While few senators attended the Senate Banking Committee’s hearing on the effects of consumer finance regulations, Senate Democrats blasted Senate Republicans for trying to kneecap the CFPB and questioned one witness’ judgement about the agency at Tuesday’s event.

During his opening statement, ranking member Sherrod Brown (D-Ohio), chided the committee’s Republicans for having forgotten the recent financial crisis and the reasons why the CFPB was developed. He told committee members to resist the collective amnesia in the hearing room and in Congress.

“I continue to be troubled by Republicans trying to undermine the CFPB,” he said.

Committee Chairman Richard Shelby (R-Ala.) said, “The very consumers that the CFPB was designed to help have been harmed by the bureau because some of its rules make it more difficult for companies to lend and offer products in the marketplace.”

Todd Zywicki, Foundation Professor of Law and Executive Director of the Law and Economics Center at George Mason University School of Law, said he was an initial supporter of some form of consumer protections when the Dodd-Frank Act was being debated.

However, in regard to the CFPB, he said, “We’ve created a monster that is harming American families.”

He further criticized the Dodd-Frank Act for the Durbin Amendment, which he said created a handout for retailers.

“While the Durbin Amendment has saved big box retailers billions of dollars per year in interchange fees, there is no evidence to date that those cost savings have been passed on to retail consumers,” he said. “In short, consumers are paying higher fees for bank accounts and receiving no rebates from retailers. Indeed, unlike big box retailers that have received multi-billion dollar windfalls, many small retailers are actually paying higher merchant discount rates than before the Durbin Amendment’s enactment.”

He added that the Durbin Amendment helped put a halt to the diminishing number of free checking accounts offered by the financial services industry.

Zywicki’s testimony received praise from Electronic Payments Coalition Executive Director Molly Wilkinson. She said in a statement, “Today's hearing highlighted yet another troubling issue with the Durbin Amendment and EPC is glad to see lawmakers taking a fresh look at this harmful provision.”

Shelby further criticized the bureau for using enforcement actions rather than going through the rulemaking process.

Witness Leonard Chanin, counsel at Morrison and Foerster, criticized the agency, stating that the CFPB’s enforcement actions solely take place between the parties involved and other institutions may or may not choose to abide by the enforcement actions.

Zywicki said he is concerned about the CFPB’s consumer complaint database in that it dumps unverified records onto the general public. He added the complaint database is equivalent to a government-sponsored form of Yelp.

“I am incredulous at this testimony,” Brown said.

Brown called into question what he referred to as the unsubstantiated claims by some of the witnesses and blasted them for criticizing the CFPB’s consumer complaint database as a collection of one-sided, inaccurate, unverifiable complaints.

Even the Federal Reserve cannot verify every complaint it receives, he added.

In the same vein, during the House Financial Services Committee hearing with CFPB Director Richard Cordray on March 16, Sen. Dean Heller (R-Nev.) questioned Chanin on the CFPB’s ability to exempt small institutions.

“It has separate authority to exempt small institutions from requirements,” Chanin said. “Especially if there is evidence that shows it will impact credit unions.”

However, Sen. Elizabeth Warren (D-Mass.) called Chanin’s testimony into question for his comments against the CFPB and its actions.

Warren said Chanin, who worked at the Federal Reserve Board for six years as assistant director and deputy director of the Division of Consumer and Community Affairs, did nothing to help during the financial crisis in his role.

“Why should we listen to you now?” she asked Chanin.

In response, Chanin said there was no data provided to the Fed that suggested a crisis in the making.

However, Warren cited a report from the Bipartisan Financial Crisis Inquiry Commission that called the Fed’s lack of response a “pivotal failure” in the creation of the financial crisis.

“You had the legal authority and legal responsibility to regulate deceptive mortgages, including dangerous subprime lending that sparked the 2008 financial crisis,” Warren said. “But you didn’t do it, despite years of calls and even begging from consumer advocates and others, asking you to act. Instead, you did essentially nothing.”

She continued, “Given your track record at the Fed, why should anyone take you seriously now? Did you have your eyes stitched closed?”

Cordray will testify before the Senate Banking Committee in the CFPB’s semi-annual report on Thursday.

Instant Insights /

Senators Discuss Effects of Consumer Finance Regulation

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