When the CFPB was created, many observers—including the U.S. Chamber—expressed deep concern about the reach of the agency’s authority.  The Bureau’s jurisdiction was not limited to federally-chartered financial institutions or even to financial services businesses more generally.  Instead, any of 10 activities specified in the statute, from extending credit or providing real estate settlement services to financial advisory or certain data processing services, is subject to the Bureau’s oversight—even if that activity is a small part of a company’s business.  That is a huge chunk of the U.S. economy.

Who knew that it still wouldn’t be expansive enough for the Bureau?

Last week the CFPB finalized a rule that defines the universe of credit reporting companies that are subject to its supervisory authority.  The CFPB can send examination teams into banks with more than $10 billion in assets, and into certain non-bank providers of consumer financial products and services that it identifies by rule as “large market participants.”  The Chamber raised a number of serious concerns about the CFPB’s proposal, including zero risk-based justification for targeting credit reporting companies, a non-existent cost benefit analysis, and a “guilty until proven innocent” standard for companies targeted erroneously.

Needless to say, most of these concerns were ignored in the final rule.  But each of these issues pales in comparison to the whopper that we found last week: the CFPB has determined that even if the activities that trigger this examination authority involve only 1% of a company’s business, the Bureau nonetheless can—and will—go ahead and examine 100% of the company. 

Buried in the fine print of the Bureau’s Federal Register notice is that amazing power grab:

[T]he Bureau concludes that if an entity is subject to the Bureau’s supervisory authority, the Bureau may examine the entire entity for compliance with all Federal consumer financial law, assess enterprise-wide compliance systems and procedures, and assess and detect risks to consumers or to markets for consumer financial products and services posed by any activity of the entity, not just the activities that initially rendered the entity subject to Bureau supervision. (page 25)

This means that the CFPB’s examination reach is not limited to the credit reporting piece of a multi-line company.  That credit reporting business is an excuse to examine the entire company—even parts of the business that do not involve the 10 activities that define the Bureau’s authority.

And these examinations are extraordinarily intensive.  Businesses that have been subjected to Bureau examination tell us that even before the examiners arrive, the company must respond to a data request that can require delivery to the Bureau of thousands of pages of information.  The examination itself is conducted by a multi-employee team and often lasts for weeks.

We’ve always said that the CFPB was the most powerful and unchecked agency in Washington, but even the few constraints Congress put on the Bureau have apparently been too confining.  Let’s review the bidding:

• A questionable recess appointment obliterated the single statutory check on the agency’s power – the confirmation of its Director.
• The CFPB has proposed 10 rules, and convened only 3 small business panels.
• The CFPB has yet to meaningfully tackle the congressional requirement to assess rules’ impact on small business access to credit.
• The CFPB has decided not to give the business community, State AGs, or even its own examiners any guidance about what constitutes an “abusive” act or practice, in order to keep its options open.

Now, the CFPB is expanding beyond the list of 10 types of financial products and services Congress assigned it, and is even looking for ways to potentially regulate products and services that Congress expressly exempted from the CFPB, like retail financing, insurance, or auto sales.

This is just the latest example of the CFPB taking the most expansive view possible of its authority, rather than drawing clear lines and writing clear rules of the road for businesses.  Supervision is not an excuse for a regulator to go on an endless fishing expedition, but then again, the normal rules have never applied to the CFPB.