Bank Lawyer's Blog

A Two-Front War

The opponents of Operation Choke Point (a group also known as "The Heimlich Maneuverers") have recently decided to proceed against touch points within the Executive Branch through the other two branches of the federal government. On the judicial front, the payday lending industry filed a lawsuit against the Gang of Three (OCC, FDIC, and FRB) for "illegally" forcing banks that they regulate to choke off access to the financial system to "disfavored" businesses (including, apparently E-Harmony.com, inasmuch as the FDIC has determined that online dating services are "high risk." According to friends that use online dating services, there may or may not be a high risk of illegal activity associated with them, but there sure is plenty of bald-faced lying).

I hope the payday lenders enjoy dancing with a bear.

In the US Congress, House Financial Services Committee Chairman Jeb Hensarling (with a name like "Jeb," you simply know he's from Texas) wrote to Janet Yellen to express his "concern" about the use by the federal bank regulators of the nebulously defined concept of "reputation risk" as a pretext for forcing banks to stop serving legitimate business (for example, payday lending businesses) that the regulators, subjectively, determine pose "undue reputation risk." Hensarling's questions to Yellen are an obviously transparent attempt to set the stage for an argument that the regulators can't define "reputation risk" any better than they can define "obscenity," except they know it when they see it.

While Hensarling harasses Yellen, his running buddy at the House Oversight and Government Reform Committee, Chairman Darrell Issa, decided to poke a stick in the eye of the FDIC (paid subscription required).

Issa sent a letter Monday to FDIC Chairman Martin Gruenberg charging that the agency has been working closely with the Department of Justice as part of its law enforcement effort to root out fraud through the payments processing system.

The California Republican says he doubts testimony by Richard Osterman, acting general counsel at the FDIC, during a House Financial Services Committee hearing last month, in which Osterman repeatedly downplays the FDIC's role, referring to the initiative as a Justice Department program.

"Documents produced to the Committee by the Department of Justice call into question the sincerity and truthfulness of Mr. Osterman's testimony. In fact, the FDIC has been intimately involved in Operation Choke Point since its inception," the letter says.

Calling the FDIC's Acting General Counsel, in effect, a liar might actually prod a tart response from the FDIC. We'll see. Issa wants requested documents delivered to his office by a week from next Monday.

In case people were confused about what Issa's concern about a love match between the DOJ and the FDIC might be, he explained.

"The committee has obtained substantial evidence suggesting that as a result of coordinated actions by the FDIC and the Department of Justice, banks are terminating relationships with entirely legitimate and licensed businesses," the letter adds.

In other words, he'd like the FDIC to hand over a smoking gun that proves his point and also supports his allegation that Mr. Osterman's testimony was less than "sincere" and "truthful." What are the odds the FDIC will produce such documents?

There is little doubt to a cynic that the fact that these serial counter punches are coming in such a short sequence is not coincidental. The opponents of Operation Choke Point, especially of the role of the federal banking regulators in picking winners and losers in the game of gaining access to financial services, without affording any of the parties, banks or their customers, with due process, are pushing back. This is only the early stages of what promises to be a nasty tussle.

Stay tuned.

Empty Gestures

In a flurry of activity right before the current year's legislative session ended, the Colorado Senate and House passed, and the Colorado Governor signed, a law (previously discussed here) that creates a form of "cooperative bank" that is intended to finance the state-legal, federal-illegal marijuana business in Colorado, the first state in the country to go "all in" on legalizing recreational marijuana use. There's just one slight problem with the scheme: it hasn't got a prayer of going anywhere.

“We don’t think it will do anything other than allow the state to say, ‘We’ve tried everything we can think of and it won’t work, so Congress it’s now up to you,” said Don Childears, president and CEO of the Colorado Bankers Association.

“They’ll never get access to the Federal Reserve System, and if they can’t do that, the co-ops will never be formed,” Childears said.

The final version of the law requires the approval of the Federal Reserve Board before the first cooperative can open its doors for business. What possible political upside is there for the Fed to approve the funding of the state-legal but federal-illegal marijuana business in Colorado?

