What To Do With the CFPB?

Among the legacies of that explosion of financial regulation known as the Dodd-Frank Act is the Consumer Financial Protection Bureau, which was set up expressly to counter what was seen, in the wake of the financial meltdown of 2007-09, as the overweening power of banks and allied interests. The CFPB in its short history has issued rules ranging across a wide swath of financial turf, but perhaps its most ambitious effort in payments is the 1,689-page regulation it dropped last fall on the prepaid industry.

This ponderous tome, which covers mobile wallets as well as cards, mainly prescribes matters concerning fee disclosure, consumers’ error-resolution rights, and account access. The regulation was set to take effect Oct. 1. But then, last month, the CFPB proposed a six-month delay, until April 1, 2018, ostensibly to allow program managers more time to swap out products with non-compliant language on their packaging for those blister-packed with CFPB-friendly text.

That seems reasonable enough, though some cynics assert the delay is really a response to an effort in a Republican-controlled Congress to quash the prepaid rule. This effort relies on a 20-year-old law called the Congressional Review Act, which allows Congress to nullify a new regulation within 60 days of its publication and bars a Senate filibuster. The CFPB, these cynics figure, is simply hoping to use the six-month delay in a campaign to appear reasonable and build some political capital to thwart the CRA menace.

Whether that may be the case or not, the whole effort to regulate prepaid products ought to be an occasion for the payments industry to reflect on just what it would like to see done with the CFPB. After all, the agency was set up under a Democratic administration with Democratic majorities in both chambers of Congress and in reaction to that legendary meltdown, which was widely blamed on Wall Street and other financial evil-doers. Now, both the White House and Congress are controlled by the opposing party, part of which has proposed scrapping the CFPB as a whole, not just this or that CFPB rule.

While this column is generally disposed toward less rather than more federal regulation, a wholesale dismantling of the CFPB would be a mistake. Consider, for example, its consumer-complaint database, which logs complaints and lets complained-of companies respond. Both the complaints and the responses are available on the bureau’s site. So far, the database contains some 737,836 complaints sent to almost 3,000 companies. This sort of thing, we would submit, can be a far more useful exercise of federal resources, and a far more effective regulator of unfair practices, than 1,689 pages of abstruse rulemaking.

—John Stewart, Editor  |  john@digitaltransactions.net