Republicans on the House Financial Services Committee charged in a newly released report that Consumer Financial Protection Bureau (CFPB) Director Richard Cordray might have violated federal law in rulemaking involving larger participants in the consumer auto-lending market.
If the charge were true, it could expose Cordray to being removed from his post under the “for-clause” provision of the Dodd-Frank Act.
The report is based on internal CFPB documents obtained by the Financial Services Committee. In a release accompanying the report, the committee’s majority said it uncovered “several potential legal problems” with the 2015 rule the CFPB passed drawing supervision of the auto-lending market.
“Once again we see the CFPB is a dangerously out-of-control, unconstitutional and unaccountable bureaucracy,” Committee Chairman Jeb Hensarling (R-Texas) said in the release. “It is a case study in the overreach and pathologies of the regulatory state run amok. The bureau routinely abuses and exceeds its authority, robs consumers of their economic freedoms, increases consumer costs and often attempts to hide information from the public.”
“Ignoring the Administrative Procedure Act — a landmark law for ensuring the public is included in rulemaking — is unbecoming of a public servant,” committee member Rep. Randy Hultgren (R-Illinois) told The Title Report.
A CFPB spokesman told The Title Report the bureau was aware of the report.
"We are reviewing the report from the majority staff of the House Financial Services Committee," he said. "The bureau is committed to ensuring that consumers are treated fairly in the financial marketplace, and makes a conscientious effort at all times to carry out its mission in compliance with all applicable laws."
The report states that attorneys from the CFPB advised Cordray to publish a list of institutions the CFPB believed would be subject to the proposed rule, and re-open the public comment period after it closed.
Instead, Cordray approved the final rule without disclosing the data underlying the rulemaking and without allowing public comment on the data used.
“The CFPB’s definition of ‘larger participants’ is based upon ‘quantitative information on the number of market participants and their number and dollar volume of originations’ taken from Experian’s AutoCount database,” the committee’s report stated. “During the comment period the CFPB received multiple requests for a list of the institutions that it believed the rule would cover and ‘a number of comments pertaining directly or indirectly to the Experian list.’ The CFPB did not respond with the requested information because it ‘understood that Experian regarded the AutoCount data and information derived from that data, including the names of the entities the Bureau estimates would be newly subject to supervision, as proprietary.’ ”
However, the report states that internal documents show that Experian told the CFPB that it “had no objection” to releasing the list of names as well as their relative market share. Because of that, attorneys wrote Cordray to suggest he publish the data and reopen the comment period, warning “there is a cognizable risk that a court would conclude” that the Administrative Procedures Act required the CFPB to do so.
“After explaining the legal analysis supporting their conclusion that the CFPB should re-open the comment period, the attorneys outlined the possible negative outcomes of doing so, including the risk of ‘Congressional scrutiny,’ the prospect that it would ‘raise questions about whether the four prior larger participant rules were procedurally defective since the bureau did not solicit public comment on the identities of the entities that would qualify for supervision[,]’ and the likelihood that ‘[t]he bureau might feel the need to manage … expectation[s] by providing a detailed explanation in future rulemakings of exactly why the identities of potential larger participants are not being released, which might draw attention to potential limitations of the dataset utilized to support the rule,” the report stated.
The report said that courts have held that provisions of the APA require agencies to provide an opportunity for the public to comment on data and technical studies used to support a rule. An agency must provide data supporting its conclusions, and if it fails to do so, it must publish the data and re-open its comment period.
“Despite the legal implications of failing to re-open the comment period flagged by his lawyers — and the policy risk of failing to alter the rule to avoid burdening small businesses by regulating them as ‘larger participants’ — Director Cordray approved issuing the final rule,” the report stated.
The report also demonstrates that under recent Supreme Court precedent, the CFPB’s use of the “disparate impact” legal theory in enforcement actions against auto financers would not survive judicial scrutiny.
“Fuzzy logic and false comparisons are unfortunately prevalent in the CFPB’s auto-lending actions,” the report stated. “In every aspect of the CFPB’s auto-lending actions, the CFPB’s lack of rigor leads to unsupported and unreliable conclusions.”