[sound of crickets chirping]

No, there's nothing but potential downside to the Fed in that decision as long as the sale of marijuana remains illegal under federal law. Getting the Colorado marijuana business off a cash-only basis would make tracking and taxing the business much more easy, and would limit the potential criminal risks of, and to, such businesses, but from a public perception standpoint, the Fed has absolutely no reason to stick it's neck on the chopping block so that rabid opponents of easing restrictions on marijuana businesses, like Dianne Feinstein (yes, THAT Dianne Feinstein), can jump down its throat, haul it before Congressional hearings, and generally screw with it in public.

No, what's needed is that either Congress needs to change federal law or the Attorney General needs to remove the substance from the list of dangerous substances. The latter course would require a public process that would involve the input of other federal agencies, as well as an expected raft of criticism from drug law liberalization opponents. What's in it for Eric Holder to undertake that exercise in self-abuse?

[sound of crickets chirping]

As to the chances of Congress changing the law, Childears says they are slim to none.

Childears said he wasn’t optimistic Colorado’s new cannabis co-ops law would motivate the U.S. Congress to tackle the thorny issue.

Efforts to legalize marijuana banking has the support of only 7 percent of theU.S. House of Representatives now, He said.

If four states were to legalize marijuana for either medical or recreational purposes every election, it would take at least six years to get to a level where Congress would take it seriously, he said.

Childears said he visited recently with U.S. House Majority Leader Eric Cantor, R-Virginia, who told him that he didn’t see marijuana banking as a priority for most members of Congress.

“Cantor told me a number of them feel that, ‘You made your bed, now lie in it.’ It’s a Colorado issue,” Childears said.

You know, with all the other problems this country faces, Cantor's feelings are not without cause.

So, why was the law passed and signed? Marijuana business spokesperson Mike Elliot explains.

“HB 1398 is likely not a solution to the banking problem, but an opportunity to move the conversation forward,” Elliott said.

Thus far, this has been a decidedly one-sided conversation. No one outside of Colorado appears to be interested in listening.

Martha Tries A Carrot And A Stick On Mel

I'm not sure what Massachusetts Attorney General Martha Coakley thinks she's going to accomplish by simultaneously sweet-talking and threatening Mel Watt, but I doubt she's doing much more than engaging in political theater. Maybe she's setting herself up for a run for higher office and wants to make sure that the next time around, she doesn't get a butt-kicking like Scott Brown unleashed on her four years ago.

Massachusetts Attorney General Martha Coakley reiterated calls Wednesday for the Federal Housing Finance Agency to allow Fannie Mae and Freddie Mac to offer principal reductions to distressed borrowers and to participate in nonprofit home buyback programs.

Coakley sent a three-page letter to FHFA Director Mel Watt trying to persuade him that principal reductions could be crafted in such a way to prevent abuses, including what she called "the abstract fear of waves of strategic defaulters."

"Abstract fear"? You'd think that folks like Coakley, adherents to utopian progessivism that denies the reality of human nature and proposes that through the exercise of centralized state power, human beings can be perfected and justice achieved, here on Earth, would know all about "abstract fears," as well as "abstract joys," "abstract hope," and "abstract abstractions."

Nevertheless, in case the risk of strategic defaults might actually be grounded in reality, Coakley had an answer for Watt.

Coakley said one way to reduce strategic defaults would be to adopt clear modification underwriting standards, require a showing of hardship by the borrower and allow lenders to share in the home price appreciation.

Watts' predecessor, Ed DeMarco, adamantly opposed principal reductions. He felt that whole-sale principal write-downs would hurt mortgage bond investors which, in turn, would hurt Fannie Mae and Freddie Mac, which, in turn, would hurt the mortgage market. Coakley apparently thinks Mel is more sympathetic to a state chief law enforcement officer's sojourn into social policy, especially in the area of mortgage markets, where everyone knows a state attorney general is uniquely qualified to offer business-savvy solutions to thorny problems.

In case Mel is inclined to turn a DeMarco-like deaf ear to her entreaties to do the right thing, Martha whipped a big stick out from behind her back and threatened Mel with a beating if he didn't fall in line.

In the letter, Coakley even threatened to take legal action because the FHFA has refused to take part in buyback programs that allow nonprofits to purchase distressed homes at current market value and immediately resell them to the former homeowner.

"Our office also is considering all available legal avenues—including litigation—to ensure compliance with Massachusetts law, should FHFA fail to promptly amend its policies to allow the GSEs to participate in credible buyback programs," Coakley wrote.

