Mulvaney said the agency had not done that analysis yet, but he had asked for $98.5 million at the end of March, to fund the Bureau for the next quarter, which he said was about what former director Richard Cordray had sought in 2015 but less than he had requested subsequently. Tester asked why Mulvaney's appointees are being paid just under $240,000, which is $47,000 more per year than "members of Congress, most federal judges, the vice president, and cabinet secretaries." Mulvaney told him, "That's the system that you all set up in the statute … Most of the folks that you referenced are the senior team … The practice of the previous director was to pay those folks as much as he possibly could. And he did." Mulvaney said his political appointees are paired with a career civil servant each, similar to the "DADs and PADs" system he instituted at OMB, and they make about the same as the career employees, adding, "I would welcome bipartisan review of our compensation structure over at the Bureau."

Restructuring the agency. In his questions, Richard Shelby (R-AL) said, "I think we might have to do some legislative changes here," and asked Mulvaney for his thoughts on how the Bureau could be restructured to be more accountable and transparent. Mulvaney said the annual report offers four recommendations, but the lead one is for the agency to be funded through the congressional appropriation process, as opposed to the current mechanism by which it is funded through a portion of the Federal Reserve's budget. "Why you all wanted to give up the appropriation power that Congress has over this agency, I don't understand," Mulvaney said. "I could walk down to the Federal Reserve on October 1st this year … and they will give me $700 million if I ask for it. And I don't have to tell you what I'm going to do with it … The inquiry, the sunshine that is attached to the appropriations process doesn't apply here." Mulvaney also mentioned his proposal that Congress be required to approve any major regulation issued by the CFPB.

Inaction by other regulators. In her questions, Elizabeth Warren (D-MA), who has exchanged a contentious series of letters with Mulvaney in recent months, said Mulvaney had "taken obvious joy in talking about how the agency will help banks a lot more than it will help consumers, and how upset it must make me. Here's what you don't get, Mr. Mulvaney — this isn't about me. This is about active-duty military. It's about first responders and students and seniors and families … and millions of other people who need someone on their side when consumers get cheated … You're hurting real people to score cheap political points." Warren pointed to the father of a soldier in the hearing room whom she said had been the victim of a financial scam. Warren listed a series of successful cases won by the CFPB, pausing after each to ask Mulvaney where the money recouped from financial firms would be today if the CFPB had not been there. When Mulvaney said other regulators might have brought a similar action in a case involving Citigroup, Warren said those were "the same agencies that didn't bring those actions before the crash of 2008 and didn't bring this particular case … Let's not pretend like you hope that some other agency would do that work … I have a list of 11 bills that you supported during your time in Congress that would have made it harder for states and other federal agencies to protect consumers and to hold cheaters accountable." Warren disputed Mulvaney's answer that the FTC might have pursued violations by Top Notch Funding, which targeted loans to first responders in the Sept. 11 attacks, because "they have a history of not doing this."

Banks' policies on gun sales. In his questions, John Kennedy (R-LA) noted that though Citigroup and Bank of America had both received billions in "taxpayer bailouts" through the TARP program during the financial crisis, "Apparently they aren't busy enough with their banking practices, so they're going to set policy for the Second Amendment." He referred to Citi's recent announcement that its banks would no longer do business with customers that sell weapons to people under age 21, or sell bump stocks or large-capacity magazines, saying, "I understand Bank of America is about to do the same. It looks like we're headed toward having red banks and blue banks." Mulvaney said the change was "troubling," but not an issue for the CFPB: "I would be slow to tell our companies what they must provide to customers." Kennedy asked if it would be considered appropriate if the same banks had announced they would stop providing services to abortion providers or "people who support the pro-life position," and said he plans to file a complaint with the Bureau "because I find [the banks'] conduct offensive."

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ATTACHMENTS

CFPB Semiannual Report

Mulvaney Statement