Despite Its Name, Wasteful New Agency Doesn't Protect Consumers


ACRU Staff


August 14, 2015

This column by ACRU Policy Board Member Ken Blackwell was published August 13, 2015 by Investor’s Business Daily.

When Congress creates a government agency called the Consumer Financial Protection Bureau, one would expect that a few consumers could actually receive protection. But that hasn’t been the case with this agency’s track record of mismanagement, inefficiency and waste.

The CFPB has been operating for four years now, and if it were a sports team, its coach, Richard Cordray, would certainly be looking for work.

The CFPB was created as part of the Dodd-Frank law. When Director Cordray announced the laudable goal of investigating instances of discriminatory lending practices, one would have expected to see a team of crack financial analysts and consumer watchdogs identifying racially motivated lending, assessing fines and awarding money to victims.

Sorry, that hasn’t happened under Director Cordray’s watch.

The CFPB tried developing a statistical modeling system using ZIP codes and last names to pinpoint minorities victimized by discriminatory lending practices. The resulting data were supposed to alert regulators to minorities targeted for unfair treatment by lenders.

Unfortunately, the CFPB produced a garbage-in/garbage-out statistical report that is virtually unusable. A peer-reviewed study revealed that the CFPB’s methodology for estimating African-American borrowers was off by as much as 41%. The report also said the CFPB method was “conceptually flawed” and can “contribute to inflated estimates of alleged consumer harm.”

Who’s Getting The Money?

The CFPB has also been unable to make restitution to victims of alleged lending problems in a case involving Ally Financial. In 2013 the CFPB found that Ally Financial committed wrongdoing and slapped the institution with an $80 million fine. Ally contested the charges but settled the case.

Now, more than a year since Ally Financial paid its fine, not one dollar has been distributed to lending victims. Again the agency’s convoluted statistical modeling system is apparently unable to identify actual victims for restitution. The 230,000 minority consumers who were alleged victims of discriminatory lending have nothing.

What did the CFPB do with the $80 million fine under Cordray’s leadership? Rather than improve its internal systems to identify victims, the CFPB gave the money away to various organizations that work with low-income and minority borrowers.

The list of organizations receiving money from CFBP reads like a Who’s Who of powerful left-wing activist groups. It’s likely no coincidence that these same groups receiving money from CFPB pushed for the agency’s creation in the first place.

And the very agency charged with protecting minorities is itself facing charges of racial discrimination. A number of CFPB employees testified before Congress about CFPB’s hostile workplace environment.

Pot, Meet Kettle

Employees offered examples of mistreatment, discrimination and fear of reprisal for voicing objections. Lawmakers received reports of how black employees were constantly belittled and even racially stereotyped during agency-sponsored events.

The president of the National Treasury Employees Union Chapter 335, which represents CFPB employees, testified that he’s observed widespread problems within the agency. The union President Robert Cauldwell, also a CFPB examiner, heavily criticized the agency’s director:

“Last year, when Director Cordray testified before Congress that he cared about these legitimate complaints of discrimination and retaliation, I believe he was sincere. However, actions speak much louder than words. Director Cordray’s inaction over the past year has created a more discriminatory, challenging, and intimidating workplace for CFPB employees…

“Management runs the experienced employees off, especially the older employees, and then hires new and inexperienced people who management can shape and mold into their own image. They send these new employees, who have never worked in the industry or litigated a case in court, to training classes for two or three weeks, and then put them in charge of decision-making about the institutions we supervise.”

The inefficiency of the CFPB under Cordray has revealed a disturbing pattern of sloppiness and mismanagement from an agency created to offer consumers substantive protection. The CFPB has become a classic example of why so many people in America today have little faith in the federal government’s ability to better our society.

Congress needs to re-examine the CFPB and either clean house or shut the doors. The job of consumer financial protection is clearly not getting done.



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