Coakley is using as the basis of her threats the alleged violation by Aunt Fannie and Uncle Freddie of a 2012 Massachusetts law that forbids lenders from refusing to consider buyback offers at "fair market value" solely because the home will eventually be returned to the defaulting homeowner. I assume that DeMarco and Watt believe that a law that vague is likely to be held to be unenforceable against Fannie Mae and Freddie Mac, or perhaps they've just decided to become renegades and ignore the law because they take some perverse pleasure in lawlessness. I'm betting on the former, but I might be wrong.

At any rate, Watt hasn't publicly responded to Coakley (or if he has, the main stream press hasn't reported it). I wouldn't hold my breath waiting for the FHFA to cave on this one, although Watt is relatively new in the saddle, and you can't be sure which way he might ride. My guess is that Coakley will have to push her social engineering agenda in court. Pursuing it against a cash cow like the FHFA, which, with its charges in federal conservatorship, is not likely to be scared by the prospect to spending money on trial lawyers.

Shaming The Shameless

Venable LLP's Randy Shaheen and Amy Mudge might just be prime candidates for guest posts on Bank Lawyer's Blog. A recent "All About Advertising Law" post launched a snark attack that made this blogger proud. The victim was every banker's bête noire, the CFPB, and the cause for the caustic comments was the CFPB's apparent hypocrisy.

According to the American Banker, an outspoken critic of indirect auto lenders, Harry Douglas Lane, was in the audience at a recent CFPB forum and was called upon to speak as an audience participant. However, no one in attendance or the press covering the event was informed that the CFPB had paid for Lane’s flight to the forum as well as his hotel.

The lawyers point out that if a private advertiser had engaged in this sort of egregious omission, the FTC would likely have found that it acted inappropriately.

A company holds a press event to tout the success of its newly introduced product. Someone in the audience asks a question, which the Company subsequently uses in its advertising for the product. However, the Company fails to disclose that it actually paid for the audience member to fly into the press event. Is this a problem under the FTC’s Endorsement Guides? Most likely yes, since the payment of travel expenses would probably be a material connection between the consumer and the company.

[...]

As noted above, if advertisers had engaged in this sort of behavior, they almost certainly would have violated the Endorsement Guides, and the CFPB’s purported justification for its failure to disclose, that the critic had only a “limited” role in the Forum, would likely be met with deafening silence by the FTC staff and Bureau Director. Even if the CFPB and other government agencies aren’t literally covered by Section 5, isn’t the practice of disclosing material connections still common sense? After all, government agencies, like advertisers, are often pitching a product or ideas to consumers. Doesn’t the public (and the press) have the right to know that people who speak out in support of these ideas have a “material connection” to the agency advocating the policy?

The answer is "Yes." But, don't hold your breath. It took a "60 Minutes" expose to uncover the practice of Senators and Congress persons benefiting from insider trading, and get them to ban the practice. Even then, Congress, in the dead of night, rolled back part of that ban. Bloggers don't carry the same heft as CBS News and neither does the banking trade press. In addition, while the average voter is already chapped on general principles about the fact that members of Congress have access to oxygen, and, as a result, he or she will sit up and take notice at scandalous behavior by those clowns, he or she doesn't give a flying fig in a rolling donut that the CFPB might be paying witnesses without disclosing it in order to set up auto lenders for a fall. They're just banks, aren't they? Aren't they all a bunch of fat cats who are responsible for the economy collapsing, global warming, baldness, and Miley Cyrus? Set 'em up and take 'em down by whatever means necessary!

Still, the few of us who will follow this latest instance of rolling over a log to view the maggots crawling out appreciate the authors' closing observations.

Perhaps it’s time that what’s good for the goose is good for the gander.

Perhaps it is. Nevertheless, when the gander's the one cooking the goose, expect that the goose to be the only one who's roasted.

A Certain Level Of Disengenuousness

Housing Wire's Trey Garrison gives us fitting parting observations of last week's hearing by the House Financial Services Committee's Subcommittee on Oversight & Investigation concerning allegations that the CFPB is a veritable Paul Bunyon of stacked-high hypocrisy when it comes to employee discrimination.

There was a certain level of disingenuousness [sp.] that went beyond the usual political posturing at the House Oversight & Investigation Subcommittee investigating discrimination and retaliation at the Consumer Financial Protection Bureau Wednesday morning.

[...]

In a hearing with partisan heat just simmering, Democrats opened by demanding a standard of proof of the allegations that they’d never demand in any other similar investigation.

