WASHINGTON — The Consumer Financial Protection Bureau's massive collection of consumer data continued to raise concerns with lawmakers on Wednesday despite assurances from the agency's director that the data is anonymized.
Richard Cordray fielded questions on a range of subjects during his appearance before the Senate Banking Committee, including on recent actions against indirect direct auto lenders and the potential for a rule on forced arbitration clauses.
But it was the agency's data collection efforts that sparked the most worry, particularly in light of a recent massive data breach at the Office of Personnel Management that exposed the information of millions of government workers.
"Several of the members of the panel have requested information concerning the collection of data" and "it's really an item of real interest because of OPM and the loss of the data there," said Sen. Mike Rounds, R-S.D. "A lot of our employees have come in and they've been very concerned about the loss of their personal data."
Cordray told lawmakers that the data the CFPB receives from the industry has typically been scrubbed of all personal identifiers before the agency receives it. The only personal information the CFPB has is what consumers voluntarily disclose if they are filing a complaint through a separate process.
"We're trying very hard to make sure our employees do not have access to personally identifiable information. That only causes me trouble in our work," Cordray said. "The OPM breaches, they affect my employees as well as your employees and we're very sensitive to that. It's something that we're now dealing with to make sure our employees know what their rights are, what's available to them and I'm sure you are too. The notion that we would contribute to that ourselves is not something we ever want."
As he has in past hearings, Cordray repeatedly told lawmakers that the data collected by the agency is necessary to write appropriate rules for the marketplace and protect consumers.
The data "gives us a sense of patterns of consumer protection, consumer abuse, consumer service in the industry. That's what we're looking for," he said. "It's like a GDP or unemployment rate analysis. It's not about what you or I do in our daily lives. I'm uninterested in that."
Still, not every lawmaker was sold on the CFPB's data protection efforts. Sen. David Vitter, R-La., said he had read about "at least three specific databases" the CFPB collected that contained personally identifiable information. Cordray questioned the claim, asking to sit with Vitter to discuss it further. That was one of several requests for later meetings between Republican lawmakers and Cordray.
"I want to continue this conversation because I do believe that the protection for Americans is not adequate," said Sen. Mike Crapo, R-Idaho.
Auto Lending Issues
Senators also tackled the CFPB's recent enforcement action against American Honda Finance Corp. for alleged discrimination because it allowed partnering dealers to charge more to minorities. Senate Banking Committee Chairman Richard Shelby challenged Cordray on the action and similar pending ones against the financing arms for Toyota and Nissan, saying it was a "back-door effort to regulate the auto dealers."
Under the Dodd-Frank Act, the CFPB does not have jurisdiction to target auto dealers. But Cordray suggested that provision of the financial reform law made little sense, even though he said the agency has abided by it.
"We have been very careful to observe a line that was not necessarily an obvious or logical line that Congress drew, which was to say that the Consumer Bureau has jurisdiction over auto lenders but does not have jurisdiction over auto dealers," Cordray said. "We feel that means that the law has spoken clearly, that we have a responsibility to address any sort of issues of discrimination or other violations of law by lenders but not by dealers. That may be illogical, but that's the line we have and we have taken our responsibility seriously there."
The CFPB and Justice Department announced a pending $24 million settlement with Honda's financing arm in which the company agreed to limit the amount of price discretion it gives partnering dealers.
Cordray said that the CFPB's exam of indirect auto lenders has prompted a few indirect lenders to change their pricing models. But he said the goal is not to raise interest rates, as some auto dealers have argued, but to ensure lenders are not unintentionally discriminating against minorities.
"The last thing I want is to do things that hamstring important markets like the auto lending industry, mortgage lending and the like," Cordray said. "And if I do that, it will be to the detriment of my agency and to the American public and so we're very concerned about this."
Sen. Sherrod Brown, D-Ohio, and a few other lawmakers also pushed Cordray to consider writing rules to curtail creditors from including clauses in agreements that force a consumer to pursue a dispute through arbitration rather than filing a claim in court. The CFPB released its final of two reports to Congress in March that concluded that most consumers are not aware of this clause in their credit agreements and some have been restricted from suing because of it.
Though the topic has been an area of contention with the industry since these clauses are common in credit and account agreements, Cordray vowed to lawmakers that the CFPB is now pursuing a rulemaking process.
"We will be moving ahead with rulemaking in this area and we'll be, in due course here, convening a small-business review panel as the first step in considering what actions to take," Cordray said.
Mortgage Rule Leniency
Cordray also reiterated to lawmakers that the agency would show some leniency on enforcing the new mortgage disclosure rule for lenders who are making a good-faith effort to be in compliance by the Oct. 3 deadline.
Earlier this year, Congress and the industry strongly urged the CFPB to extend the deadline from Aug. 1 to the end of the year or at least have a nonenforcement period. The CFPB refused to move the deadline until it found an "administrative error" in which it missed a reporting deadline to Congress.
Cordray said during the hearing that the agency is working with other regulators to show some patience with lenders in complying during the initial exams.
"The early examination of this will be diagnostic and corrective. We don't think people out there are going to be trying to exploit consumers on this, they're just trying to get it right," he said. "And so for the first period, which may last many months, both the other agencies and ourselves... if we see errors we'll point out what they are and how they should be corrected. We will not be looking to be punitive toward people. That is how it will be."