Rafferty Capital Markets analyst Richard X. Bove, wondering why the issue doesn’t get more attention, calls out the CFPB for its ‘appalling’ lack of oversight and accountability.
No Fine Too Great; No Penalty Stiff Enough
Periodically, I write comments stating my frustration with developments in banking asking the question: “Why Doesn’t Anyone Care?” This comment relates to the power grabs underway at the Consumer Financial Protection Bureau (CFPB). It is my belief that bank regulators are operating without any oversight, or countervailing power reviewing their activities. The government and media have convinced the nation that bankers have harmed the country as a whole and must be contained. Based on this view there is no action taken against banking or bankers that will be questioned. Armed with this belief the regulators are pushing the boundaries of what they control and what they can do well beyond anything the people of this country may believe to be acceptable.
The Consumer Financial Protection Bureau has taken the following steps which may be threatening to more than just bankers:
• In Federal Reserve Regulation Z, the CFPB has provided a long (hundreds of pages) definition of who is qualified to obtain a mortgage. The CFPB no longer believes that lending money to potential homeowners is a transaction between the borrower and the lender. Therefore, it has established a highly complex set of instructions that define who is a qualified borrower and who should be penalized if a non-qualified borrower receives a loan and does not repay on time. The rule is written in a fashion that
o No bank can take the risk of lending to anyone that is remotely suspect, and
o No low income household is ever likely to be able to obtain the funds to buy a home in this country again. From the CFPB’s vantage only the rich are qualified to live in a home that they own themselves.
• While the intention of the CFPB is to protect consumers, the agency now believes that small businesses fall under its mandate. It intends to write regulations impacting loans to these entities. Presumably, the CFPB will be cutting funds off to this group just as it has to low income households.
• The CFPB also interprets its mandate to be to determine if minorities are being treated fairly by bankers.
o It has levied a stiff fine, $98 million, on a bank that the CFPB believes discriminated against minorities based solely on computer algorithms. No hard data was available on the bank’s lending practices.
o It is implementing rules that it believes will insure minority hiring in banking institutions.
Insulated Against Oversight
The CFPB is run by a director who does not report to a Board or any other panel. He is a czar with unlimited power over the agency he controls. Moreover, Congress cannot impact the activities of the CFPB because it is funded by the Federal Reserve and Congress has no control over the Federal Reserve.
In sum, the people of this country have no controls whatsoever over the actions of the CFPB. In fact no one does except the Director who must report to no one.
Presumably, this is not the way a democratic nation runs its affairs. However, as indicated, the CFPB attacks banks and there is no reason to control anyone who can cripple the banking industry. One can only stand by and applaud the wisdom of the Congress for setting up a dictator who has a free hand to do what he wants when he wants with no oversight.
No one else cares. rules that it believes will insure minority hiring in banking institutions.