Meanwhile, Republicans – who want to keep pressure on the CFPB on as many fronts as possible – seemed to be embracing the vague, controversial legal theory of disparate impact, which says even if there is no discrimination, if the outcome isn’t racially balanced, then there is discrimination anyway.

Having U.S. Rep. Al Green, D-Texas, saying that he wants to make headway and not headlines in anything related to racial discrimination was, in fact, one of the ironies in a morning of ironies.

It's refreshing to see a reporter call them as he sees them. I also appreciate the well-deserved bi-partisan snark. It's as if one of the qualifications for serving in Congress is a post-graduate degree from Clown College. All Garrison is doing is pointing out the fact that both parties wear face paint and big red noses that go "beep-beep."

Trey also notes the irony of Representatives Green and Watters urging an expansion of the subject matter of the hearing to discrimination by all federal agencies, after doing their darndest to have the hearing cancelled, after initially calling for a hearing to be held. Those position pivots would have made the broken field maneuvers of Barry Sanders seem encased in in concrete, by comparison.

A final bit of snark addressed the fact that Rep. Watters noting that she was "overjoyed" with the subject matter of the hearing, racism. The Subcommittee's Republican Chairman just couldn't constrain his fist of snark.

“We welcome your new tone – remarkably different from tone of your letter,” McHenry said to Waters.

Give her a week. She'll feel equally strongly both ways.

On Second Thought

After joining Republicans in calling for a hearing on allegations of employment discrimination practices at the CFPB, Representatives Maxine ("I Will Socialize You") Waters and Al ("Love and Happiness") Greene decided it was all a big mistake. They asked the House Financial Services Committee Chairman Jeb ("No Quarter Asked, None Given") Hensarling to "table" the hearing on the grounds that it would deal with only one employee's complaint rather than general practices, and that it appeared to be merely an opportunity for Republicans to pound the CFPB. I think they're right about the pounding. Therefore, I wasn't surprised that Rep. Hensarling told them that he's going ahead with the Bureau bashing.

Hensarling and oversight subcommittee chairman Patrick McHenry (R-N.C.) said Monday that the hearing will not center exclusively on one individual’s complaints, but on the overall environment at the consumer bureau as well. They also noted that the committee initially asked several CFPB officials to testify, but that the bureau has declined to cooperate.

“We hope that you will help us encourage other suffering employees to come forward to the Committee as whistleblowers,” the Republican lawmakers wrote in a letter to Waters and Green.

My guess is that the CFPB will take the position that it doesn't litigate in Congressional hearings. Based on its past conduct, we assume that it prefers to litigate in the press. Hensarling and his cohorts  are not as warm and fuzzy interlocutors as are reporters for the New York Times, Los Angeles Times, and Washington Post.

 

It's interesting to note that the linked news report states that the CFPB "hired an outside investigator to look into the issue, and a subsequent six-month probe concluded that [the complaining employee's] claims are valid and also described a 'toxic environment' at one of the agency’s divisions." That investigator will also testify at the hearing, which seems to me to indicate that the topic of the hearing will range beyond one employee and into the "toxic environment" of the CFPB.

 

I can understand why the CFPB doesn't want to appear, but if Waters and Greene are genuinely interested in pursuing the issues they raised in their letter that demanded a hearing, they ought to show up and ask appropriate questions. You know, like asking the employee "When were you last in psychological counseling?" Or, "Is it correct that you and Lindsay Lohan were seen French-kissing at The Viper Room last weekend?" Perhaps they could impartially inquire of the independent investigator if his shoes were purchased at Wal-Mart or Johnston & Murphy, and why he's wearing white before Easter. That kind of blocking and tackling would at least keep things moving.

Oh, wait a minute: the CFPB is willing to testify. In the press.

Scott Pluta, the agency’s assistant director of the office of consumer response accused of retaliating against Martin, called Martin’s claims “patently false.”

Pluta also claimed that he was hoping that the Committee allows him to testify. Unfortunately, the Committee claims that he's never made a request to testify.

 

I will testify to the fact that this whole affair gives the average reader a bad case of tired head. Nevertheless, it's political theater of the absurd and it is entertaining.

Et Tu, Maxine?

Now Richard Cordray knows how Robespierre felt when The Convention turned on him.

