House Financial Services Committee Claims CFPB Broke Federal Law

The U.S. House of Representative’s Financial Services Committee has obtained new internal memos from the Consumer Financial Protection Bureau and alleges the agency’s director — Richard Cordray — may have violated federal law by not reopening the public comment period for the “larger participant” in auto finance rule.

The claims come in a 30-page report — which serves as the third part in a series titled “Unsafe at Any Bureaucracy” — compiled by republican committee staff and chairman Jeb Hensarling.

The series examines how the CFPB has regulated auto lenders and this third part — released Wednesday — specifically examines the CFPB’s disparate-impact methodology, “legal deficiencies” in the issuance of larger participant rule, and examines legal precedent for the bureau’s actions.

The committee’s claim that Cordray violated federal law, centers around the Administrative Procedure Act (APA), which governs how agencies are suppose to go about enacting new rules.

APA requires there to be a public comment period to allow interested parties to weigh in on the new rule and stipulates that the agency provides data to justify the new rule, the House report outlines. In 2015, the CFPB held a public comment period for the larger participant rule, but the committee claims the bureau did not provide sufficient data for the rule.

Furthermore, according to the internal documents obtained by the committee, attorneys advising the CFPB even recommended that Cordray provide a list of institutions the bureau believed would be subject to the larger participant rule, and to subsequently reopen the public comment period after it had been closed.

“On February 10, 2015, CFPB attorneys wrote a memorandum to Director Cordray ‘recommend[ing] publication of the Experian non-proprietary data and reopening of the comment period for the Auto LP proposed rule . . . to comment on the released data,’ and warning that ‘there is a cognizable risk that a court would conclude’ that the APA requires the CFPB to do so,” the committee’s report states.  

Auto Finance News reached out to the CFPB for comment, but did not receive a response.

Cordray did not respond to this legal inquiry from the bureau’s lawyer’s the memos show, but the subject did come up in a future meeting.

A memo from staff to Director Cordray read: “We understand from our meeting on February 11, 2015, that you are concerned that the proposed threshold … may be too low, given our limited supervisory resources and the fact that it would include participants that are responsible for a small percentage of market activity and that could be small businesses.”

The final rule was signed on June 5, 2016 without reopening the comment period.