Last week the Consumer Financial Protection Bureau released its report from the Taskforce on Federal Consumer Financial Law. It is just shy of 900 pages and includes some 100 recommendations that, if implemented, would broaden the CFPB’s regulatory oversight powers.
Noteworthy among the recommendations is that the CFPB be given the authority to license and regulate financial technology companies.
A day after the report’s release, the Office of the Comptroller of the Currency issued a statement in which it endorsed the “need for federal charters” for fintechs but said that the regulatory responsibility for that task belongs with the OCC.
Key Recommendations as Stated by the Taskforce
- Authorize the Bureau to issue charters or licenses to nondepository fintech companies, payments processors, and other financial service providers that provide lending, money transmission, and payment services.
- Expand access to the payment system by unbanked and underbanked consumers and ensure consistent treatment by applying the same rules to similar products.
- Research consumer credit reporting issues that arise in connection with a consumer’s bankruptcy.
- Consider the benefits and costs of preempting state law where conflicts can impede the provision of valuable products and services, such as regulation of fintech companies.
- The Bureau and prudential regulators should eliminate overlapping examination subject areas and reconcile inconsistent examination standards that unnecessarily expend multiple resources and can cause confusion.
- Dialogue with state regulators to bridge knowledge gaps and streamline regulation.
- Exercise caution (a recommendation for the Bureau, Congress, and other federal and state regulators) in restricting the use of nonfinancial alternative data, which can be very useful indicators of creditworthiness.
- Clarify the obligations of CRAs and furnishers with respect to disputes under the Fair Credit Reporting Act.
- Assess periodically the accuracy and completeness of consumer credit reports.
- Work with other agencies to create a unified regulatory regime for new and innovative technologies providing services similar to banks.
- Establish an independent review of the Bureau’s regulatory cost-benefit analyses by staffing an office of the cost-benefit analysis at the Bureau.
Quick Background Recap
Back in October of 2019, the Bureau announced its Taskforce on Federal Consumer Financial Law to “examine the ways to harmonize and modernize federal consumer financial laws.” The goal was to “identify the gaps in knowledge” by doing some research to improve a consumer’s understanding of the industry or to see whether there were some inconsistencies in existing regulations. A charter was created; money was allocated for the taskforce and additional CFPB personnel. The taskforce was to begin in January of 2020 and provide a report by January of 2021.
The Inspiration: the 1968 Commission and 1972 Report
The idea of this taskforce was inspired by the National Commission on Consumer Finance, which was a commission created under Title IV of the Consumer Credit Protection Act of 1968. A glance at the NCCF report is like a trip back in time. Link to the original 1972 report. The 1968 Commission was to deliver a report by January 1971 – the report was published in five editions between 1972 and 1973 – regarding the following topics:
- The adequacy of consumer credit arrangements at reasonable rates.
- The adequacy of existing supervisory and regulatory mechanisms to protect the public from unfair practices and ensure the informed use of consumer credit.
- The desirability of federal chartering of consumer finance companies, or other federal regulatory measures.
The present taskforce was more than just inspired by the idea of the 1968 Commission, many of the same recommendations made by the NCCF in 1973 are essentially recited and woven into the new report, including a significant portion dedicated to recommendations rejected in the wake of the NCCF report such as restrictions on wage garnishment, repossession, and default judgments.
At the time of the NCCF’s report, the only legislation that existed under which the CFPB now has authority was Truth-In-Lending. Today, however, there is an extensive body of federal regulation of consumer financial services and an entire federal agency devoted to the subject. Given this backdrop, the taskforce’s remark that “federal supervision that was still a question at the time of the NCCF is now well evident,” is not plausible. Yet it forms the foundation of what the report concludes is needed; namely, even greater regulation including oversight of new and yet to be discovered services and technologies that fall within its expansive view of what constitutes a consumer financial product or service. As outlined in a recent study by the Mercatus Center at George Mason University, the impact of such outdated policies reduces the availability of financial services provided by small, innovative and community-based institutions.