Top Democrats on the House Financial Services Committee are asking several watchdog agencies to provide more information about federal regulators' employment policies and practices with regard to minorities and women.

Nine members of the panel signed joint letters March 24 to the inspectors general of several financial regulators and the Treasury Department asking them to look into the issue.

[...]

Democrats are also seeking the Federal Reserve Board's inspector general (which also oversees the CFPB), to look into the consumer bureau's performance appraisal process and how its Office of Minority and Women Inclusion has been involved in that process.

"We request that the Office of Inspector General (OIG) immediately exercise its independent oversight authority over the bureau's operations, to detect whether any personnel practices and policies have created an unfair or discriminatory workplace for minorities and women employed at the CFPB," states the letter sent to Inspector General Mark Bialek of the Federal Reserve, which was released Wednesday. "Allegations of discriminatory behavior at the bureau, in perception or practice, must be investigated thoroughly to ensure that no individual, coalition or group of individuals undermines the agency's vital mission of ensuring the fair and equitable treatment of consumers from all backgrounds."

The letters were signed by Reps. Maxine Waters, the Financial Services Committee's top Democrat; Al Green, D-Texas; Carolyn Maloney, D-N.Y.; Emanual Cleaver, D-Mo.; Ed Perlmutter, D-Colo.; John K. Delaney, D-Md.; Kyrsten Sinema, D-Ariz.; Joyce Beatty, D-Ohio; and Denny Heck, D-Wash.

King Richard will be lucky if that motly crew doesn't send him to the guillotine, or worse: socializes him.

A CFPB spokesman said that the CFPB welcomed the investigation. I understand Leon Trotsky said the same thing days prior to his opponents sticking an icepick through his eardrum.

The "beauty part" of this investigation is that it's only one in an expected dog pile of investigations. Since Democrats are are leading the charge, the rest of the Republican-dominated House is happy to jump on the bandwagon.

Separately on Wednesday, the House Financial Services Oversight and Investigations Subcommittee announced a hearing April 2 to look into the CFPB's performance evaluation process and complaints filed by employees. All of the Democrats who signed the letters are members of this subcommittee.

Since Congress is all about the infliction of unintended consequences, let's hope an unintended consequence of this witch hunt is the impositions of some checks and balances on this unchained violator of diversity, inclusiveness, and the protection of the brain-fogged. We'll be following this investigation all the way to its white-washed conclusion.

Making The CFPB Less Opaque

A Congressman from Wisconsin has opened up a potentially horrific possibility for the CFPB: transparency.

A leading Republican on the House Financial Services Committee introduced a bill to open the Consumer Financial Protection Bureau up to face the same scrutiny as every single other commission, regulatory body and government body with the exception of the CIA and the Federal Open Market Committee.

The bill, introduced by U.S. Rep. Sean Duffy, R-Wis., would apply the Federal Advisory Committee Act to the CFPB and its advisory councils.

"What is the CFPB doing that is on par with the CIA? It makes everyone want to ask, 'what exactly goes on in these meetings?'” Duffy said.

Predictably, the CFPB is aghast at the prospect that their secret rituals (which, we are certain, involve not only exotic forest creatures, but also various forms of gymnastics apparatus, the singing of Gregorian chants, and the excessive use of the word "abusive") might be exposed to the light of day.

CFPB Director Richard Cordray has said the meetings are closed to the public because the Federal Advisory Committee Act, a sunshine law passed in 1972, does not apply to the Bureau.

“Why deny the public the right to observe these meetings?” U.S. Rep. Robert Pittenger, R-N.C. asked Director Cordray at a January hearing.

Because, Bob (if I may be so bold as to call you "Bob"), as everyone knows, vampires exposed to daylight spontaneously combust.

"If the CFPB is not going to take steps to maintain the transparency it claims it is committed to, we will take the legislative steps for them. My bill, H.R. 4262, mandates that FACA must apply to all of the CFPB's advisory committees. The people have a right to know what their government is up to, and the government has a responsibility to provide that transparency," he said.

This is all political theater, since no such bill has a chance of passing the Senate this year, even if Duffy, et al., steer it through the Republican-dominated House. I guess this is "laying down a marker," like a dog does with a fire hydrant. It lets the other dogs know that you claim the territory and that you'll keep coming back until your opponents get the point. It's setting the table for what might be more realistic to enact in 2015.

