Highlights
Under former director Rohit Chopra, the Consumer Financial Protection Bureau (CFPB) published rules allowing the federal government greater control over consumer financial data. In theory, the rule is supposed to protect consumer data from private businesses. In execution, the rulemaking attempted to institute a regulatory regime that provides the agency with more control over data and will prevent data brokers, credit reporting agencies, and lenders from using the data required to allocate credit to America’s small businesses and consumers.
Overreach on Consumer Data
Under former Director Chopra, a strong ally of Sen. Elizabeth Warren (D-Mass.), the CFPB proposed a rule to expand the application of the Fair Credit Reporting Act (FCRA) and related Regulation V to additional uses of consumer data. Consequently, data brokers would be regulated like credit reporting agencies (CRAs) under the FCRA. CRAs would be restricted from using certain consumer data for marketing purposes—activities that ultimately help allocate credit to businesses and consumers. The arbitrary expansion of the FCRA not only increases compliance costs for data brokers and CRAs, but it is also a heavy-handed government mandate that will inhibit the necessary usage of data to correctly compile credit reports, ensure reliability and liquidity in the U.S. credit markets, and prevent fraud.
Forthcoming CFPB Director Jonathan McKernan should avoid mimicking Chopra’s activist and interventionist policies and pursue beneficial reforms, such as openness to fintech partnerships and promoting technology and innovation to benefit consumers.
The Trump administration should not prolong the Biden administration’s big-government priorities by extending consideration of the data broker rule. If Congress were eager to expand the CFPB’s authority under the FCRA, lawmakers would draft and pass legislation. Instead, conservatives in Congress are more concerned about bringing accountability to the CFPB. For example, Rep. Andy Barr (R-Ky.) reintroduced a bill to subject the CFPB to the congressional appropriations process – a long overdue correction. The CFPB is currently funded by the Federal Reserve, which in turn is funded by the interest it earns on the securities it owns.
Other lawmakers are also interested in eliminating the CFPB altogether. Sen. Ted Cruz (R-Texas) introduced legislation to zero out the CFPB’s funding, effectively abolishing the agency.
Pushing Back on the CFPB
The CFPB also recently finalized a rule prohibiting certain uses of medical debt. Banks and credit unions would be restricted in how they can use medical debt in issuing credit, while credit reporting agencies would be restricted in how they can use medical debt in a credit report. According to one article, the dearth of information could limit “the availability of credit of all kinds to low-income and historically marginalized people.”
A coalition of conservative advocacy groups sent a letter calling on Congress to nullify the medical debt rule. The letter points out that this rule is nothing more than an attempt to “extend its rulemaking powers beyond the limits of its own statutory authority.” The letter also explains that the rule could contribute to rising healthcare costs. Healthcare practices could see a decline in cash flow, while insurance premiums could also increase drastically. To avoid these disastrous outcomes, lawmakers should support Rep. Ralph Norman’s (R-S.C.) joint resolution of disapproval, which would nullify the rule and prohibit regulators from issuing any future rules that are substantially similar.
The Trump administration has made clear that this type of regulatory overreach is unacceptable. For every new rule or guidance document, the Trump administration intends to repeal “10 existing rules, regulations, or guidance documents.” The Trump administration hit the nail on the head by stating that too much regulation “stops American entrepreneurship, crushes small business, reduces consumer choice, discourages innovation, and infringes on the liberties of American citizens.” Instead of protecting consumers, the CFPB has managed to extend its tentacles into many aspects of consumer financial data. This is not protecting consumers from unfair, deceptive, or abusive acts or practices but is opening the door for the government to control and manipulate consumer data.
The Trump administration has an opportunity to turn away from big-government overreach and stay true to its government-wide pro-growth, deregulatory initiatives. Borrowing rules from the Biden administration is a recipe for disaster that puts America last. Now is the time to turn the tide by strictly following congressional intent and the rule of law and avoiding the use of unilateral rulemakings that embolden unelected bureaucrats.