CFPB Faces A "Death of a Thousand Cuts" Today

By Ed Mierzwinski
Senior Director, Federal Consumer Program
UPDATE: Maybe our testimony had an impact. Some, but not enough.  At the FSC committee markup (vote session) today, Rep. Capito offered a substitute to her own bill. I was unable to obtain a copy (the committee will likely post them overnight). As I understood the substitute from her oral representation, she no longer seeks to completely repeal the Civil Penalty Fund's use for victim compensation; the substitute will simply eliminate its use for other remedial purposes, such as financial literacy. The committee, on voice votes, rejected a series of amendments from Rep. Keith Ellison (MN) and others, to improve the bill further. Final recorded votes may not occur until tomorrow on HR 3389. Some bills on the markup roster may not be considered until next week. Along with Americans for Financial Reform, we stilll oppose HR3389 and 8 others to be considered later today or next week to weaken the CFPB. We concur with AFR's views in opposition to the 3 anti-investor protection bills and a bill that would increase the risk of financial instability (threatening taxpayers and families) also under consideration in this markup.

ORIGINAL POST: Today, at 10 AM, the U.S. House Financial Services Committee considers a package of over a dozen anti-consumer, anti-investor, anti-taxpayer bills. U.S. PIRG and other members of Americans for Financial Reform have urged a no vote on all the bills targeted at weakening the Consumer Financial Protection Bureau (CFPB).

The worst of the 9 bills targeted at the CFPB, HR 3389, the so-called CFPB Slush Fund Elimination Act (Capito (WV)), eliminates CFPB's ability to compensate victims of so-called "last-dollar" financial fraudsters.

Congress, when it established the CFPB in 2010, established a Civil Penalty Fund so that the CFPB could provide restitution to victims when a financial fraudster had spent all of his ill-gotten gains. It works like this: When a solvent corporate wrongdoer, such as Bank of America, is caught violating the law, the CFPB orders it to pay restitution to its victims. But merely returning ill-gotten gains is not an adequate punishment for corporate wrongdoing. An additional civil penalty provides greater deterrence against further wrongdoing, by that firm, and serves as a warning to others. So, recently, when BofA was ordered by CFPB to refund $727 million to its customers for illegal credit card add-on practices, CFPB also ordered it to pay an additional $20 million civil penalty as a punishment, which was placed in the Civil Penalty Fund. Other firms, including JPM Chase, American Express and Capital One, have made civil penalty fund payments.

The civil penalty fund monies are used to compensate victims of fraudsters that are bankrupt and cannot make restitution or pay their own civil penalty. Often, these are firms that have engaged in "last-dollar" scams. Their common tactics include so-called mortgage "rescue" and debt "settlement" schemes. Consumers who are down to their "last-dollar" but still trying to clear their names are easy prey.

As I argued in my testimony against the bill at a committee hearing several weeks ago:

The fund is intended to help consumers who were harmed by bankrupt entities. The bureau has provided over $13 million in funds to over 4,000 consumers who were harmed by alleged fraudsters with no available assets, including, for example, Chance Gordon and Payday Solutions.

If there are excess funds in the Civil Penalty Fund, the CFPB has directed that the monies be used for financial literacy programs for high-risk populations, such as veterans' widows and widowers. The CFPB has placed funds into an account for these programs, but has not yet disbursed any.

As I further explained in my testimony: "In our view, because the CFPB was established as a remedial agency, it should have broad authority to right wrongs and make markets work." Compensating victims of fraudsters who've spent all the money they allegedly stole and using any remainder to teach financial literacy to high-risk populations are both important remedial tasks for the CFPB.

Congress had a good idea when it established the Civil Penalty Fund. It would be a bad idea to eliminate it through HR 3389.

Congress also, of course, had a very good idea when it established the CFPB itself as a response to the cataclysmic collapse of our economy caused by a decade of unregulation in which Wall Street banks were allowed to run amok. Yet today it faces a "death of a thousand cuts." Borrowing from the late environmentalist Edward Abbey, I concluded to the committee in my testimony: "The idea of the CFPB needs no defense, only more defenders."

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