Expect the CFPB to fight this "reform" every chance it gets. While it loves shining the burning light of day on its intended victims, it prefers that spf 45 sunblock be applied to itself.

The Road To Hell Is Unchecked and Unbalanced

When the American Banker broke the news last week that the CFPB, a proponent of hammering banks and other financial services businesses with the "disparate impact" doctrine in order to find discriminatory effect where no discriminatory intent, was itself allegedly guilty of disparate treatment of minority employees of the CFPB, a number of readers wrote me to ask when I was going to jump on the bandwagon of focusing a spotlight of snark on one of my favorite punching bags. I think the facts, and the numerous statements of current and former employees cited by Rachel Witkowski are sufficiently eloquent without need to embellish the damnation they provide. As one industry observer quoted in the article stated, everyone will be jumping all over the CFPB's hypocrisy. Why jump on the dog pile when its already teeming with pitbulls?

My problem with the CFPB's conduct isn't that it's filled with hypocrites. After all, I'm a lawyer, one who toiled for years in the cesspool of Big Law, where, in many firms, hypocrisy is not only common, it may be an asset. At least, it may be an asset if your end game is to be the largest road apple in a bushel basket full of them. Not that every big law firm is full of them, but a number of them are. And you road apples know who you are.

The CFPB is full of those grossly flawed creatures known as human beings. They have biases, prejudices, and blind spots, just like the rest of us. They also make occasional misjudgments due to the fact that they're not gods, like, for example, Zeus or Alec Baldwin. Like any other federal bureaucracy, the CFPB will, from time-to-time, be governed by people who, like Anita in West Side Story, want to "stick to their own kind," even when they don't consciously acknowledge that bias, even (or perhaps most especially) to themselves. There even will exist (as some anonymous employees allege) "bullies" at the senior levels, the kind of guys who the jocks used to stuff into their lockers in high school, and who are spending the rest of their neurotic lives taking their nerd-like rage out on the rest of the human race, especially upon those lower than they are in the organizational food chain.

No, my problem isn't with the hypocrisy or other character defects of human beings. Rather, my problem is related to something that one employee quoted by Ms. Witkowski touched upon.

Employees give the agency credit for addressing some employee complaints. It has, for example, resolved concerns involving out-of-pocket travel expenses. However the prevailing sentiment among the dozen employees and former staffers who agreed to talk is that the CFPB's senior staff still lacks necessary checks and balances.

"I joined this agency because I wanted to do good and help the community, but it didn't turn out that way, and now people are just trying to save their hides," says the third employee. "Yeah, it's a new agency and will have some growing pains, but they [supervisors] do what they want, and I do think they need to have someone watching over them."

Yes, the entire agency needs someone "watching over it." However, Elizabeth Warren, the self-proclaimed originator of the concept of the CFPB, and her enablers, deliberately concocted the structure of the Bureau so that it did not have effective checks and balances. The idea for an oversight commission to run the Bureau instead of a single director who can be removed only for cause was rejected, and the scheme consciously removes the budget from normal Congressional appropriation processes. These characteristics are intended to limit any outside influence on an "agency" that would be run by people who were committed to the goal of protecting "fog brained" American consumers from predations of the inherently evil financial services industry, predations that the "fog brained" are too befuddled to discern, even with the clearest of disclosures. Unlike any other federal government financial services agency, this entity was intended to rule effectively unmolested by the elected representatives of the people.

What we're seeing in the CFPB is what we've seen in other agencies. The people running it aren't any better, albeit not any worse, than the people who run other agencies or, tellingly, than the people who run the businesses that are subject to the CFPB's regulatory oversight. However, in the case of the CFPB, where are the "checks" to curb the abuses of the Bureau that are applicable to both "the regulated" and to the other financial services regulatory agencies of the federal government?

[sound of crickets chirping]

No, I expect the CFPB managers will suffer from character flaws, hypocrisy included. What concerns me is what concerned James Madison when he wrote The Federalist #51 226 years ago: the need for checks and balances on the branches of the federal government.

Ambition must be made to counteract ambition. The interest of the man must be connected with the constitutional rights of the place. It may be a reflection on human nature, that such devices should be necessary to control the abuses of government. But what is government itself, but the greatest of all reflections on human nature? If men were angels, no government would be necessary. If angels were to govern men, neither external nor internal controls on government would be necessary. In framing a government which is to be administered by men over men, the great difficulty lies in this: you must first enable the government to control the governed; and in the next place oblige it to control itself. A dependence on the people is, no doubt, the primary control on the government; but experience has taught mankind the necessity of auxiliary precautions.

