A little-noticed yet significant report card was issued recently measuring the progress of the fledgling Consumer Financial Protection Bureau thus far.
The report by a Bipartisan Policy Center task force comes after almost a year's worth of in-depth review and analysis and seems to support what critics of the CFPB have been saying all along: This unaccountable bureaucracy harms business and consumers alike.
While reading the report's characterization of the bureau's standard operating procedures, one is more likely to envision the workings of a Dr. Jekyll and Mr. Hyde versus those of a federal bureau charged with protecting millions of consumers.
The Dr. Jekyll CFPB "operated in a transparent, open, and iterative manner, repeatedly seeking input from all stakeholders throughout a process," producing "generally positive" results. While the Mr. Hyde CFPB "made unilateral decisions, rolled out initiatives, rules, or processes as a result of a more closed, internal deliberation process," producing results that were "far more likely to be problematic."
The problem for business and consumers, though, is that unlike the classic story, Mr. Hyde CFPB is the norm and Dr. Jekyll the exception.
A specific example cited in the report was the agency's handling of hearings and meetings regarding payday lending: "By excluding the public from such meetings, and by providing inadequate notice for other hearings, the CFPB has limited the ability of both consumer groups and industry members to participate in the policymaking process."
The agency's approach in this instance was particularly harmful to low-income communities where access to credit is, in the words of one of the task force's members, "enormously important." Without taking into consideration the input from all parties involved — including consumers — the agency ran the risk of eliminating a financial product many low-income communities desperately need.
The report recommends that the CFPB "take every stop possible to ensure that no breach of data occurs," extending to all data collected directly, as well as that collected by outside vendors. The fact that this is even a recommendation is cause for concern — was protecting consumers' financial information not already on the list of things to do?
This concern is made all the worse knowing that the CFPB uses 11 different companies to purchase, collect, analyze and store consumer data. The bureau has also identified 12 operational areas in which third-party vendors may receive personally identifiable information about consumers.
Another example of Mr. Hyde CFPB harming consumers comes in the area of auto-lending, where recently the bureau has been seeking to eliminate dealer-negotiated car financing and replace it with a flat fee method of compensation. According to one analysis, such a move would eliminate a key source of price competition between auto dealers — the ability to vary interest rates — and ultimately result in restricting consumer choice.
The task force also made a number of recommendations regarding ways in which the CFPB can mitigate the regulatory burden it imposes on regulated entities and ways it can lessen the tension between itself and the business community.
For example, the task force recommended that the CFPB discontinue its current practice of including enforcement officials on routine examinations. Not only does this create unnecessary tension, but it also frequently escalates the examination process — a relatively straightforward procedure within other agencies — to include company attorneys, the result being less forthright communications that could have aided in the regulatory process.
Adherence to this and other recommendations will have the effect of lowering the cost of doing business, producing savings which will most likely then be passed on to consumers in the form of lower interest rates on financial products.
These more nuanced and programmatic concerns identified by the task force only serve to add an additional layer of scrutiny to a federal bureaucracy that has been in the spotlight since the day of its creation. Perhaps with a little more heat, Dr. Jekyll will be more likely to come around.
Jeffrey H. Joseph is a business professor at the George Washington University School of Business.