By Jeff Sovern, St. John’s University School of Law
When the Bureau fined Wells Fargo $1 billion, it did so using its power to prohibit unfair practices in 12 USC 5531(c), 5536(a)(1)(B). (see pages 9 and 12 of the consent order). House Financial Services Committee Chair Jeb Hensarling’s Financial Choice Act, passed by the House, would eliminate that power. But don’t take my word for it: the bill’s Executive Summary says it would “Remove the [CFPB’s] opaque and ill-defined ‘unfair, deceptive, or abusive acts and practices’ (UDAAP) authority (emphasis added).” The relevant section of the statute is 736, which provides that the bill would repeal section 5531 altogether and would also repeal subsection 5536(a)(1)(B), the two provisions under which the Bureau proceeded. So I was mystified when Congressman Hensarling praised the $1 billion fine–which would have been impossible under the power the Bureau used if he had gotten his way–as “well-deserved.”
During a recent interview, Politico’s Ben “Morning Money” White asked Hensarling about the conflict. Hensarling first asked why the Bureau would not have had the power to assess the fine under his bill, and then said it would have. Certainly that would not be true under the powers the Bureau actually used.
Mr. Hensarling also complained during the interview that the Bureau’s use of its power to bar financial institutions from engaging in abusive practices is itself abusive. His bill would also eliminate that power. While the Bureau did not use its “abusive” power in connection with the billion dollar fine, it did use it, along with its unfairness power, when it fined Wells $100 million for opening unauthorized accounts. When discussing the unauthorized accounts scandal, Mr. Hensarling mentioned the Truth in Savings Act and Truth in Lending Act and seemed to suggest that the Bureau could have taken the same actions under those statutes–but if that is the case, why didn’t the Bureau also rest its consent order on those laws? As for the billion dollar fine, given that Interim Director Mulvaney’s party thinks that the Bureau should not have the power to punish financial institutions for behaving unfairly, it is odd that Mr. Mulvaney would have used it if he had alternatives, especially given Mr. Mulvaney’s view that he will do only what the law requires of him, and the use of the unfairness power necessarily requires some discretion.