In the case of the CFPB, the "auxiliary precautions" are notably absent, or, at least they don't exist in sufficient number or strength to reign in the failings of its ruling class. Until they do exist, much mischief is possible from these less-than-angels.

Reforming the CFPB: Kabuki Theater

The recently passed (by the House) Consumer Financial Freedom and Washington Accountability Act aims to replace the CFPB's single director with a 5-member commission appointed by the President and confirmed by the Senate, and to bring the CFPB's budget under Congressional control, like other federal agencies. Predictably, supporters of the CFPB are up in arms that the CFPB might become accountable.

U.S. Rep. Maxine Waters, D-Calif., rose in opposition to CFPB reform.

“The CFPB has been immensely successful in protecting consumers. Enforcement actions more than $3 billion refunded to 9 million consumers,” Waters said.

She further said the change to the leadership structure to a five-member commission would increase bureaucracy and weaken the bureau.

"The CFPB has ensured that all consumers have fair and transparent access to consumer financial products and services.  It has written important mortgage rules that prevent lenders from engaging in the risky and irresponsible practices that led to the collapse of the housing market and fueled the 2008 global financial crisis," Waters said. "But Republicans don’t believe that we should have a consumer advocate in government – they would prefer these unscrupulous actors continue to take advantage of consumers without interference. And the simple fact is that H.R. 3193 would accomplish this goal – obstructing the CFPB’s ability to protect consumers from deceptive marketing, unlawful debt collection, lending discrimination, overcharged fees and other illegal activity."

Waters, a woman who once threatened in a hearing to "socialize" the American oil companies (she meant to say "nationalize") and who added a provision to Franken-Dodd that created 20 Offices of Diversity in various federal regulatory agencies, now opposes a five-member commission because it adds bureaucracy. If she were a tad more self-aware, you'd be justified in accusing her of hypocrisy. Given her legendary grasp of the English language, she might think you were accusing of her being a large land mammal that lives in river water.

Maxine wasn't the only bleating voice that rose to oppose a bill that now travels to its doom in the Democrat-controlled worm-hole of the Senate. Gary Kalman, EVP of the ironically-named Center for Responsible Lending, was also quick to utter public warnings that the act would have as deleterious effects on the world as does global warming/climate change/alien body-snatching.

“HR 3193 is a blatant attempt to undermine this successful new consumer watchdog,” Kalman said. “In its three years of existence, the CFPB has returned over $750 million to consumers. The agency has mandated an addition $2 billion in foreclosure relief and fined entities that violated consumer laws $81.5 million.”

Housing Wire reporter Trey Garrison mentioned a gaping hole in Mr. Kalman's assertion.

It’s not entirely accurate that the CFPB has returned money to consumers, but rather to states governments and attorneys general, some of which actually goes to consumers.

Does that mean Waters's assertion that $3 billion has been "refunded to consumers" might also be something less than the whole truth and nothing but the truth so help you [insert name of deity, moral principle, or giant rodent of your choice here]? If this stuff keeps up, someone in Washington, D.C. might actually tell a lie. That will be a dark day for this nation.

The arguments of the bill's opponents seem to boil down to the fact that structural changes to the Bureau to provide more oversight and accountability, especially in view of the Bureau's unprecedented powers to, in the wrong hands, do much mischief, should not be made because the Bureau has been "effective." In other words, the ends justify the means and to hell with the notion of checks and balances otherwise built into the American government. That's a very convincing argument if you're a totalitarian. The contention that individual liberty shrinks as the power of the federal government grows, and that power corrupts and absolute power corrupts absolutely, are worn out ideas of a past era that the truly progressive can ignore in order to serve the higher cause of the ideologically "pure." They intend to do what they think is the right thing by whatever means necessary.

The arguments are grandstanding, as is, in many respects, the passage of the law by the House. It was passed along party lines by a Republican-controlled House and will be rejected along party lines by a Democrat-controlled Senate (and would be vetoed with no hope of overturning the veto, by a Democrat in the White House). All this is election year politics, appearance trumping effective governance.

Still, these incidents provide us with blog fodder, and for that small blessing, we are grateful.