More Data Could Mean More Reg Relief

You would be forgiven if you didn't notice that the March meeting of the Consumer Financial Protection Bureau’s Credit Union Advisory Council focused on the issue of “alternative data.” Until mid-May, the agency had been accepting comments on using such information as rent, utilities, the frequency of changes in residences and employment, to name just a few examples, in the credit evaluation process. Alternative data can sometimes supplement credit scores and other more conventional measures of creditworthiness.

This is an important topic, and there is concern is that the agency may burden it with unneeded requirements. The pace of final rules from CFPB that affect credit unions has slowed, but nonetheless—with the agency continuing to engage in a variety of rule-makings, proposals, enforcement actions, reports, blog posts, etc.—an issue that is significant but not imminent is easily lost in the shuffle. Before you know it, a host of requirements and extra costs can be imposed.

Steps in Congress and within the administration have been initiated to curtail CFPB, but real changes are not expected anytime soon.

A focal point is the Financial Choice Act, HR 10, which would limit the agency’s role and authority, among other provisions. House Financial Services Committee Chair Jeb Hensarling said the repeal of the Durbin amendment has been dropped to increase the bill’s chances for passage. A full House vote on HR 10 notwithstanding, the bill may stall in the Senate where Banking Committee Chairman Mike Crapo has said his committee is focusing on bipartisan measures. Senate Banking Committee hearings on regulatory relief have begun, but it is hard to see how the needed 60 votes could be assembled in the Senate to approve broad Dodd-Frank reform.

The administration’s proposed fiscal year budget outline retains CFPB but does call for changes in how the agency is funded and how big its budget can be. These steps require complementary changes to the Dodd-Frank Act, however. HR 10 includes provisions to subject CFPB to the appropriations process, but congressional observers indicate that changing the agency’s funding is not likely, at least not this year. The agency’s budget is presently about $646 million and funded by transfers from the Federal Reserve, representing about 12 percent of the Fed’s operating costs.

Efforts to restructure CFPB or remove Director Richard Cordray through litigation are likewise clouded. For example, it is anticipated that the U.S. Court of Appeals for the District of Columbia Circuit will decide whether the current structure of the bureau is constitutional in the highly-scrutinized case of PHH Corporation v. CFPB. A number of analysts have observed that several questions at the May 24 hearing seem to suggest support for CFPB’s position—that its current single-director structure and the inability of the president to replace a director “at will” do not conflict with the U.S. Constitution. But most lawyers will tell you that rarely is it safe to predict the outcome of a case based on judges’ questions.

In any event, the appeals court ruling will likely not be issued until fall or later. The appeal of the case to the Supreme Court by PHH, if it loses, is considered highly likely. But the Supreme Court alone decides whether to review a case, and there are no assurances an appeal would be granted. CFPB also has the legal ability to appeal to the Supreme Court, but it must make a request to the attorney general, and the Justice Department has sided with PHH. Meanwhile, Director Cordray’s term, which expires July 2018, may be up before or by the time a decision is issued.

Whether or not the tenure of the current director is ultimately affected, the case is significant because a change in the structure would certainly influence the agency going forward. We just don’t know when or how this will happen.

So, the issue is how to continue pursuing regulatory relief when once promising avenues seem to be delayed, closing or changing. Strong advocacy remains a key in this effort, but it is, as they say, “a process and not an event.” The most effective approach is the use of specific, current and readily verifiable data to demonstrate how a proposal or rule will affect your operations and members. That is easier said than done, but data-driven agencies like CFPB respect solid impact analyses that substantiate concerns. Moreover, such data can provide support to challenge final rules that are too aggressive.

Urging the National Credit Union Administration to provide more aggregate impact data to CFPB on credit unions as a group, consistent with privacy law and other protections, and urging CFPB to consider it fully will increase the likelihood that the bureau tailors proposals more precisely to address only problem areas.

Mary Mitchell Dunn is a partner with CU Counsel, PLLC, Washington, D.C.