Much of Director Cordray’s testimony in his appearance before the Senate Banking Committee yesterday consisted of his predictable defense of various CFPB positions. While the hearing was much less contentious than last month’s hearing of the House Financial Services Committee at which Director Cordray appeared, the questions raised by Republican Senators focused on many of the same areas of concern as those of Republican House members.
In response to criticism of the CFPB’s enforcement actions against auto finance companies, Director Cordray continued to defend the CFPB’s reliance on disparate impact liability. As he did in the House hearing, Director Cordray pointed to the U.S. Supreme Court’s Inclusive Communities decision as vindicating the CFPB’s position despite the fact that the decision did not address whether disparate impact claims are cognizable under the Equal Credit Opportunity Act. According to Director Cordray, the Supreme Court had “resoundingly reaffirmed” the validity of using disparate impact to prove discrimination. He also defended the CFPB’s methodology for establishing disparate impact as well as its method for identifying consumers entitled to relief under the auto finance company settlements.
Director Cordray also gave no ground on the CFPB’s reliance on enforcement in place of rulemaking. Indeed, he appeared to embrace the phrase “regulation by enforcement” used by industry to criticize the CFPB’s approach. Director Cordray cited to his remarks last month to the Consumer Bankers Association in which he called it “compliance malpractice” for companies not to look at CFPB consent orders with others to assess their own compliance.
In addition to his continued defense of CFPB positions, Director Cordray did provide some noteworthy information in response to Senators’ questions:
In response to a question regarding the CFPB’s activities related to small business lending, Director Cordray appeared to acknowledge that the CFPB’s role is limited to its enforcement of the Equal Credit Opportunity Act and implementation of the expanded small business lending data collection requirements of Dodd-Frank Act Section 1071. (Section 1071 amended the ECOA to require financial institutions to collect and maintain certain data in connection with credit applications made by women- or minority-owned businesses and small businesses. Such data includes the race, sex, and ethnicity of the principal owners of the business.) As we previously reported, the CFPB has been seeking to hire a new “Assistant Director, Small Business Lending,” who will be charged with leading its Section 1071 team. Based on Director Cordray’s comment that he would welcome recommendations from Senators of candidates for the position, it appears that the position has not yet been filled.
In response to a question asking how consumers will be able to access small dollar loans in the wake of anticipated CFPB restrictions on payday loans, Director Cordray indicated that he envisions three categories of outlets: a “reformed” payday loan industry, community banks and credit unions, and Fintech companies. With regard to Fintech, Director Cordray indicated that he envisions “real opportunities” for online lending but commented that small-dollar lending is “tricky” for Fintech companies. He also commented that the CFPB will be “mindful” and “watchful” of the need for Fintech innovations “to be consumer friendly.” He indicated that while Fintech companies should not have an advantage in the marketplace over banks because they are not complying with same rules, the CFPB would seek to enforce the laws without stifling innovation.
When questioned about the criticism directed at the CFPB’s policy on no-action letters for its restrictiveness, Director Cordray acknowledged that legitimate questions have been raised about the policy. He indicated that he was “not satisfied” with the policy and that further thought would be given to it (while also noting that the CFPB was “leery” of the burden that would result from a high volume of requests for no-action letters).