CHOICE 2.0 — Meet CLEA, the new, improved(?) CFPB
One of the more controversial aspects of Dodd-Frank was the Consumer Financial Protection Bureau, whose combination of broad power and…
One of the more controversial aspects of Dodd-Frank was the Consumer Financial Protection Bureau, whose combination of broad power and limited accountability has struck many as inappropriate and at least one D.C. Circuit panel as unconstitutional. As such, it isn’t surprising that the CHOICE 2.0 Act, the Dodd-Frank reform package put forward by Congressman Jeb Hensarling, would seek to change the agency. But how? Well, read on for a (partial) list of the changes.
What’s in a name?
Gone is the Bureau of Consumer Financial Protection. Instead the agency will be known as the Consumer Law Enforcement Agency, or CLEA. True to its name this new agency will be much more oriented around enforcing specific laws than broad prospective market regulation.
An executive agency, not an independent regulator
The CLEA will no longer be an independent regulator or part of the Federal Reserve, instead it will be a traditional executive branch agency, subject to Congressional Appropriations and the authority of the Office of Information and Regulatory Affairs (OIRA). This also means that its director will serve at the pleasure of the President and that the CLEA’s Inspector General will be appointed by the President and confirmed by the Senate.
A different mandate
The CLEA will have a dual mandate, adding an explicit directive that the CLEA will implement and enforce the law consistent with ”the purpose of strengthening participation in markets…without Government interference or subsidies, to increase competition and enhance consumer choice.”
A more circumscribed jurisdiction
The CLEA’s jurisdiction will be less sweeping than the CFPB. It will be excluded from regulating small-dollar credit or restricting arbitration. Unlike the CFPB, the CLEA will not be responsible for supervision of banks and other financial institutions (the supervision function for depository institutions will be returned to the prudential regulators). The CLEA will also no longer be responsible for market monitoring and will no longer maintain a public complaint database. Finally, and perhaps most importantly, the CLEA will not have the authority to prohibit Unfair, Deceptive, or Abusive Acts or Practices (UDAAP). The CFPB has used UDAAP as something of a blank check to regulate market participants even where the CFPB’s jurisdiction was dubious. The CLEA will be limited to enforcement actions and rules derived directly from consumer protection laws.
Changes to enforcement
The use of in-house administrative law judges by regulators, including the CFPB, is controversial. Opponents are concerned that there are constitutional and due process issues presented by having the Agency employ the judge in a case they are a party to. The CHOICE Act allows the target of a CLEA administrative proceeding to force the CLEA to terminate the proceeding. The CLEA may then file a suit in federal court to seek the same remedy the administrative action may have produced.
Targets of Civil Investigative Demands (CIDs) (requests for documents and information) may also appeal the CID to federal district court and seek to have the CID modified or set aside.
Robust Economic Analysis of CLEA activities
The CLEA will have an Office of Economic Analysis (OEA), the head of which will report directly to the CLEA director. The OEA will do an analysis of all proposed rules and regulations to assess the impact on “consumer choice, price, and access to credit products” that will be published in the federal register. The CLEA director needs to consider this analysis before any rule or regulation is issued. The OEA will also conduct an analysis of any proposed enforcement or administrative action that the director must consider prior to initiation of said action.
Required to consider safety and soundness
The CLEA will be required to consider the impact of a proposed rule on the “financial safety and soundness of an insured depository institution.”
Indirect auto-lender guidance vitiated
The CFPBs existing auto lending guidance is nullified. If the CLEA wishes to issue new guidance it must meet certain requirements, such as accepting public comment, making all relevant studies, data, and methods used by CLEA, consult with other regulators, and conduct a new study on the impact the guidance would have.
Durbin Amendment repealed
The Durbin Amendment, which placed a limit on what banks can charge to process debit card transactions, would be repealed.
(UPDATE: This provision was removed from the final bill)
No Chevron Deference
Dodd-Frank gives the CFPB’s interpretation of a statute preeminence over any other agency’s interpretation. CHOICE goes the exact opposite direction. CLEA’s interpretations of the law is not subject to any deference by the courts.
The CLEA director will be able to issue advisory opinions on whether conduct conforms to the law. The opinion is generally due within 90 days of submission though a single 90 day extension is permitted. The director can deny a request in certain circumstances. The opinions will be public and can be relied on as a shield to liability, provided the opinion had not been amended or withdrawn when the conduct in question occurred.